UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
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TABLE OF CONTENTS
TO OUR STOCKHOLDERS:
We are pleased to invite you to attend the annual meeting of stockholders of lululemon athletica inc. on Wednesday, June 6, 2018, beginning at 11:00 a.m., Eastern Time. The annual meeting will be a completely virtual meeting of stockholders, which will be conducted solely via live webcast. You will be able to attend the annual meeting of stockholders online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/lulu2018. You also will be able to vote your shares electronically at the annual meeting.
We are excited to continue to embrace the latest technology to provide expanded access, improved communication, and cost savings for our stockholders and the company. We believe hosting a virtual meeting helps enable greater stockholder attendance at the annual meeting by allowing stockholders that might not otherwise be able to travel to a physical meeting to attend online and participate from any location around the world.
Details regarding how to attend the meeting online and the business to be conducted at the annual meeting are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
This year we are again providing access to our proxy materials over the Internet under the U.S. Securities and Exchange Commission's "Notice and Access" rules. As a result, we are mailing to many of our stockholders a notice instead of a paper copy of this proxy statement and our 2017 Annual Report. The notice contains instructions on how to access those documents over the Internet. The notice also contains instructions on how each of those stockholders can receive a paper copy of our proxy materials, including this proxy statement, our 2017 Annual Report, and a form of proxy card or voting instruction card. All stockholders who do not receive a notice, including stockholders who have previously requested to receive paper copies of proxy materials, will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically. Continuing to employ this distribution process will conserve natural resources and reduce the costs of printing and distributing our proxy materials.
Your vote is important. Regardless of whether you plan to participate in the annual meeting online, we hope you will vote as soon as possible. You may vote by proxy over the Internet, telephone or, if you received paper copies of the proxy materials by mail, you may also vote by mail by following the instructions on the proxy card or voting instruction card. Voting over the Internet, telephone, or by written proxy or voting instruction card will ensure your representation at the annual meeting regardless of whether you attend the virtual meeting.
Thank you for your ongoing support of, and continued interest in, lululemon.
Sincerely,
Glenn Murphy |
Executive Chairman |
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 6, 2018
Notice is hereby given that the 2018 annual meeting of the stockholders of lululemon athletica inc., a Delaware corporation, will be held on June 6, 2018, beginning at 11:00 a.m., Eastern Time, via live webcast at www.virtualshareholdermeeting.com/lulu2018, for the following purposes:
1. To elect three Class II directors to hold office for a three-year term and until their respective successors are elected and qualified.
2. To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 3, 2019.
3. To approve an amendment to our certificate of incorporation to provide the board the power to adopt, amend or repeal the Company's bylaws.
4. To ratify amendments to our bylaws previously adopted by the board, including:
A. To eliminate a conflict between two provisions regarding the location for annual stockholder meetings (adopted by the board on March 31, 2008);
B. To change the advance notice provisions for stockholder nominations and proposals (adopted by the board on March 25, 2009);
C. To authorize the board to utilize a co-chair leadership structure when appropriate (adopted by the board on September 9, 2014);
D. To provide for majority voting for director nominees in uncontested elections and implement procedures for incumbent directors who do not receive a majority vote (adopted by the board on June 3, 2015); and
E. To designate an exclusive forum for certain litigation (adopted by the board on June 3, 2015).
5. To approve, on an advisory basis, the compensation of our named executive officers.
6. To transact such other business as may properly come before the meeting.
Our board of directors recommends that you vote "FOR":
• | The election of the three Class II director nominees named in this proxy statement; |
• | Proposal No. 2 (the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 3, 2019); |
• | Proposal No. 3 (the approval of an amendment to our certificate of incorporation to provide the board the power to adopt, amend or repeal bylaws); |
• | Proposal No. 4 (the ratification of each of the amendments to our bylaws that were previously adopted by the board); and |
• | Proposal No. 5 (the approval, on an advisory basis, of the compensation of our named executive officers). |
Other Information
At the 2017 annual meeting of stockholders, our stockholders had the opportunity to cast an advisory vote on how often we should include an advisory "say-on-pay" proposal in our proxy materials for future stockholder meetings. The option of holding the
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advisory "say-on-pay" vote every year received the highest number of votes and was the preferred frequency. Accordingly, we are including an advisory "say-on-pay" proposal in our proxy materials for this year's meeting.
As described in the proxy statement for this meeting, although our certificate of incorporation does not include a provision providing our board of directors the power to adopt, amend or repeal our bylaws, since the time of our initial public offering in 2007, our board has amended our bylaws on multiple occasions to effect the following changes:
• | to eliminate a conflict between two provisions regarding the location for annual stockholder meetings (adopted by the board on March 31, 2008); |
• | to change the advance notice provisions for stockholder nominations and proposals (adopted by the board on March 25, 2009); |
• | to authorize the board to utilize a co-chair leadership structure when appropriate (adopted by the board on September 9, 2014); |
• | to provide for majority voting for director nominees in uncontested elections and implement procedures for incumbent directors who do not receive a majority vote (adopted by the board on June 3, 2015); and |
• | to designate an exclusive forum for certain litigation (adopted by the board on June 3, 2015). |
Our board has determined that it is in the best interests of lululemon and our stockholders to ratify, and has approved the ratification of, each of these bylaw amendments in accordance with Section 204 of the Delaware General Corporation Law (DGCL) and Delaware common law. This notice constitutes the notice required to be given to our stockholders under Section 204 of the DGCL in connection with such ratification. Under Section 204 of the DGCL, when a matter is submitted for ratification at a stockholder meeting, any claim that a defective corporate act ratified under Section 204 is void or voidable due to the failure of authorization, or that the Delaware Court of Chancery should declare in its discretion that a ratification in accordance with Section 204 of the DGCL not be effective or be effective only on certain conditions, must be brought within 120 days from the validation effective time, which would be the time the stockholders approve the ratification.
Stockholders of record at the close of business on April 11, 2018 are entitled to notice of and to vote at the annual meeting and any adjournment or postponement thereof. In accordance with our bylaws, a list of those stockholders entitled to vote at the annual meeting will be available for examination by any stockholder, for any purpose relating to the meeting, at the office of the Corporate Secretary, lululemon athletica inc., 1818 Cornwall Avenue, Vancouver, British Columbia, beginning April 26, 2018. The list will also be available at the annual meeting.
We are pleased to continue using the U.S. Securities and Exchange Commission's "Notice and Access" delivery model allowing companies to furnish proxy materials to their stockholders over the Internet. We believe that this delivery process will expedite stockholders' receipt of proxy materials and lower the costs and reduce the environmental impact of the annual meeting. On or about April 26, 2018, we intend to mail to our stockholders a Notice of Internet Availability of Proxy Materials, containing instructions on how to access our proxy statement and Annual Report to Stockholders for the fiscal year ended January 28, 2018, on how to vote online, and on how to access the virtual annual meeting. This notice also provides instructions on how to receive a paper copy of the proxy materials by mail.
All stockholders are invited to attend the annual meeting. The annual meeting will begin promptly at 11:00 a.m., Eastern Time. Online check-in will begin at 10:30 a.m., Eastern Time, and you should allow ample time for the online check-in procedures. Whether or not you plan to attend the annual meeting, please vote your shares via the Internet or telephone, as described in the accompanying materials, as soon as possible to assure that your shares are represented at the meeting, or, if you elect to receive a paper copy of the proxy card by mail, you may mark, sign and date the proxy card and return it in the enclosed postage-paid envelope. If you attend the virtual meeting you will, of course, have the right to revoke the proxy and vote your shares electronically at the meeting.
By order of the board of directors, | |
Glenn Murphy | |
Executive Chairman | |
Vancouver, British Columbia
April [ • ], 2018
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LULULEMON ATHLETICA INC.
PROXY STATEMENT
2018 ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, JUNE 6, 2018
GENERAL INFORMATION
This proxy statement is being provided to solicit proxies on behalf of the board of directors of lululemon athletica inc. for use at the annual meeting of stockholders to be held on Wednesday, June 6, 2018, at 11:00 a.m., Eastern Time. We are pleased to inform you that this year's meeting will again be a completely virtual meeting, which will be conducted solely via live webcast. You will be able to attend the annual meeting online, vote your shares electronically, and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/lulu2018. We expect to first make this proxy statement available, together with our Annual Report for the fiscal year ended January 28, 2018, to stockholders on or about April 26, 2018.
Our principal offices are located at 1818 Cornwall Avenue, Vancouver, British Columbia V6J 1C7.
Internet Availability of Annual Meeting Materials
Under rules adopted by the U.S. Securities and Exchange Commission, or SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials, to our stockholders of record. All stockholders will have the ability to access the proxy materials on the website referred to in the notice or to request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the notice. You will not receive a printed copy of the proxy materials unless you request one in the manner set forth in the notice. This permits us to conserve natural resources and reduces our printing costs, while giving stockholders a convenient and efficient way to access our proxy materials and vote their shares.
We intend to mail the notice on or about April 26, 2018 to all stockholders of record entitled to vote at the annual meeting.
Who May Vote
Only persons who are holders of record of our common stock or our special voting stock at the close of business on April 11, 2018, which is the record date, will be entitled to notice of and to vote at the annual meeting. On the record date, [ • ] shares of common stock and [ • ] shares of special voting stock were issued and outstanding. Each share of common stock is entitled to one vote at the annual meeting and each share of special voting stock is entitled to one vote at the annual meeting. Holders of common stock and special voting stock will vote together as a single class on all matters that come before the annual meeting. Accordingly, throughout this proxy statement we refer generally to our outstanding common stock and special voting stock together as our "common stock."
What Constitutes a Quorum
Stockholders may not take action at the annual meeting unless there is a quorum present at the meeting. Stockholders participating in the virtual meeting are considered to be attending the meeting "in person." The presence, in person or by proxy, of a majority of the outstanding shares of common stock entitled to vote as of the close of business on the record date constitutes a quorum. Abstentions and broker non-votes will each be counted as present for the purposes of determining the presence of a quorum. Broker non-votes occur when brokers holding shares in street name for beneficial owners do not receive instructions from the beneficial owners about how to vote the shares. An abstention occurs when a stockholder withholds such stockholder's vote by checking the "abstain" box on the proxy card, or similarly elects to abstain via the Internet or telephone voting. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, including the ratification of appointment of independent registered accounting firm.
Vote Required
Proposal No. 1: A nominee for director will be elected to the board if the votes cast for the nominee's election exceed the votes cast against that nominee's election at the meeting. Abstentions and broker non-votes will have no effect on the outcome of the election and we do not have cumulative voting in the election of directors.
Proposal No. 2: The selection of our independent registered public accounting firm will be ratified if the votes cast for this proposal exceed the votes cast against this proposal at the meeting. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
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Proposal No. 3: The amendment to our certificate of incorporation to provide the board the power to adopt, amend or repeal our bylaws will be approved if the votes cast for this proposal represent a majority of the outstanding common stock entitled to vote at the meeting. Abstentions and broker non-votes will have the same effect as a vote against this proposal.
Proposal No. 4: The ratification of each of the amendments to our bylaws that were previously adopted by the board will be approved if the votes cast for each proposal exceeds the votes cast against that proposal at the meeting. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
Proposal No. 5: The compensation of our named executive officers will be approved, on an advisory basis, if the votes cast for this proposal exceed the votes cast against this proposal at the meeting. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
Voting Process
Shares that are properly voted or for which proxy cards are properly executed and returned will be voted at the annual meeting in accordance with the directions given. In the absence of directions, these shares will be voted "FOR" the election of the three Class II director nominees named in this proxy statement, and "FOR" Proposals No. 2, No. 3, No. 4 and No. 5.
We do not expect any other matters to be brought before the annual meeting. If, however, other matters are properly presented, the persons named as proxies will vote in accordance with their discretion with respect to those matters.
The manner in which your shares may be voted depends on how your shares are held. If you are the record holder of your shares, meaning you appear as the holder of your shares on the records of our stock transfer agent, you may vote those shares via the Internet or telephone, or, if you request a printed copy of the proxy materials, via a proxy card for voting those shares included with the printed proxy materials. If you own shares in street name, meaning you are a beneficial owner with your shares held through a bank or brokerage firm, you may instead receive a notice with instructions on how to access proxy materials as well as how you may instruct your bank or brokerage firm how to vote your shares.
Voting on the Internet
You can vote your shares via the Internet by following the instructions in the notice. The Internet voting procedures are designed to authenticate your identity and to allow you to vote your shares and confirm your voting instructions have been properly recorded. If you vote via the Internet, you do not need to complete and mail a proxy card. We encourage you to vote your shares via the Internet in advance of the annual meeting even if you plan to attend the virtual annual meeting.
Voting by Mail
You can vote your shares by mail by requesting a printed copy of the proxy materials sent to your address. When you receive the proxy materials, you may fill out the proxy card enclosed therein and return it per the instructions on the card. By signing and returning the proxy card according to the instructions provided, you are enabling the individuals named on the proxy card, known as "proxies," to vote your shares at the annual meeting in the manner you indicate. If you request a printed copy of the proxy materials, we encourage you to sign and return the proxy card even if you plan to attend the annual meeting.
Voting by Telephone
You may be able to vote by telephone. If so, instructions are included with your notice. If you vote by telephone, you do not need to complete and mail your proxy card.
Attendance and Voting at the Annual Meeting
Most of our stockholders hold their shares through a broker, trustee or other nominee rather than directly in their own name. There are some distinctions between shares held of record and those owned beneficially. If your shares are registered directly in your name with our transfer agent, you are considered, with respect to those shares, the "stockholder of record." As the stockholder of record, you have the right to grant your voting proxy directly to lululemon or to a third party, or to vote your shares during the meeting. If your shares are held in a brokerage account, by a trustee or by another nominee (that is, in "street name"), you are considered the "beneficial owner" of those shares. As the beneficial owner of those shares, you have the right to direct your broker, trustee or nominee how to vote, or to vote your shares during the annual meeting.
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Revocation
If you are the record holder of your shares, you may revoke a previously granted proxy at any time before the annual meeting by delivering to the Corporate Secretary of lululemon athletica inc. a written notice of revocation or a duly executed proxy bearing a later date or by voting your shares electronically at the annual meeting. Any stockholder owning shares in street name may change or revoke previously given voting instructions by contacting the bank or brokerage firm holding the shares. Simply attending the annual meeting does not revoke your proxy. Your last vote, prior to or at the annual meeting, is the vote that will be counted.
Householding
The SEC permits companies to send a single notice, and for those stockholders that elect to receive a paper copy of proxy materials in the mail, one copy of this proxy statement, together with our 2017 Annual Report, to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if we provide advance notice and follow certain procedures. In such cases, each stockholder continues to receive a separate notice, and for those stockholders that elect to receive a paper copy of proxy materials in the mail, one copy of our 2017 Annual Report and this proxy statement. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for stockholders of record; however, certain brokerage firms may have instituted householding for beneficial owners of our common stock held through brokerage firms. If your family has multiple accounts holding our common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of the notice, our 2017 Annual Report and this proxy statement. The broker will arrange for delivery of a separate copy of the notice, and, if so requested, a separate copy of these proxy materials promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.
Solicitation of Proxies
We pay the cost of soliciting proxies for the annual meeting. We solicit by mail, telephone, personal contact and electronic means and arrangements are made with brokerage houses and other custodians, nominees and fiduciaries to send notices, and if requested, other proxy materials, to beneficial owners. Upon request, we will reimburse them for their reasonable expenses. In addition, our directors, officers and employees may solicit proxies, either personally or by telephone, facsimile or written or electronic mail. We have also retained Alliance Advisors, LLC, a proxy solicitation firm, to assist in the solicitation of proxies for a fee of $8,000 plus reasonable out-of-pocket expenses. Stockholders are requested to return their proxies without delay.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
We have a classified board of directors currently consisting of nine directors, including three Class I directors, three Class II directors, and three Class III directors, who will serve until the annual meetings of stockholders to be held in 2020, 2018 and 2019, respectively, and until their respective successors are duly elected and qualified or until their earlier resignation or removal.
At each annual meeting of stockholders, directors are elected for a term of three years to succeed those directors whose terms expire at the annual meeting dates. The term of the Class II directors will expire on the date of the upcoming annual meeting and three people are to be elected to serve as Class II directors of our board of directors at the annual meeting. Based on all information available to the Nominating and Governance Committee of our board of directors and relevant considerations, including the guidelines, criteria and procedures for identifying and evaluating candidates for election to the board of directors included in our "Guidelines for Evaluating Director Candidates," the Nominating and Governance Committee selected Martha A.M. Morfitt, Tricia Patrick, and Emily White, each of whom is a current Class II director, as the candidates who, in the view of the Nominating and Governance Committee, are most suited for membership on our board of directors at this time. Accordingly, the Nominating and Governance Committee recommended and our board of directors nominated Ms. Morfitt, Ms. Patrick, and Ms. White as nominees for election as Class II directors. If elected, Ms. Morfitt, Ms. Patrick, and Ms. White will serve as Class II directors until our annual meeting of stockholders in 2021 and until their successors are duly elected and qualified, or until their earlier resignation or removal.
Our board of directors has no reason to believe that any of the nominees listed above will be unable to serve as a director. If, however, any nominee becomes unavailable, the proxies will have discretionary authority to vote for a substitute nominee. There are no family relationships among any of the directors or executive officers.
Class II Director Nominees for Election at the 2018 Annual Meeting of Stockholders
Martha A.M. (Marti) Morfitt has been a member of our board of directors since December 2008. She has served as a principal of River Rock Partners, Inc., a business and cultural transformation consulting firm, since 2008. Ms. Morfitt served as the CEO of Airborne, Inc. from October 2009 to March 2012. She served as the President and CEO of CNS, Inc., a manufacturer and marketer of consumer healthcare products, from 2001 through March 2007. From 1998 to 2001, she was Chief Operating Officer of CNS, Inc. Ms. Morfitt currently serves on the board of directors of Graco, Inc., a publicly-traded fluid handling systems and components company and Mercer International Inc. a publicly traded forest products company with operations in Europe and North America. She served on the board of directors of Life Time Fitness, Inc., a publicly traded operator of fitness and athletic centers from 2008 to 2015. She received her HBA from the Richard Ivey School of Business at the University of Western Ontario, and an MBA from the Schulich School of Business at York University. Our board of directors selected Ms. Morfitt to serve as director because she has extensive public board experience, and years of leading and managing branded consumer business operations and strategic planning.
Tricia Patrick has been a member of our board of directors since August 2017. Ms. Patrick joined Advent International in 2016 as a Managing Director focusing on buyouts and growth equity investments in the retail, consumer and leisure sector. Prior to Advent, Ms. Patrick spent 15 years investing across both Bain Capital Private Equity and the Private Equity Group of Goldman, Sachs & Co. She has closed transactions across the retail, healthcare, business services, real estate and media sectors, as well as internationally. Her current directorships include Burlington Stores, a publicly traded department store retailer, and First Watch Restaurants. Ms. Patrick earned an A.B. in Biochemical Sciences cum laude from Harvard College and an MBA, with high distinction, as a Baker Scholar from Harvard Business School. Ms. Patrick was appointed to the board of directors in connection with a support agreement which gives Advent a continuing right to nominate two designees to the board of directors. Our board of directors believes her experience advising retail companies enables her to provide valuable insights to the board of directors.
Emily White has been a member of our board of directors since November 2011. Since 2016, Ms. White has provided consulting and advisory services to companies in the tech and venture capital industries. She was the Chief Operating Officer of Snapchat, Inc., a photo messaging application, from January 2014 to March 2015. Prior to joining Snapchat, Ms. White held several leadership roles at Facebook Inc., a social networking company, from 2010 to 2013 including Director of Local Business Operations, Director of Mobile Business Operations and Head of Business Operations at Instagram. From 2001 to 2010, Ms. White worked at Google where she ran North American Online Sales and Operations, Asia Pacific & Latin America business and the Emerging Business channel. She currently serves on the board of directors of Zayo Group Holdings, Inc. a publicly traded bandwidth infrastructure, colocation, and connectivity services company and Graco, Inc., a publicly traded fluid handling systems and components company. She is an advisor and former board member of the National Center for Women in IT, a non-profit coalition working to increase the participation of girls and women in computing and IT. She received a BA in Art History from Vanderbilt University. Our board of directors selected Ms. White to serve as a director because of her extensive experience with social networking and technology companies, her understanding of the demographics in which our principal customers reside and the diversity in background and experience she provides to our board of directors.
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Vote Required and Board Recommendation
If a quorum is present, a nominee for director will be elected to the board of directors if the votes cast for the nominee's election exceed the votes cast against that nominee's election. If an incumbent director fails to receive the required vote for re-election, then, within 90 days following certification of the stockholder vote by the inspector of elections, the board of directors will determine whether to accept the director's resignation. Abstentions and broker non-votes will have no effect on the outcome of the election.
Our board of directors unanimously recommends a vote "FOR" the election of the three Class II director nominees named above.
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CORPORATE GOVERNANCE
Our Board of Directors
The following table sets forth the name, age as of April 2, 2018, and principal occupation of each of our current directors (including the nominees for Class II directors to be elected at this meeting), and the period during which each has served as a director of lululemon.
Name | Age | Occupation | Director Since | |||
Class I directors whose terms expire at the 2020 annual meeting | ||||||
Michael Casey | 72 | Retired Executive Vice President, Chief Financial Officer and Chief Administrative Officer of Starbucks Corporation | 2007 | |||
Glenn Murphy | 56 | Founder and CEO of FIS Holdings | 2017 | |||
David M. Mussafer | 54 | Managing Partner of Advent International Corporation | 2014 | |||
Class II directors whose terms expire and who are nominees for election at the 2018 annual meeting | ||||||
Martha A.M. Morfitt | 60 | Principal of River Rock Partners Inc. | 2008 | |||
Tricia Patrick | 37 | Managing Director of Advent International Corporation | 2017 | |||
Emily White | 39 | Strategic Advisor and Independent Consultant | 2011 | |||
Class III directors whose terms expire at the 2019 annual meeting | ||||||
Robert Bensoussan | 59 | Director of Sirius Equity LLP | 2013 | |||
Kathryn Henry | 52 | Strategic Advisor and Independent Consultant | 2016 | |||
Jon McNeill | 50 | Chief Operating Officer, Lyft, Inc. | 2016 | |||
The following is brief biographical description of each person who is currently a member of our board of directors:
Class I directors whose terms expire at the 2020 annual meeting
Michael Casey has been a member of our board of directors since October 2007 and served as Co-Chairman of the Board from September 2014 to April 2017 and as Chairman of the Board from May 2014 to September 2014. He retired from Starbucks Corporation in October 2007, where he had served as Senior Vice President and CFO from August 1995 to September 1997, and Executive Vice President, CFO and Chief Administrative Officer from September 1997 to October 2007. Subsequent to retirement he served as a Senior Advisor to Starbucks Corporation from October 2007 to May 2008 and from November 2008 to January 2015. Prior to joining Starbucks, Mr. Casey was Executive Vice-President and CFO for Family Restaurants, Inc. and President and CEO of El Torito Restaurants, Inc. He was also a member of the board of directors of The Nasdaq OMX Group, Inc. from January 2001 to May 2012. Mr. Casey graduated from Harvard College with an A.B. degree in Economics, cum laude, and Harvard Business School with an MBA degree. Our board of directors selected Mr. Casey to serve as director because he has extensive experience in corporate finance and accounting, managing retail-focused industry operations, strategic planning, and public company corporate governance. Our board of directors believes his service on executive, audit, and compensation committees of other companies allows him to provide significant insight to our board of directors.
Glenn Murphy has been a member of our board of directors since April 2017 and has served as Executive Chairman of the Board since February 2018. He served as Co-Chairman of the Board from April 2017 to November 2017 and as Non-Executive Chairman of the Board from November 2017 to February 2018. He is the founder and CEO of FIS Holdings, a consumer-focused investment firm. Prior to FIS Holdings, Mr. Murphy served as Chairman and Chief Executive Officer at The Gap, Inc. from 2007 until 2014. Prior to that, Mr. Murphy served as the Chairman and Chief Executive Officer of Shoppers Drug Mart Corporation from 2001 to 2007. Prior to leading Shoppers Drug Mart, he served as the Chief Executive Officer and President for the Retail Division of Chapters Inc. Mr. Murphy started his career at Loblaws where he spent 14 years, and he holds a B.A. degree from the University of Western Ontario. Our board of directors selected Mr. Murphy to serve as a director because they believe his extensive retail experience as a leading strategic operator will provide valuable insight to our board of directors.
David M. Mussafer has been a member of our board of directors since September 2014 and has served as the Lead Director since November 2017. From September 2014 to November 2017, he served as Co-Chairman of the Board. Mr. Mussafer is currently a Managing Partner at Advent International Corporation and is responsible for Advent's North American private equity operations. Mr. Mussafer joined Advent in 1990, has been a principal of the firm since 1993, and is a member of Advent's executive committee and board of directors. Mr. Mussafer holds a BSM, cum laude, from Tulane University and an MBA from the Wharton School of the University of Pennsylvania. Mr. Mussafer was appointed to the board of directors in connection with a support agreement which gives Advent a continuing right to nominate two designees to the board of directors and the opportunity to have one of its designees serve as
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a Co-Chairman of the Board. Our board of directors believes his extensive experience enables him to provide valuable insights to the board of directors regarding board processes and operations as well as the relationship between the board of directors and stockholders.
Class II directors whose terms expire and who are nominees for election at the 2018 annual meeting
Martha A.M. Morfitt's biographical summary is included under "Proposal No. 1 - Election of Directors".
Tricia Patrick's biographical summary is included under "Proposal No. 1 - Election of Directors".
Emily White's biographical summary is included under "Proposal No. 1 - Election of Directors".
Class III directors whose terms expire at the 2019 annual meeting
Robert Bensoussan has been a member of our board of directors since January 2013. Since 2008, Mr. Bensoussan has been a Director and the majority owner of Sirius Equity LLP, a UK company that invests in retail and brands based in the UK and Europe. From 2008 to April 2017, Mr. Bensoussan served on the board of LK Bennett, a UK fashion retailer, as chairman (both executive and non-executive), twice as interim CEO, and most recently as a non-executive director. He has also served as non-executive chairman of feelunique.com (UK) since December 2012. From 2001 to 2007, Mr. Bensoussan was CEO of Jimmy Choo Ltd, a privately held UK luxury shoe wholesaler and retailer and was also a member of the board of directors of Jimmy Choo Ltd from 2001 to 2011. Mr. Bensoussan serves on the boards of directors of Inter Parfums Inc., a publicly-traded manufacturer of fragrances and fragrance-related products and Leo Holdings Corp, a publicly traded special purpose acquisition company. He is also on the board of directors of Zen Cars (Belgium), an electric car rental company, Eaglemoss (UK) a part-works publisher and Novartex (France), a fashion retailer. Our board of directors selected Mr. Bensoussan to serve as director because he has extensive executive management and director experience in the apparel, accessories and fragrances industry. Our board of directors believes his experience as chief executive officer and director of international branded luxury goods operations provides unique insight and vision to our board of directors.
Kathryn Henry has been a member of our board of directors since January 2016. Since 2015, Ms. Henry has served as a strategic advisor and independent consultant for retail and technology companies, in addition to venture capital, investment and consulting firms seeking executive level guidance. Ms. Henry previously served as Chief Information Officer, Logistics & Distribution at lululemon from 2010 to 2014. In her role, Ms. Henry oversaw all global IT, distribution and logistics operations for the company. Prior to joining lululemon in 2010, Ms. Henry worked at The Gap, Inc., where she served as Vice President and Chief Information Officer of International IT and Gap North America and was responsible for the systems support of key international growth initiatives. Ms. Henry was designated for appointment to our board of directors by Dennis J. Wilson in accordance with the terms of a support agreement between lululemon, Mr. Wilson, and certain entities affiliated with Advent International. Our board of directors believes that her strategic IT and retail experience as well as her experience with lululemon will provide valuable insight to our board of directors.
Jon McNeill has been a member of our board of directors since April 2016. Mr. McNeill has served as Chief Operating Officer of Lyft, Inc. since March 2018. He previously served as President, Global Sales, Delivery and Service of Tesla Inc., overseeing customer-facing operations, from September 2015 to February 2018. Prior to joining Tesla, Inc., he was the CEO of Enservio, Inc., a software company, from 2006 until 2015, and founder of multiple technology and retail companies including TruMotion, Sterling, First Notice Systems, and Trek Bicycle Stores, Inc. Mr. McNeill began his career at Bain & Company. He is a graduate of Northwestern University. Our board of directors believes his executive experience and innovative and entrepreneurial attributes will provide valuable insight to our board of directors and is aligned with our unique culture.
Third Party Compensation for Directors and Director Nominees
Mr. Murphy and Advent International Corporation, which holds approximately 14.8% of our outstanding shares of common stock, have informed us that they have an arrangement under which Mr. Murphy would be eligible for an incentive payment from Advent based on the total cash proceeds Advent receives from its investment in our common stock, including Advent's proceeds received from any dividends or other distributions on the common stock and from the sale of its shares. They have informed us that the arrangement does not have a pre-determined termination date, but that Mr. Murphy would not be eligible to receive the incentive payment from Advent if the arrangement is terminated for cause, if he has not served as a director of lululemon within the six-month period immediately prior to Advent's receipt of the proceeds, or if the arrangement is terminated by either Mr. Murphy or Advent other than for cause more than six months prior to Advent's receipt of the proceeds.
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Independence of the Board
The U.S. federal securities laws pertaining to corporate governance of publicly-traded companies and the Nasdaq listing standards require the board of directors to make an evaluation and determination as to the independence of members of the board of directors in accordance with the standards provided in U.S. federal law and the Nasdaq listing standards. The board of directors has reviewed the general definitions and criteria for determining the independence of directors, information provided by each director, other relevant facts and circumstances bearing on each director's ability to exercise independent judgment in carrying out the responsibilities of a director, and the recommendations of the Nominating and Governance Committee regarding the independence of our current directors. Based on this review, our board of directors has determined that the following current members of our board of directors are "independent" for the purposes of the Nasdaq listing standards as they relate to directors:
Robert Bensoussan | Jon McNeill | Tricia Patrick |
Michael Casey | Martha A.M. Morfitt | Emily White |
Kathryn Henry | David M. Mussafer | |
Glenn Murphy, our Executive Chairman, is not an independent director by virtue of his current service as Executive Chairman of lululemon.
Executive Sessions
Non-management directors generally meet in an executive session without management present each time our board of directors holds its regularly scheduled meetings.
Committees and Meeting Attendance
Our board of directors has three standing committees, including an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. Each of these committees operates under a written charter adopted by our board of directors. Copies of these charters are available on our website at www.lululemon.com. Our board of directors held nine meetings of the full board of directors during fiscal 2017. Each of the standing committees of our board of directors held the number of meetings indicated below. During fiscal 2017, each of our directors attended at least 75% of the total number of meetings of our board of directors, and all of the committees of our board of directors on which such director served during that period except Mr. McNeill, who did not attend 75% of the Nominating and Governance Committee meetings. Directors are encouraged to attend our annual meetings of stockholders. All of our directors attended the 2017 annual meeting of stockholders.
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The following table sets forth the three standing committees of our board of directors, the members of each committee during fiscal 2017 and the number of meetings held by each committee:
Name of Director | Audit | Compensation | Nominating and Governance | |||
Robert Bensoussan | Member | Member | ||||
Michael Casey | Member | Chair | ||||
Steven J. Collins(1) | Member | |||||
Kathryn Henry | Member | |||||
Jon McNeill | Member | |||||
Martha A.M. Morfitt | Chair | Member | ||||
David M. Mussafer | Chair | |||||
Tricia Patrick(2) | Member | |||||
Emily White | Member | |||||
Number of meetings in fiscal 2017 | 6 | 6 | 5 | |||
_________
(1) | Mr. Collins resigned as a director in August 2017. |
(2) | Ms. Patrick was appointed as a director in August 2017. |
Audit Committee
The Audit Committee is appointed by our board of directors to assist it in fulfilling its oversight responsibilities by overseeing the accounting and financial reporting processes of lululemon and the audits of our financial statements as well as overseeing our risk assessment and risk management policies, procedures and practices. The Audit Committee's primary duties and responsibilities include:
• | Appointing and retaining our independent registered public accounting firm, approving all audit, review, and other services to be provided by our independent registered public accounting firm and determining the compensation to be paid for those services; |
• | Overseeing the integrity of our financial reporting process and systems of internal controls regarding accounting and finance; |
• | Overseeing the qualifications, independence, and performance of our independent registered public accounting firm; |
• | Overseeing our risk assessment and risk management policies, procedures, and practices; |
• | Reviewing and, if appropriate, approving any related party transactions; |
• | Reviewing our code of business conduct and ethics applicable to all directors, officers, and employees, and monitoring and approving any modifications or waivers of the code; |
• | Providing a means for processing complaints and anonymous submissions by employees of concerns regarding accounting or auditing matters; and |
• | Monitoring compliance with legal and regulatory requirements. |
The current members of the Audit Committee are Martha A.M. Morfitt (Chair), Robert Bensoussan, Michael Casey, and Kathryn Henry. Our board of directors has determined that each of the members of the Audit Committee is "independent" for purposes of the Nasdaq listing requirements as they apply to audit committee members and that Mr. Casey and Ms. Morfitt qualify as "audit committee financial experts" under the rules of the SEC.
Compensation Committee
The Compensation Committee has been delegated authority by our board of directors to oversee all significant aspects of our compensation policies and programs, including:
• | Reviewing and approving the compensation and annual performance objectives and goals of our executive officers; |
• | Reviewing, approving, and administering incentive-based and equity-based compensation plans in which our executive officers participate; |
• | Evaluating risks created by our compensation policies and practices and considering any reasonably likely effect of such risks; |
• | Reviewing and recommending to our board of directors new executive compensation programs; and |
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• | Reviewing and recommending to our board of directors proposed changes in director compensation. |
The current members of the Compensation Committee are Michael Casey (Chair), Martha A.M. Morfitt, and Emily White. Our board of directors has determined that each of the members of the Compensation Committee is "independent" for purposes of the Nasdaq listing standards.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for matters relating to the corporate governance of our company as well as identifying individuals qualified to become members of our board of directors or any of its committees, recommending nominees for election as directors at each stockholder meeting at which directors are to be elected, and recommending candidates to fill any vacancies on our board of directors or any of its committees. The current members of the Nominating and Governance Committee are David Mussafer (Chair), Robert Bensoussan, Jon McNeill and Tricia Patrick. Our board of directors has determined that each of the members of the Nominating and Governance Committee is "independent" for purposes of the Nasdaq listing standards.
Director Nominations
The Nominating and Governance Committee considers recommendations for nominees from directors, officers, employees, stockholders, and others based upon each candidate's qualifications, including whether a candidate possesses any of the specific qualities and skills desirable in members of our board of directors. Nominees for our board of directors must be committed to enhancing long-term stockholder value and possess a high level of personal and professional ethics, sound business judgment, appropriate experience and achievements, personal character, and integrity. Members of our board of directors are expected to understand our business and the industry in which we operate, regularly attend meetings of our board of directors and committee meetings, participate in meetings and decision-making processes in an objective and constructive manner, and be available to advise our officers and management. Evaluations of candidates generally involve a review of background materials, internal discussions, and interviews with selected candidates, as appropriate. Upon selection of a qualified candidate, the Nominating and Governance Committee recommends the candidate to our board of directors. The Nominating and Governance Committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees.
The Nominating and Governance Committee does not have a formal policy regarding the consideration of diversity in identifying nominees for directors. Once the Nominating and Governance Committee has confirmed that an individual meets the general qualifications for a director, and has further determined that such individual is appropriately qualified to serve on our board of directors, the Nominating and Governance Committee then considers the extent to which the membership of the candidate on our board of directors would promote a diversity of perspectives, backgrounds and experiences among the directors, including expertise and experience in a diversity of substantive matters pertaining to our business. However, our board of directors does not believe the subjective and varying nature of this nomination process lends itself to a formal policy or fixed rules with respect to the diversity of our board of directors.
The Nominating and Governance Committee will consider director candidates recommended by stockholders. The Nominating and Governance Committee will evaluate director candidates in light of several factors, including the general criteria outlined above. Stockholders who wish to recommend individuals for consideration by the Nominating and Governance Committee to become nominees for election to our board of directors at an annual meeting of stockholders must do so in accordance with the process outlined in "Stockholder Proposals to be Presented at the 2019 Annual Meeting of Stockholders" section of this proxy statement and in compliance with our bylaws. Each submission must include: the name and address of the stockholder on whose behalf the submission is made; the number of our shares that are owned beneficially by that stockholder as of the date of the submission and the time period for which those shares have been held; the derivative securities interests owned beneficially by that stockholder as of the date of the submission; a statement from the record holder of the shares and derivative securities interests verifying the holdings; the full name of the proposed candidate; a description of the proposed candidate's business experience for at least the previous five years; complete biographical information for the proposed candidate; a description of the proposed candidate's qualifications as a director; and any other information described in our bylaws and in our "Guidelines for Evaluating Director Candidates," which is available on our website at www.lululemon.com.
Board Structure
We have a classified board structure where board members are elected to three-year terms, such that generally every year only one-third of the directors are considered for election or re-election. We have had this board structure continuously since lululemon became a publicly traded company in 2007. Our board of directors believes the classified board structure has served lululemon and our stockholders well and continues to benefit our stockholders. We believe continuity in membership of our board of directors has assisted in consistent application of our heritage of combining performance and style to achieve our goals.
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Our board of directors also believes a classified board structure provides valuable stability and continuity of leadership for lululemon which is important to long-term stockholder value. With three-year terms, directors develop a deeper understanding of our business, values, competitive environment, and strategic goals. Experienced directors are better positioned to provide effective oversight and advice consistent with the long-term best interest of stockholders. It also enhances the board's ability to make fundamental decisions that are best for lululemon and its stockholders, such as decisions on strategic transactions, significant capital commitments, and careful deployment of financial and other resources. Electing directors to three-year terms also enhances the independence of non-employee directors. It permits them to act independently and on behalf of all stockholders without worrying whether they will be re-nominated by the other members of the board each year. The longer term reduces the influence of special interest groups or significant stockholders who may have agendas contrary to the majority of stockholders and lululemon's own long-term goals. The board of directors believes the freedom to focus on the long-term interests of lululemon, instead of short-term results and the re-nomination process, leads to greater independence and better governance.
In addition, our board of directors believes the classified board structure can be a safeguard against a purchaser gaining control of lululemon without paying fair value. Because only one-third of the directors are elected at any annual meeting, a majority of the board of directors cannot be replaced at a single annual meeting. A classified board does not preclude a change in control of lululemon. It can, however, provide the board of directors more time and flexibility to evaluate the adequacy and fairness of proposed offers, to implement the optimal method of enhancing stockholder value, to protect stockholders against abusive tactics during a takeover process, and to negotiate the best terms for all stockholders, without the threat of imminent removal of a majority of board members. Our board of directors believes that without a classified board structure, its ability to deal with proposals it believes are unfair to lululemon's stockholders or inadequate would be significantly reduced.
Although our board of directors believes a classified board structure is best for lululemon and our stockholders at this time, our board of directors also believes board composition needs to be very responsive to the changing needs of lululemon, however rapid or long-term. Our board of directors evaluates and refreshes itself on a regular basis in an effort to ensure there is proper board composition to meet the current and long-term business needs of lululemon. The average length of service on our board of directors by our current board members is approximately five years, with a majority of the members of our board of directors having less than four years of service on our board. Our board of directors believes its approach toward board turnover has achieved the right balance between the need for continuity and the need for fresh perspectives on the board and continues to place lululemon's best interests and needs above any individual agenda.
Board Leadership Structure
Our board of directors believes that one of its most important functions is to protect stockholders' interests through independent oversight of management, including the Chief Executive Officer. However, our board of directors does not believe that effective management oversight necessarily mandates a particular management structure, such as a separation of the role and identities of the Chairman of the Board and Chief Executive Officer. Our board of directors considers it important to retain flexibility to exercise its judgment as to the most appropriate management structure for lululemon, based on the particular circumstances facing lululemon from time to time.
In recent years, the positions of Chairman of the Board and Chief Executive Officer have been held by separate persons because our board of directors determined at this structure aided in the oversight of management and was in the best interests of our company and our stockholders at that point in time. Currently, we are in the process of a search for a Chief Executive Officer. We expect the position of Chairman of the Board and Chief Executive Officer will continue to be held by separate persons following our successful search. Glenn Murphy currently serves as Executive Chairman of the Board.
Board Nomination Rights
We have an agreement with Dennis J. Wilson and Advent International Corporation, each of which owns more than 10% of our total outstanding shares, which gives them certain board nomination rights.
Under this agreement, Mr. Wilson has a continuing right to nominate one designee to the board of directors for so long as he owns at least 8.0% of our common stock. Ms. Henry was appointed to the board of directors in connection with Mr. Wilson's nomination rights. If Mr. Wilson takes any contesting stockholder action regarding lululemon, including such actions as making or participating in any solicitation of proxies to vote, advising or influencing any person with respect to voting shares of our stock, or making any stockholder proposal, then Mr. Wilson's nomination right will terminate and any person appointed to the board of directors in connection with this nomination right must resign from the board of directors.
Under this agreement, Advent has a continuing right to nominate two designees to the board of directors for so long as Advent owns at least 10.0% of our common stock. Advent's right will change to one designee to the board of directors if its ownership falls below 10.0% but remains at least 6.75%. Further, for so long as Advent owns at least 6.75% of our voting securities, one of its nominees will have the opportunity to serve as a Co-Chairman of the Board and at least one of its nominees will have the opportunity
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to join each of the committees of the board of directors (subject to independence and other applicable requirements). Mr. Mussafer and Ms. Patrick were appointed to the board of directors, and Mr. Mussafer was appointed as Lead Director of the Board, in connection with Advent's nomination rights.
Communications with Directors
Stockholders may communicate with members of our board of directors by transmitting correspondence by mail, facsimile or email, addressed as follows:
Corporate Secretary
c/o lululemon athletica inc.
1818 Cornwall Avenue
Vancouver, British Columbia
Canada V6J 1C7
Facsimile: (604) 874-6124
Email: investors@lululemon.com
The Corporate Secretary will, as he or she deems appropriate, forward communication to our board of directors or to any individual director, directors, or committee of our board of directors to whom the communication is directed.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of the officers, directors and employees of lululemon and our subsidiaries. The most current version is available on our website at www.lululemon.com. If we make any substantive amendments to the code or grant any waiver from a provision of the code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website, as well as via any other means required by Nasdaq rules or applicable law.
Say-on-Pay Advisory Vote on Executive Compensation
We provided stockholders a "say-on-pay" advisory vote on the compensation of our named executive officers at our 2017 annual meeting. At that meeting, stockholders expressed substantial support for the compensation of our named executive officers (who include our chief executive officer, chief financial officer and each of our next three most highly compensated executive officers during a particular fiscal year), with approximately 98% of the votes cast on the proposal voting for approval of the compensation of our named executive officers.
The Compensation Committee considered the results of the 2017 advisory say-on-pay vote when evaluating our compensation principles, design, and practices. The Compensation Committee also considered many other factors in evaluating our executive compensation programs as discussed in the Compensation Discussion and Analysis, including the Compensation Committee's assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by the Compensation Committee's independent consultant and a review of market practices for a comparative group of peers. While each of these factors bore weight on the Compensation Committee's decisions regarding the compensation arrangements of our named executive officers, the Compensation Committee did not make any changes to our executive compensation policies and practices as a direct result of the 2017 advisory say-on-pay vote.
Advisory Vote on the Frequency of Say-on-Pay Votes
We provided stockholders an opportunity to cast an advisory vote on how often we should include an advisory say-on-pay proposal in our proxy materials for future stockholder meetings at our 2017 annual meeting. Stockholders had the opportunity to recommend holding the advisory say-on-pay vote every year, every two years or every three years. At our 2017 annual meeting, stockholders holding a majority of the shares voting on this proposal preferred that we hold the advisory say-on-pay vote every year.
After considering the results of the 2017 advisory vote on the frequency of the say-on-pay votes and other factors it deemed relevant, the Compensation Committee believed this outcome conveyed our stockholders' support for holding an advisory vote on say-on-pay every year. Accordingly, our next say-on-pay advisory vote will be at this year's annual meeting.
The Dodd-Frank Act requires us to hold this advisory vote on the frequency of the advisory say-on-pay vote at least once every six years. Accordingly, our next advisory vote on how often we should include an advisory say-on-pay proposal in our proxy materials will be at the 2023 annual meeting.
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Risk Oversight
In its governance role, and particularly in exercising its duty of care and diligence, our board of directors is responsible for overseeing and assessing risk management policies and procedures designed to protect the company's assets and business. While our board of directors has the ultimate oversight responsibility for the risk management process, our board of directors has delegated to the Audit Committee the initial responsibility of overseeing the company's risk assessment and risk management. In fulfilling its delegated responsibility, the Audit Committee has directed management to ensure that an approach to risk management is implemented as a part of the day-to-day operations of lululemon, and to design internal control systems with a view to identifying and managing material risks.
On a periodic basis, the Audit Committee reviews and discusses with the appropriate members of our finance team and our internal auditors the company's significant financial risk exposures and the steps that management has taken to monitor, control, and report those risks. In addition, the Audit Committee regularly evaluates the company's policies, procedures, and practices with respect to enterprise risk assessment and risk management, including discussions with management about material risk exposures and the steps being taken to monitor, control, and report those risks. The Audit Committee reports its activities to the full board of directors on a regular basis and in that regard makes such recommendations to our board of directors with respect to risk assessment and management as it may deem necessary or appropriate.
On a periodic basis, the Compensation Committee reviews the various design elements of our compensation policies and practices to determine whether any of their aspects encourage excessive or inappropriate risk-taking by our executive officers. The Compensation Committee reports its activities in this regard to the full board of directors and makes such recommendations to our board of directors with respect to our compensation policies and practices as it may deem necessary or appropriate.
Anti-Hedging Policy
Our insider trading policy prohibits our directors, officers and other employees from speculating in our stock, including trading in options, warrants, puts and calls, or similar derivative securities, selling lululemon stock short and participating in hedging transactions.
Compensation Committee Interlocks and Insider Participation
The three current members of the Compensation Committee, Michael Casey (Chair), Martha A.M. Morfitt, and Emily White, have never served as one of our officers or employees. None of our executive officers currently serves, or in fiscal 2017 served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board of directors or Compensation Committee.
Executive Officers
Our executive officers and their ages as of April 2, 2018, were as follows:
Name | Age | Position | Officer Since | |||
Glenn Murphy | 56 | Executive Chairman | 2018 | |||
Stuart Haselden | 47 | Chief Operating Officer and Chief Financial Officer | 2015 | |||
Celeste Burgoyne | 43 | Executive Vice President, Americas | 2016 | |||
Michelle Choe | 49 | Senior Vice President, Merchandising | 2018 | |||
Julie Averill | 48 | Executive Vice President, Chief Technology Officer | 2017 | |||
Stuart Haselden has served as our Chief Financial Officer since February 2015 and also became our Chief Operating Officer in May 2017. Mr. Haselden's career spans more than 16 years of executive leadership at global apparel retailers, including J. Crew Group, Inc. and Saks Incorporated. Prior to joining lululemon, Mr. Haselden served as Chief Financial Officer and Executive Vice President of J. Crew from 2012 to 2015 and also served as its principal accounting officer. From 2009 to 2012, Mr. Haselden served as J. Crew's Senior Vice President of Finance and Treasurer and served as Vice President of Financial Planning & Analysis from 2006 to 2009. Before joining J. Crew, Mr. Haselden served as the Vice President of Strategic Planning for Saks Incorporated where he held a variety of positions from 1999 to 2005. Mr. Haselden also serves on the advisory board of the School of Human Sciences at Auburn University. Mr. Haselden received a Bachelor's degree from Auburn University and an MBA from Tulane University.
Celeste Burgoyne was promoted to Executive Vice President, Americas in December 2016. Ms. Burgoyne has been with lululemon since 2006 and prior to her most recent role, served as Senior Vice President, Retail, North America where she was responsible for overseeing all Canadian and US retail. Prior to that, she held the positions of Vice President of Store Operations and
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General Manager of US Operations. Celeste started her career with Abercrombie & Fitch, where she held various positions during her 10 years with the company, including, Senior Director of Stores. Ms. Burgoyne holds a B.A. from the University of San Diego.
Michelle (Sun) Choe is the Senior Vice President of Merchandising at where she oversees Women's, Men's, Accessories, and Visual Merchandising. She also manages product design, innovation and development. She joined the company in 2016 and is instrumental in elevating merchandising capabilities, partnering with design leadership and innovation to deliver the lululemon vision to guests through best in class product assortments. Prior to joining lululemon, Ms. Choe served as Chief Global Product Merchant at Marc Jacobs and worked in multi-channel merchandising at brands including West Elm, Madewell, Urban Outfitters, Levi's and The GAP. Ms. Choe received her Bachelor's degree from the University of Maryland College Park.
Julie Averill has served as our Executive Vice President, Chief Technology Officer since May 2017. Prior to lululemon, Ms. Averill was at REI from 2014 to 2017, serving first as the VP, Information Technology and then as the brand's first-ever Chief Information Officer. Prior to REI, Ms. Averill spent over a decade driving innovation within Nordstrom's technology platforms, holding several key positions on their IT leadership team. She has a degree in Computer Science from Seattle Pacific University and an MBA from the University of Washington.
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PROPOSAL NO. 2
RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our board of directors has selected PricewaterhouseCoopers LLP, or PwC, as our independent registered public accounting firm to audit the consolidated financial statements of lululemon for the fiscal year ending February 3, 2019. PwC has acted in such capacity since its appointment in fiscal 2006. A representative of PwC is expected to be present at the annual meeting, with the opportunity to make a statement if the representative desires to do so and is expected to be available to respond to appropriate questions.
Stockholder ratification of the selection of PwC as our independent registered public accounting firm is not required by our bylaws or otherwise. However, the board of directors is submitting the selection of PwC to the stockholders for ratification as a matter of good corporate governance practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee at its discretion may direct the selection of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of lululemon and our stockholders.
Fees for Professional Services
The following table sets forth the aggregate fees billed or expected to be billed to lululemon for the fiscal years ended January 28, 2018 and January 29, 2017 by PwC:
Fiscal 2017 | Fiscal 2016 | |||||
Audit Fees(1) | [ • ] | $ | 727,494 | |||
Audit-Related Fees(2) | [ • ] | $ | 38,571 | |||
Tax Fees(3) | [ • ] | $ | — | |||
All Other Fees(4) | [ • ] | $ | — | |||
__________
(1) | Audit Fees consist of fees for professional services rendered for the audit of our consolidated annual financial statements and review of the interim consolidated financial statements included in our quarterly reports and services that are normally provided by PwC in connection with statutory and regulatory filings or engagements, including consent procedures in connection with public filings. |
(2) | Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under "Audit Fees". |
(3) | Tax Fees consist of fees for professional services rendered for tax compliance, tax advice and tax planning (domestic and international). These services include assistance regarding federal, state and international tax compliance, acquisitions and international tax planning. |
(4) | All Other Fees consist of fees for products and services other than the services reported above. |
The Audit Committee's policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval. The Audit Committee Chair is also authorized, pursuant to delegated authority, to pre-approve additional services on a case-by-case basis, and such approvals are communicated to the full Audit Committee at its next meeting.
None of the services related to Audit-Related Fees, Tax Fees, or All Other Fees described above were approved by the Audit Committee pursuant to the waiver of pre-approval provisions set forth in applicable rules of the SEC.
Vote Required and Board Recommendation
If a quorum is present, the selection of our independent registered public accounting firm will be ratified if the votes cast for this proposal exceed the votes cast against this proposal at the annual meeting. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
Our board of directors unanimously recommends a vote "FOR" the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending February 3, 2019.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees lululemon's financial reporting process on behalf of our board of directors. Management has the primary responsibility for the financial statements and the reporting process, including internal control systems. Our independent registered public accounting firm is responsible for expressing an opinion as to the conformity of our audited financial statements with generally accepted accounting principles. The Audit Committee also evaluates lululemon's policies, procedures and practices with respect to enterprise risk assessment and risk management, including discussions with management about material risk exposures and steps being taken to monitor, control, and report such risks.
The Audit Committee consists of four directors, each of whom, in the judgment of our board of directors, is an "independent director" for purposes of the Nasdaq listing standards. The Audit Committee acts pursuant to a written charter that has been adopted by our board of directors. A copy of this charter is available on our website at www.lululemon.com.
The Audit Committee has reviewed and discussed the audited financial statements with management. The Audit Committee has discussed and reviewed with our independent registered public accounting firm all matters required to be discussed by the Public Company Accounting Oversight Board ("PCAOB") Auditing Standard No. 16, Communication with Audit Committees. The Audit Committee has met with our independent registered public accounting firm, with and without management present, to discuss the overall scope of its audit, the results of its examinations, and the overall quality of lululemon's financial reporting.
The Audit Committee has received from our independent registered public accounting firm a formal written statement describing all relationships between the firm and lululemon that might bear on the auditors' independence, as required by the applicable requirements of the PCAOB, and has discussed with the auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors' independence.
Based on the review and discussions referred to above, the Audit Committee recommended to our board of directors that lululemon's audited financial statements be included in lululemon's Annual Report on Form 10-K for the fiscal year ended January 28, 2018.
AUDIT COMMITTEE | |
Martha A.M. Morfitt (Chair) | |
Robert Bensoussan | |
Michael Casey | |
Kathryn Henry | |
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PROPOSAL NO. 3
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
TO PROVIDE THE BOARD THE POWER TO ADOPT, AMEND OR REPEAL BYLAWS
Our board of directors believes that it is in the best interests of lululemon and our stockholders to add a provision to our certification of incorporation to provide our board of directors the authority to adopt, amend or repeal our bylaws.
Background
Under Delaware law, a corporation's stockholders have the power to adopt, amend or repeal the corporation's bylaws. The certificate of incorporation may also confer that power concurrently upon the board of directors.
Prior to the initial public offering of our stock in 2007, our certificate of incorporation included a provision specifying that "the Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation." In connection with the initial public offering, stockholders approved various versions of our certificate of incorporation to reflect changes customary to publicly-traded companies. The provision described above was not included in the version of our certificate of incorporation that became effective upon completion of the initial public offering.
Our board of directors believes that the intent at the time of the initial public offering was to provide it the power to adopt, amend or repeal our bylaws. Our board of directors believes this intent is reflected in a provision of our certificate of incorporation providing that the "business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors having that number of directors set out in the Bylaws of the Corporation as adopted or as set forth from time to time by a duly adopted amendment thereto by the Board of Directors or stockholders of the Corporation" (emphasis added). In addition, our board of directors believes this intent is reflected in section 12.1 of our current bylaws, which was adopted by stockholders at the same time as the certificate of incorporation, and which states that "The Board is expressly authorized to repeal, alter, amend or rescind these Bylaws. Notwithstanding any other provision of these Bylaws (and notwithstanding some lesser percentage that may be specified by law), the Bylaws may be repealed, altered, amended or rescinded by the stockholders of the Corporation as described in the Certificate of Incorporation or in accordance with the DGCL" (emphasis added).
Since the time of our initial public offering in 2007, our board has amended our bylaws on multiple occasions to effect the following changes:
• | to eliminate a conflict between two provisions regarding the location for annual stockholder meetings (adopted by the board on March 31, 2008); |
• | to change the advance notice provisions for stockholder nominations and proposals (adopted by the board on March 25, 2009); |
• | to authorize the board to utilize a co-chair leadership structure when appropriate (adopted by the board on September 9, 2014); |
• | to provide for majority voting for director nominees in uncontested elections and implement procedures for incumbent directors who do not receive a majority vote (adopted by the board on June 3, 2015); and |
• | to designate an exclusive forum for certain litigation (adopted by the board on June 3, 2015). |
A more detailed description of these bylaw amendments previously adopted by the board may be found in Proposal No. 4 (Ratification of bylaw amendments previously adopted by the board), and Attachment A contains a marked version of our bylaws showing the text of each amendment previously adopted by the board.
On September 29, 2017, two purported stockholders of lululemon made a written demand upon the board challenging the bylaw amendments previously adopted by the board and alleging that, because the certificate of incorporation does not provide the board the express authority to amend, adopt or repeal the bylaws, each of the bylaw amendments previously adopted by the board is invalid, ultra vires and void.
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Description of the Proposed Amendment
The board believes it is in the best interest of the stockholders to provide the board the power to adopt, amend or repeal our bylaws. The proposed amendment to our certificate of incorporation would add the following provision, which is consistent with what the board believes was the intent at the time of the initial public offering and is consistent with similar provisions included in the certificates of incorporation of most publicly-traded companies:
ARTICLE XIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the DGCL, the Board of Directors is expressly authorized to adopt, amend, alter, change or repeal the Bylaws of this Corporation.
This proposed amendment would not divest or limit the stockholders' existing right to adopt, amend or repeal the bylaws. If the stockholders adopt this proposed amendment but do not ratify any one or more of the bylaw amendments previously adopted by the board described in Proposal No. 4 (Ratification of bylaw amendments previously adopted by the board), the board may adopt those non-ratified bylaw amendments at any time in the future.
Reasons for the Proposed Amendment
For the reasons described below, the board believes conferring the power to adopt, amend or repeal our bylaws upon the board of directors through this proposed amendment is in the best interests of lululemon and our stockholders.
The board believes providing the directors the power to adopt, amend and repeal the bylaws is consistent with the intent at the time of the initial public offering, and providing such power is consistent with current practices at other publicly-traded companies, which generally confer this power on boards of directors.
In preparation for the initial public offering, stockholders adopted and the company publicly disclosed governing documents that were intended to become effective upon the initial public offering. These documents included a version of the certificate of incorporation containing a provision stating that the "business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors having that number of directors set out in the Bylaws of the Corporation as adopted or as set forth from time to time by a duly adopted amendment thereto by the Board of Directors or stockholders of the Corporation." These documents also included a version of the bylaws containing a provision stating that the board "is expressly authorized to repeal, alter, amend or rescind these Bylaws." Thus, the board believes this proposed amendment is consistent with the original intent to confer power to adopt, amend or repeal the bylaws upon the board at the time of the initial public offering.
Moreover, the authority of a board of directors to amend a company's bylaws is generally standard among publicly-traded companies. This authority allows a board efficiently to implement and adopt corporate policies and procedures as changing circumstances may necessitate, and to respond quickly to corporate governance or other matters affecting a company's business, without incurring the expense and delay of soliciting proxies from the stockholders and holding a meeting of stockholders. According to data from FactSet's SharkRepellent, a corporate governance database, boards of directors have authority to amend the bylaws without stockholder approval at more than 97% of the companies it tracks in each of the S&P 500, S&P 1500 and Russell 3000 indices. In addition, each of the U.S. incorporated companies included in our peer group described in the Compensation Discussion and Analysis included in this proxy statement confer the power to amend bylaws upon their boards of directors.
The board's power to adopt, amend and repeal the bylaws gives the board necessary flexibility to respond on a cost-efficient basis to evolving circumstances.
If the certificate of incorporation did not confer power to adopt, amend and repeal the bylaws upon the board of directors, stockholders would need to approve all future amendments to the bylaws, which would be burdensome and unnecessary, and is an inefficient use of company resources. For example, bylaws typically contain provisions pertaining to the internal operations of a company and its board, such as provisions related to the conduct of board meetings and the appointment of officers. Seeking stockholder approval of every change to these types of provisions would be cumbersome and would involve stockholders in day-to-day aspects of the company's governance practices.
Moreover, if the certificate of incorporation did not confer power to adopt, amend and repeal the bylaws upon the board of directors, the board's ability to respond quickly and efficiently to evolving circumstances such as governance norms would be hampered. In recent years, boards of directors of many publicly-traded companies have been able to amend their companies' bylaws in response to evolving governance norms such as majority voting in director elections. Rather than seeking stockholder approval for these amendments, boards of directors have been able to adopt them in a more efficient, cost-effective manner, without going through the process of soliciting and obtaining stockholder approval.
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The proposed amendment would not divest or limit the power of the stockholders to adopt, amend or repeal the bylaws.
This proposed amendment would not divest or limit the power of our stockholders to adopt, amend or repeal the bylaws. Under Delaware law, a corporation's stockholders have the power to adopt, amend or repeal the corporation's bylaws. When the certificate of incorporation confers that power upon the board of directors, it is concurrently held by the stockholders and the board.
Vote Required and Board Recommendation
Approval of this proposal requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock as well as the presence of a quorum representing a majority of the voting power of all outstanding shares of our common stock entitled to vote, either in person or by proxy. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum and will have the effect of a vote "against" this proposal.
Our board of directors unanimously recommends a vote "FOR" the approval of the amendment to our certificate of incorporation to provide the board the power to adopt, amend or repeal the bylaws.
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PROPOSAL NO. 4
RATIFICATION OF AMENDMENTS TO OUR BYLAWS PREVIOUSLY ADOPTED BY THE BOARD
As described under Proposal No. 3 (Amendment to our certificate of incorporation to provide the board power to adopt, amend or repeal bylaws), although our certificate of incorporation does not include a provision providing our board of directors the authority to adopt, amend or repeal our bylaws, since the time of our initial public offering in 2007, our board has amended our bylaws on multiple occasions to effect the following changes:
• | to eliminate a conflict between two provisions regarding the location for annual stockholder meetings (adopted by the board on March 31, 2008); |
• | to change the advance notice provisions for stockholder nominations and proposals (adopted by the board on March 25, 2009); |
• | to authorize the board to utilize a co-chair leadership structure when appropriate (adopted by the board on September 9, 2014); |
• | to provide for majority voting for director nominees in uncontested elections and implement procedures for incumbent directors who do not receive a majority vote (adopted by the board on June 3, 2015); and |
• | to designate an exclusive forum for certain litigation (adopted by the board on June 3, 2015). |
These amendments were adopted by our board, but were not adopted by our stockholders. Our board has determined that it is in the best interests of lululemon and our stockholders to ratify each of these bylaw amendments in accordance with section 204 of the Delaware General Corporation Law (DGCL) and Delaware common law.
Section 204 of the DGCL allows a Delaware corporation, by following specified procedures, to ratify a defective corporate act retroactive to the date the defective corporate act was originally taken. If any one or more of the bylaw amendments listed above is ratified by stockholders, this ratification will be retroactive to the date the board approved that bylaw amendment. This proxy statement and the notice provided to stockholders in connection with the annual meeting constitute the notice required to be given to our stockholders under Section 204 of the DGCL in connection with the ratification of these bylaw amendments.
Attachment A to this proxy statement contains a marked version of our bylaws showing the text of each amendment previously adopted by the board.
Proposal 4A: Ratification of bylaw amendment clarifying that annual stockholder meetings may be held outside of Delaware. On March 31, 2008, the board adopted a bylaw amendment to change the location requirement for annual stockholder meetings from "within the State of Delaware" to "within or without the State of Delaware." Most states, including Delaware, allow annual meetings to be held at any location, either within or outside the state. At the time the board adopted this bylaw amendment, section 2.2 of the bylaws (which provided that annual meetings must be held "within the State of Delaware") conflicted with section 2.1 of the bylaws (which provided that all meetings may be held "within or without the State of Delaware"). This amendment was designed to correct the conflicting provisions and to clarify that annual meetings may be held at any location, either within or outside of Delaware, consistent with the discretion provided under the DGCL. The board approved the ratification of this bylaw amendment previously adopted by the board.
Proposal 4B: Ratification of bylaw amendment changing the advance notice requirements for stockholder proposals and nominations. On March 25, 2009, the board adopted a bylaw amendment changing the notice requirements for stockholder proposals and nominations principally such that a stockholder must give that notice at least 120 days before the first anniversary of the date on which we mailed proxy materials for the preceding year's annual meeting (except under certain circumstances). At the time the board adopted this bylaw amendment, a stockholder was required to give this notice at least 60 days before the first anniversary of the preceding year's annual meeting. This amendment was designed to ensure ample notice of actions proposed to be taken by a potential acquirer or other persons interested in changing the composition of the board or implementing changes in corporate policy. The board approved the ratification of this bylaw amendment previously adopted by the board.
Proposal 4C: Ratification of bylaw amendment authorizing the board to utilize a co-chair leadership structure when appropriate. On September 9, 2014, the board adopted a bylaw amendment providing that the board may appoint a chairman of the board or alternatively, as the board may determine, one or more co-chairmen of the board, along with conforming changes to other sections of the bylaws. This amendment was designed to retain flexibility for the board to exercise its judgment as to the most appropriate board leadership structure to aid the board in the oversight of management, based on the particular circumstances facing the company from time to time. The board approved the ratification of this bylaw amendment previously adopted by the board.
Proposal 4D: Ratification of bylaw amendment providing for majority voting for director nominees in uncontested elections and implementing procedures for incumbent directors who do not receive a majority vote. On June 3, 2015, the board adopted a bylaw amendment providing that a nominee for director will be elected to the board if the votes cast for that nominee's election exceed the votes cast against that nominee's election in uncontested elections. If an incumbent director fails to receive the required vote for
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reelection, then, within 90 days following certification of the stockholder vote, the board will act to determine whether to accept the director's resignation. In contested elections, directors will be elected by a plurality of the votes cast at the meeting. This amendment was designed to increase stockholder democracy and director accountability in uncontested elections. The board approved the ratification of this bylaw amendment previously adopted by the board.
Proposal 4E: Ratification of bylaw amendment selecting an exclusive forum for certain litigation. On June 3, 2015, the board adopted a bylaw amendment requiring that designated categories of corporate disputes be litigated exclusively in the Court of Chancery in the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware). The provision covers four categories of claims, generally consisting of (1) derivative actions, (2) actions asserting breaches of fiduciary duty, (3) actions arising under any provision of Delaware corporate law or our charter documents, and (4) actions asserting claims governed by the internal affairs doctrine. The provision focuses on these categories of claims because they relate to our business, the conduct of our affairs, and our rights or powers or certain rights or powers of stockholders, directors, officers or employees. In many cases, actions brought by stockholders, whether challenging a merger, in a derivative action or otherwise, are brought in more than one jurisdiction, thereby requiring companies to litigate parallel claims in multiple forums. This amendment was designed to minimize the risk of expensive multijurisdictional litigation. The board approved the ratification of this bylaw amendment previously adopted by the board.
Vote Required and Board Recommendation
If a quorum is present, ratification of each of these bylaw amendments requires the affirmative vote of a majority of the votes cast affirmatively or negatively on that ratification proposal at the Annual Meeting. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of these ratification proposals.
The ratification of any one or more of the bylaw amendments described above is not conditioned upon the ratification of any one or more other bylaw amendments or on adoption of Proposal No. 3 (Amendment to our certificate of incorporation to provide the board power to adopt, amend or repeal bylaws). If stockholders approve the ratification of one or more, but not all, of the bylaw amendments previously adopted by the board, those bylaw amendments, and only those bylaw amendments, will be ratified.
If stockholders adopt Proposal No. 3 (Amendment to our certificate of incorporation to provide the board power to adopt, amend or repeal bylaws), but do not ratify any one or more of the bylaw amendments previously adopted by the board, the board may adopt those non-ratified bylaw amendments at any time in the future.
Our board of directors unanimously recommends a vote "FOR" the approval of each proposal described above to ratify amendments to the bylaws that were previously adopted by the board.
Time Limitations on Legal Challenges to the Ratifications
If stockholders ratify any bylaw amendment described above, under the DGCL any claim that (1) the ratification of that bylaw amendment is void or voidable due to a failure of authorization, or (2) the Delaware Court of Chancery should declare in its discretion that the ratification of that bylaw amendment not be effective or be effective only on certain conditions, must be brought within 120 days from the time the stockholders approved that ratification.
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PROPOSAL NO. 5
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The guiding principles of our compensation policies and decisions include aligning each executive's compensation with our business strategy and the interests of our stockholders and providing incentives we believe are needed to attract, motivate and retain key executives who are important to our long-term success. Consistent with this philosophy, a significant portion of the total incentive compensation for each of our executives is directly related to our financial performance results as well as other performance factors that measure our progress against the goals of our strategic and operating plans.
We encourage you to read the Compensation Discussion and Analysis section of this proxy statement, which discusses how our compensation design and practices reflect our compensation philosophy. The Compensation Committee and our board of directors believe our compensation design and practices are effective in implementing our compensation philosophy.
We are required to submit a proposal to stockholders for a (non-binding) advisory vote to approve the compensation of our named executive officers under Section 14A of the Securities Exchange Act of 1934. This proposal, commonly known as a "say-on-pay" proposal, gives our stockholders the opportunity to express their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the compensation principles, policies and practices described in this proxy statement. Accordingly, the following resolution is submitted for stockholder vote at the annual meeting:
• | That the compensation of the named executive officers, as disclosed in this proxy statement (which disclosure includes the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosure that accompany the compensation tables), is hereby approved. |
Vote Required and Board Recommendation
If a quorum is present, the compensation of our named executive officers will be approved, on an advisory basis, if the votes cast for this proposal exceed the votes cast against this proposal. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
Our board of directors unanimously recommends a vote "FOR" the approval, on an advisory basis, of the compensation of our named executive officers.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Compensation Discussion and Analysis describes our executive compensation program for fiscal 2017 and certain elements of the fiscal 2018 program for our executive officers, to whom we refer as "named executive officers," and further detail is included in the summary compensation tables in this proxy statement, including the CEO pay ratio.
Named Executive Officers | Title |
Laurent Potdevin | Former Chief Executive Officer |
Stuart Haselden | Chief Operating Officer and Chief Financial Officer |
Celeste Burgoyne | Executive Vice President, Americas |
Lee Holman | Former Executive Vice President, Creative Director |
Scott Stump | Former Executive Vice President, Community and Brand |
Michelle Choe | Senior Vice President, Merchandising |
Julie Averill | Executive Vice President, Chief Technology Officer |
Year in Review
Fiscal 2017 was a year of strong performance and growth at lululemon. We sustained a high level of performance, and also made changes necessary within the organization to continue to grow.
In February 2018, we announced the departure of Laurent Potdevin, our former Chief Executive Officer and immediately implemented a transition plan with Glenn Murphy taking on the role of Executive Chairman, and elevating three senior leaders to hold additional responsibilities, reporting to Mr. Murphy. Celeste Burgoyne, Executive Vice President, Americas, oversees all retail channel and brand-facing aspects of the global business, including stores and e-commerce, as well as brand marketing; Stuart Haselden, Chief Operating Officer, has responsibility for all operations related to finance, supply chain, people, and technology; and Michelle Choe, Senior Vice President of Merchandising, guides all aspects of product development, design, innovation and merchandising. These three senior leaders were selected based upon their contributions to our recent success, history of collaboration with one another and strong relationships across the organization. We are confident in this trio of leaders, Mr. Murphy, and the power of our people to execute on lululemon's growth strategy and drive global performance.
In fiscal 2017, new stores and new store formats, product innovations, and an enhanced e-commerce offering, combined with successful community and brand initiatives helped drive a 13% increase in net revenue and a 7% increase in total comparable sales. Consistent with our pay for performance philosophy, our fiscal 2017 bonus payout reflects this strong performance, with a payout factor of 129.9% for business results.
We look forward to continuing this strong momentum into fiscal 2018, focusing on our four key strategic growth pillars: Digital, Men's, North America, and International, underpinned by innovations in product, our distinctive brand and community approach, and our vertically-integrated business model.
Compensation Philosophy
Our compensation policies with respect to our executive officers are based on the principles that compensation should be reflective of our financial performance, and that a significant portion of executive officers' compensation should be provided through long-term incentives. The Compensation Committee seeks to set compensation of our executive officers at sufficiently competitive levels so that we may attract, retain and motivate highly qualified executives to contribute to our success. In assessing the overall compensation for executive officers, the Compensation Committee generally considers our financial performance, relative stockholder returns and industry position, market compensation data, awards given to our executive officers in past years, and the recommendations of third-party consultants.
Compensation Elements and Mix
Our 2017 executive compensation program consisted of the following elements:
• | base salary; |
• | annual incentive awards; |
• | performance-based restricted stock unit awards; |
• | grants of stock options and restricted stock unit awards; |
• | retirement and health benefits; and |
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• | limited perquisites. |
Our compensation program mix is heavily performance-based with 84% of our former Chief Executive Officer's and 66% of the other named executive officers' target compensation at risk and contingent upon the achievement of performance objectives and/or share price performance.
What We Do | What We Don't Do | ||
þ | Align executive compensation with stockholder interests through a balance of short and long-term incentives and linked to our financial performance | ý | Permit hedging or pledging of company stock |
þ | Include clawback provisions in our cash and equity incentive plans | ý | Reprice stock options |
þ | Set market-competitive stock ownership requirements for the Chief Executive Officer, executive officers and non-employee directors | ý | Grant stock options at a discount to market price |
þ | Use appropriate peer groups when establishing compensation | ý | Employment agreements with multi-year guarantees |
þ | Mitigate undue risk in compensation programs; an annual compensation risk assessment is conducted by the Compensation Committee | ý | Provide excessive benefits or perquisites |
þ | Retain an independent compensation consultant | ý | Provide single-trigger severance or permit golden parachute tax gross ups following a change in control |
þ | Annual review by the Compensation Committee of compensation programs and practices | ||
þ | Include double-trigger change in control provisions in equity awards | ||
Compensation Committee Duties and Responsibilities
The Compensation Committee evaluates the pay of our executive officers with the goal of setting compensation opportunities at levels it believes are comparable with executives in other companies operating in the retail apparel industry or other retail industries, that are generally of similar size and scope of operations. Based on this evaluation, the Compensation Committee is responsible for establishing target compensation opportunities for our executive officers, reviewing and approving our goals and objectives relating to the compensation of our executive officers, evaluating the performance of our executive
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officers in light of these goals and objectives, and determining the actual compensation levels, perquisites, and other benefits of our executive officers.
The Compensation Committee is also charged with reviewing and recommending to our board of directors new or potential changes in executive compensation programs, evaluating our compensation policies and practices to determine whether they are properly coordinated and achieving their intended purposes, reviewing the various design elements of our compensation programs to determine whether any of their aspects encourage excessive or inappropriate risk-taking by our executive officers, and establishing and periodically reviewing policies for the administration of our executive compensation programs.
In setting appropriate levels of compensation for our executive officers, the Compensation Committee may base its decisions on:
• | the performance evaluations, experience, responsibilities, and potential of each individual; |
• | the recommendations of the Chief Executive Officer with respect to the other executive officers; |
• | information provided to the Compensation Committee with respect to the compensation of similarly situated executives at other comparable companies; |
• | the company's absolute and relative performance and achievement of strategic goals; |
• | the business judgement of the members of the Compensation Committee; and |
• | the advice of its independent compensation consultant. |
Role of the Independent Compensation Consultant
The Compensation Committee has engaged Willis Towers Watson, or WTW, as its independent compensation consultant. WTW reports directly to the Compensation Committee and attends meetings as requested. Under the terms of its engagement, WTW is responsible for reviewing Committee meeting agendas and supporting materials, providing market data and recommendations regarding the compensation of the executive officers, advising on evolving trends and best practices in executive compensation and committee governance, assisting in the review and evaluation of our policies and practices and reviewing the Compensation Discussion and Analysis disclosure in our proxy statement. WTW also provides independent advice to the Compensation Committee on director compensation. The Compensation Committee reviewed its relationship with WTW, considered WTW's independence and the existence of potential conflicts of interest, and determined that the engagement of WTW did not raise any conflict of interest. In reaching this conclusion, the Compensation Committee considered various factors, including the six factors stated in the SEC and Nasdaq rules regarding compensation committee advisor independence.
Role of Executive Officers in Executive Compensation
Our non-employee directors generally meet with our Chief Executive Officer at the beginning of each year to agree upon performance objectives for the year. At the end of the year, the non-employee directors generally meet with the Chief Executive Officer to assess performance taking into account achievement of those objectives, contribution to our financial performance, ethics and integrity, and other leadership attributes and accomplishments. This evaluation is shared with the Chief Executive Officer by the Chairman of the Board or another director and is used by the Compensation Committee in setting the Chief Executive Officer's compensation for the following year.
For the other executive officers, the Compensation Committee receives performance assessments and compensation recommendations from the Chief Executive Officer, and also exercises its judgment based on each executive officer's achievement of objectives established between that executive officer and the Chief Executive Officer, and the executive's contribution to financial performance, ethics and integrity, and other leadership attributes and accomplishments.
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Peer Group
At least annually, the Compensation Committee, with the assistance of its independent compensation consultant, reviews the peer group used for executive compensation comparisons to ensure it consists of companies the Compensation Committee believes are appropriate for comparison purposes. In selecting peer companies, the Compensation Committee aims to identify companies with characteristics similar to ours, including that they are in the retail apparel industry or other retail industries, have a strong consumer brand, are high growth and are of a comparable size (based on revenue, operating income and market capitalization). Based on these criteria, the Compensation Committee selected the following companies for the 2017 peer group:
2017 Peer Group: | ||||||||
American Eagle Outfitters | Columbia Sportswear | Land's End | The Buckle | Under Armour | ||||
Burberry | Deckers Outdoor | Michael Kors | The Finish Line | Urban Outfitters | ||||
Chipotle Mexican Grill | Gildan Activewear | Panera Bread | Tiffany & Co. | |||||
Coach | Kate Spade | PVH | Ulta Beauty | |||||
Following a review conducted in 2017, the Compensation Committee modified the peer group to remove Kate Spade and Panera Bread from the 2018 peer group.
Elements of Compensation
We have three elements of total direct compensation: base salary, annual cash incentive and long-term incentive awards, which are described below. We also provide limited other perquisites and standard retirement and benefit plans.
The table below describes the three elements of total direct compensation and the link to our business strategies.
Element | Purpose | How it Works | Link to Business Strategies | |||
Base Salary | Provides base level of earnings throughout the year; considers a number of factors including responsibilities, experience, and historical performance. | Payable bi-weekly in arrears subject to deductions required by law or authorized by the executive. | Competitive base salaries support in attracting and retaining executive talent. Base salaries are generally targeted near the market median of base salaries of similarly situated executives at peer group companies. | |||
Annual Cash Incentive | Rewards the achievement of financial, operational and strategic goals, as well as individual annual performance objectives. | Generally awarded in the form of performance-based cash awards and payable based on the achievement of corporate performance goals established by the Compensation Committee. | Performance metrics and incentive targets are set at the beginning of the fiscal year and align with our financial goals. Performance metrics include operating income, revenue and gross margin. | |||
Long-term Incentive Awards | Rewards the achievement of our long-term performance goals and aligns the incentives of our executives with the interests of our stockholders. | Generally awarded in three equity vehicles: (1) stock options (2) performance-based restricted stock unit awards and (3) restricted stock unit awards. Details of these individual equity awards are in section Equity-Based Compensation. | Metrics for performance-based restricted stock unit awards are set at the beginning of the fiscal year and are designed to align with our financial goals. Performance metrics include operating income and revenue. The ultimate value received by the executive officers is linked to the performance of our share price. | |||
Our compensation policies and practices with respect to each of these elements, including the basis for the compensation awarded to our executive officers, are discussed below. In addition, while each element of compensation is described separately, the Compensation Committee takes into account the full compensation opportunity for each executive officer in determining their total compensation.
Base Salary
The base salary established for each of our executive officers is intended to reflect each individual's responsibilities, experience, historical performance, and other discretionary factors deemed relevant by the Compensation Committee. In order to attract and retain qualified executives, base salaries are generally targeted near the market median of base salaries of similarly situated executives at the peer group companies. Base salaries for an executive officer may vary above or below median based on his or her performance, industry experience, and length of service.
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With these principles in mind, base salaries are reviewed at least annually by the Compensation Committee and may be adjusted from time to time based on the results of this review.
In considering whether to adjust base salary from year to year, the Compensation Committee may consider the following:
• | our corporate performance and the individual performance of the executive officer; |
• | the relative value of the executive officer's position within the organization; |
• | any new responsibilities delegated to the executive officer during the year; |
• | any contractual agreements with the executive officer; and |
• | the competitive marketplace for executive talent, including base salaries and total compensation for comparable positions at other similarly situated companies. |
The market for our senior executive talent is global and highly competitive, with the majority of our current executives recruited from U.S.-based retailers. To provide a more relevant and consistent comparison to the competitive salaries provided to comparable executives within our peer group, which are denominated in U.S. dollars, the salaries of our executive officers are denominated and paid in U.S. dollars.
Annual Cash Incentives
The annual cash performance bonuses awarded to our executive officers are intended to compensate our executive officers for achieving financial, operational and strategic goals. These annual bonus amounts are intended to reward both overall company and individual performance during the year and, as such, can be highly variable from year to year. Cash bonuses are designed to reward annual performance against annual performance metrics, as opposed to equity grants which are designed to reward the achievement of our long-term performance goals. We believe establishing cash bonus opportunities is an important factor in both attracting and retaining the services of qualified and highly skilled executives and in motivating our executives to achieve our annual objectives.
The Compensation Committee sets the target annual cash bonus levels for each of our executive officers as a percentage of base salary. The payment of these cash bonuses is based on specified corporate objectives established by the Compensation Committee. Actual payouts of these cash bonuses may vary from 0% of the target bonus level for performance below a threshold to 200% of the target bonus level for achieving or exceeding the maximum performance level determined by the Compensation Committee at the beginning of the fiscal year.
Generally, during the first quarter of each fiscal year, the Compensation Committee approves the company's financial performance measures for the annual cash bonus awards and a range of potential payouts resulting from the achievement of each financial performance goal. The Compensation Committee also approves the relative weighting of each specific financial performance measure and determined that for fiscal 2017, the annual cash bonus awards would be determined entirely on the achievement of financial performance goals: (1) operating income, (2) revenue and (3) gross margin.
Following the completion of each fiscal year, the Compensation Committee reviews performance relative to the achievement of the company's performance goals established at the beginning of the preceding fiscal year, in order to determine the amount of bonus payable to our executive officers. In making this determination, the Compensation Committee may make adjustments that will be applied in calculating whether the financial performance goals have been met to factor out extraordinary, unusual, or non-recurring items. The Compensation Committee may use discretion in determining the amount of the bonus payable to an executive officer. Generally, executive officers must remain employed by us on the bonus payment date to be eligible for payment, unless the employment termination is a result of death or disability.
The Compensation Committee determined that for fiscal 2017, the total amount of the executive bonus payout would be based on the achievement of the financial performance goals as follows:
Financial Measure | Weighting (%) | Threshold (to Achieve 50% of Bonus Target) | Target (to Achieve 100% of Bonus Target) | Maximum (to Achieve 200% of Bonus Target) | ||||||||
Operating Income | 50 | % | $450,000,000 | $495,000,000 | $555,000,000 | |||||||
Revenue | 30 | % | $2,525,000,000 | $2,625,000,000 | $2,755,000,000 | |||||||
Gross Margin | 20 | % | 51.0 | % | 51.5 | % | 53.0 | % | ||||
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As outlined below, the Compensation Committee determined that the fiscal 2017 financial goals had been achieved so that on a weighted basis the bonus payout was calculated as 129.9% of target bonus level, as outlined in the table below. The actual bonuses paid to the named executive officers for fiscal 2017 performance represented 129.9% of their target bonus levels and are included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.
_________
Financial Measure | Weighting (%) | Adjusted Actual Results1 | Payout (%) | Weighted Payout (%) | |||||||
Operating Income | 50 | % | $503,900,000 | 109.0 | % | 129.9% | |||||
Revenue | 30 | % | $2,687,200,000 | 119.0 | % | ||||||
Gross Margin | 20 | % | 53.2 | % | 200.0 | % | |||||
(1) | In fiscal 2017, we restructured our ivivva operations. As part of this restructuring, we closed 48 of our 55 ivivva branded company-operated stores and all of our ivivva branded showrooms and other temporary locations. Given this change to our ivivva branded operations and the evolution of that brand, the Compensation Committee determined it would exclude the effect of the ivivva restructuring in the determination of the achievement of financial performance goals as an extraordinary, unusual or nonrecurring item. The adjusted actual results exclude $47.2 million of restructuring and related costs, as disclosed in Note 13 to the audited consolidated financial statements included in Item 8 of Part II of our Report on Form 10-K filed with the SEC on March 27, 2018, and also adds $38.0 million to revenue, $0.7 million to operating income, and 10 basis points to gross margin. These adjustments were made solely for the purpose of providing a consistent basis for the calculation of the performance measures in order to prevent the dilution of the participants' rights with respect to the fiscal 2017 bonus. |
Equity-Based Compensation
Equity awards are an important component of our executive compensation program and we believe providing a significant portion of our executive officers' total compensation opportunity in equity-based compensation helps drive the achievement of our long-term performance goals and align the incentives of our executives with the interests of our stockholders. Additionally, we believe equity-based awards enable us to attract, motivate, retain, and competitively compensate executive talent. Stock options, performance-based restricted stock units and restricted stock units were granted to certain executives and employees (other than the named executive officers) throughout fiscal 2017. Information on long-term awards to the named executive officers can be found in the "2017 Grants of Plan-Based Awards" table.
The Compensation Committee evaluates our equity-based compensation programs annually and consider the following:
• | trends in long-term incentive grants; |
• | the accounting treatment of such awards; |
• | simplicity of compensation; |
• | comparison to our peer group; and |
• | the impact our program design has on the performance and retention of our executives and employees as well as alignment to the interests of our stockholders. |
The Compensation Committee determines the size, terms, and conditions of performance-based restricted stock unit awards, stock option grants, and restricted stock unit awards to our executive officers in accordance with the terms of the applicable plan. The Compensation Committee determined that the fiscal 2017 equity mix for our named executive officers would consist of the following:
Named Executive Officers | Stock Options | Performance-Based Restricted Stock Units | Restricted Stock Units | |||
Chief Executive Officer | 50% | 50% | 0% | |||
All other named executive officers | 30% | 50% | 20% | |||
Generally, each executive officer is provided with an annual performance-based restricted stock unit award, a stock option grant and a restricted stock unit award based on his or her position with us and his or her relevant prior performance. The Compensation Committee generally establishes the annual equity award value for each executive officer other than the Chief Executive Officer based upon the recommendations of the Chief Executive Officer, considering each executive officer's performance, the annual review of his or her compensation relative to the peer group companies, a comparison against compensation survey data and an assessment of company-wide equity usage.
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Performance-Based Restricted Stock Unit Awards. Each performance-based restricted stock unit represents a right to receive one share of our common stock on a specified settlement date, generally three years from the date of grant, if the performance-based restricted stock unit vests as a result of our attainment of certain performance goals during the performance period as well as continued employment. Each performance-based restricted stock unit award specifies the threshold, target and maximum number of performance-based restricted stock units that will vest at certain performance levels. The range of performance-based restricted stock units that can be earned under the fiscal 2017 awards range from 0% of target for performance below threshold to 200% of target for performance at or above maximum.
Stock Options. Stock option awards generally have seven-year terms and vest in four equal installments beginning on the first anniversary of the date of grant to encourage executive retention and to compensate our executive officers for their contributions over the long-term. Stock options only have value to the executive officers to the extent that, on the date they are exercised, the company's share price is higher than the exercise price. We grant stock options with an exercise price equal to the closing price of our common stock as reported on Nasdaq on the date of grant.
Restricted Stock Units. Each restricted stock unit represents a right to receive one share of our common stock on a specified settlement date, if the time vesting requirement has been met. Restricted stock units generally vest in three equal installments beginning on the first anniversary of the date of grant to encourage executive retention while maintaining direct shareholder alignment.
Settlement of 2015 PSU Award (2015-2017 Performance Cycle)
The performance period and vesting period for our performance-based restricted stock unit awards generally consist of three fiscal years. For example, performance-based restricted stock units granted in fiscal 2017 will generally vest on the third anniversary of the grant date in early fiscal 2020, depending on the achievement of the performance goals established by the Compensation Committee for the period covering fiscal 2017, 2018 and 2019.
Generally, during the first quarter of each fiscal year, the Compensation Committee establishes the minimum, target and maximum performance and payout levels for the performance-based restricted stock unit awards. For the performance-based restricted stock units granted in fiscal 2015, the performance measure used to determine payout of the awards was three-year cumulative operating income and three-year cumulative net revenue. For the performance-based restricted stock units granted in fiscal 2016 and 2017, the performance measures that will be used to determine payout of the awards are operating income and net revenue for each year in the three-year performance period.
For purposes of the awards, performance measures may be adjusted by the Compensation Committee as it deems appropriate to exclude the effect (whether positive or negative) of any change in accounting standards or any extraordinary, unusual, or nonrecurring item occurring after the grant of an award. The purpose of this kind of adjustment would be to provide a consistent basis from period to period for the calculation of performance measures in order to prevent the dilution or enlargement of the participant's rights with respect to an award. The Compensation Committee seeks to establish performance-based restricted stock unit goals that require a significant level of growth in order to receive target (or any) payout and that align the executives' interests with both the achievement of our long-term strategic plan and the interests of our stockholders.
Generally, at the end of each performance period, the Compensation Committee reviews the results of the company's performance relative to the performance goals for that performance period and determines the payout of the awards. For the performance-based restricted stock units awards granted in 2015, which covered the fiscal 2015 through 2017 performance period, our cumulative operating income and net revenue resulted in a payout of 64% of the target performance-based restricted stock unit awards granted as outlined in the table below.
2015 Award (2015-2017 Performance Cycle) 3-Year Cumulative Goals | ||||||||||||||||
Financial Measure | Weighting (%) | Threshold (to Achieve 50% of Bonus Target) | Target (to Achieve 100% of Bonus Target) | Maximum (to Achieve 200% of Bonus Target) | Adjusted Actual Results1 | Payout (%) | Weighted Payout (%) | |||||||||
Operating Income | 70 | % | $1,275,900,000 | $1,446,800,000 | $1,696,200,000 | $1,294,152,000 | 55 | % | 64% | |||||||
Net Revenue | 30 | % | $6,693,800,000 | $7,273,900,000 | $7,809,400,000 | $7,092,096,000 | 84 | % | ||||||||
_________
(1) | In fiscal 2017, we restructured our ivivva operations. As part of this restructuring, we closed 48 of our 55 ivivva branded company-operated stores and all of our ivivva branded showrooms and other temporary locations. Given this change to our ivivva branded operations and the evolution of that brand, the Compensation Committee determined it would exclude the effect of the ivivva restructuring in the determination of the achievement of financial performance goals as an extraordinary, unusual or nonrecurring item. The adjusted actual results exclude $47.2 million of restructuring and related costs, as disclosed in Note 13 to the audited consolidated financial statements included in Item 8 of Part II of our Report on Form 10-K filed with the SEC on March 27, 2018, and also adds $38.0 million to revenue and $0.7 million to operating income. These adjustments |
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were made solely for the purpose of providing a consistent basis for the calculation of the performance measures in order to prevent the dilution of the participants' rights with respect to the performance-based restricted stock unit awards.
Stock Ownership Guidelines
We believe our executive officers should have a meaningful ownership stake in lululemon to underscore the alignment of executive officer and stockholder interests and to encourage a long-term perspective. Accordingly, the Nominating and Governance Committee has adopted stock ownership guidelines for our executive officers as follows:
Position | Minimum Ownership Guidelines (Dollar Value of Shares) | |
Chief Executive Officer | 5 x Base Salary | |
Other executive officers reporting to the Chief Executive Officer | 3 x Base Salary | |
Our executive officers are required to retain 75% of the net shares of our common stock they acquire upon the vesting or exercise of any equity incentive awards granted in fiscal 2016 onward, after deducting the number of shares of our common stock that would be needed to pay applicable taxes and/or exercise price, until they meet the applicable stock ownership guideline. The Compensation Committee annually reviews the status of meeting the share ownership guidelines and that all executives are in compliance.
Clawback Policy. The Compensation Committee has adopted an incentive compensation recoupment policy, commonly referred to as a clawback policy, which applies to all incentive-based compensation paid or awarded to an executive officer on or after September 2015. Under the policy, if we determine that we must prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the U.S. federal securities laws, we will seek to recover, at the discretion of the Compensation Committee after it has reviewed the facts and circumstances that led to the requirement for the restatement and the costs and benefits of seeking recovery, the amount of erroneously awarded incentive-based compensation received by an executive officer during the three-year period immediately preceding the date on which we are required to prepare the restatement.
Other Benefits. Based on our pay-for-performance philosophy, our executive compensation program includes limited perquisites and other benefits as outlined below:
Benefits | Employee Eligibility | Executive Officer Eligibility | ||
Medical/Dental/Vision Plans | ü | ü | ||
Life and Disability Insurance | ü | ü | ||
Change in Control and Severance Plan | ü | ü | ||
401(k) Plan (or other defined contribution group savings program) | ü | ü | ||
Employee Stock Purchase Plan | ü | Not offered | ||
Perquisites | Employee Eligibility | Executive Officer Eligibility | ||
Employee Discount | ü | ü | ||
Tax Preparation Assistance (as part of the executive's relocation) | ü | ü | ||
Relocation Assistance (temporary housing, moving expenses, tax equalization) | ü | ü | ||
Supplemental Life Insurance | ü | ü | ||
Fitness Benefit | ü | ü | ||
The cost of providing these benefits and perquisites to the named executive officers is included in the amounts shown in the "All Other Compensation" column of the Summary Compensation Table and detailed in the footnotes to the table. We believe the executive benefits we provide are reasonable and generally consistent with benefits offered by companies with which we compete for executive talent, and therefore offering these benefits serves the objective of attracting and retaining top executive talent.
Employment Agreements and Severance Arrangements
We have employment agreements with our named executive officers which allow us to terminate their employment with us at any time, with or without cause. These agreements provide them with severance benefits under certain circumstances, including if we terminate their employment without cause. These agreements were made in order to attract and retain the services of these particular executives. The agreements were the result of negotiations between the parties, which we believe resulted in employment and severance terms and conditions that are commercially competitive and typical of the terms and conditions
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afforded to similarly situated executives in other companies of similar size and stage of business life cycle operating in the retail apparel industry.
In each case, any severance payments are contingent on the occurrence of certain termination events and are subject to the executive's compliance with the surviving terms of the employment agreement and the terms of a non-compete, non-solicitation and non-disparagement agreement, as well as the executive's release of any employment-related claims he or she may have against us. These severance arrangements are intended to provide each executive with a sense of security in making the commitment to dedicate his or her professional career to our success. These severance rights do not differ based on whether or not we experience a change in control.
Risk Considerations in Determining Compensation
The Compensation Committee annually reviews the various design elements of our compensation program to determine whether it believes our compensation policies and practices encourage excessive or inappropriate risk-taking by our executive officers. Following the risk evaluation in March 2018, the Compensation Committee concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on lululemon.
Tax Considerations in Determining Compensation
We consider the tax treatment of various forms of compensation and the potential for excise taxes to be imposed on our executive officers which might have the effect of hindering the purpose of their compensation. While we do not design our compensation programs solely for tax purposes, we do design our plans to be tax efficient for the company where possible and where the design does not add unnecessary complexity to the plans or their administration. While we endeavor to use tax-efficient compensation structures when feasible, the Compensation Committee has the discretion to deliver non-deductible forms of compensation.
Compensation Changes for Fiscal 2018
Following its annual review of the target compensation levels of the executive officers and the assessment of each officer's performance and individual contributions, the Compensation Committee approved increases to the base salaries of Mr. Haselden, Ms. Burgoyne, Ms. Averill and Ms. Choe. The table below shows the base salary set by the Compensation Committee for fiscal 2018 and fiscal 2017 for each of our current named executive officers:
Name | Fiscal 2018 Base Salary | Fiscal 2017 Base Salary | ||
Stuart Haselden | $750,000 | $725,000 | ||
Celeste Burgoyne | $620,000 | $525,000 | ||
Michelle Choe | $600,000 | $580,000 | ||
Julie Averill | $540,000 | $525,000 | ||
During fiscal 2017, the Compensation Committee, with the assistance of management and its independent compensation consultant, reviewed our incentive compensation programs to evaluate whether they were appropriately aligned with our strategic direction. As a result of that review, the Compensation Committee determined that for fiscal 2018, the performance-based cash awards for executive officers will continue to be based entirely on our achievement of financial performance goals and weighted 50% on operating income and 50% on revenue. The Compensation Committee determined to remove gross margin as a metric to simplify the performance-based cash program. For fiscal 2018, the overall maximum bonus opportunity will remain at 200% of target, and the maximum payout opportunity for each measure will be 200% of target. The Compensation Committee believes this formula will continue to focus the executive team on the achievement of key financial goals, with an emphasis on delivering quality earnings.
In addition, the Compensation Committee determined that the 2018 equity mix for the executive officers would continue to consist of 50% performance-based restricted stock units, 30% stock options and 20% restricted stock units. Vesting of performance-based restricted stock units will be based on operating income over the three-year performance period.
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Our Chief Executive Officer resigned from the company effective February 2, 2018. Glenn Murphy has stepped into the interim role of Executive Chairman and Stuart Haselden, Celeste Burgoyne and Michelle Choe have received elevated leadership responsibilities during the transition. In connection with Mr. Murphy's appointment as Executive Chairman, the Compensation Committee approved an annual salary for Mr. Murphy in the amount of $500,000 per year, pro-rated for the time Mr. Murphy serves as Executive Chairman. This salary will be in lieu of any cash retainer and committee fees to which Mr. Murphy might otherwise be entitled in his role as a member of the board of directors or any committee thereof. While serving as Executive Chairman, Mr. Murphy will not be entitled to receive the annual equity awards to which non-employee directors are entitled under our outside director compensation plan (currently an annual grant of restricted stock with a fair value at the time of grant of $125,000). Further to these interim leadership roles, the following equity grants were made in recognition of their roles during our transition period:
Current Executive Officers | Stock Options ($)(1) | Restricted Stock Units ($)(2) | Long-Term Cash ($)(3) | Total ($) | ||||||||
Glenn Murphy(4) | 500,000 | — | — | 500,000 | ||||||||
Stuart Haselden | — | 500,000 | 250,000 | 750,000 | ||||||||
Celeste Burgoyne | — | 500,000 | 250,000 | 750,000 | ||||||||
Michelle Choe | — | 500,000 | 250,000 | 750,000 | ||||||||
_________
(1) | Mr. Murphy was granted a $500,000 stock option award with a seven year expiration date that will vest in installments of 33%, 33% and 34% on the three anniversary dates following the grant date, subject to continued service. |
(2) | Mr. Haselden, Ms. Burgoyne and Ms. Choe were each granted a $500,000 restricted stock award that will vest in installments of 33%, 33% and 34% on the three anniversary dates following the grant date, subject to continued employment. |
(3) | Mr. Haselden, Ms. Burgoyne and Ms. Choe were each granted a time-vested long-term cash award that will be paid at the end of fiscal 2018, subject to continued employment. |
(4) | Mr. Murphy has been appointed to serve as Executive Chairman of lululemon's board of directors, and lululemon's senior leaders will report to Mr. Murphy while the board of directors conducts a search for lululemon's next Chief Executive Officer. |
Compensation Committee Report
The Compensation Committee of the board of directors of lululemon athletica inc. has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on this review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
COMPENSATION COMMITTEE | |
Michael Casey (Chair) | |
Martha A.M. Morfitt | |
Emily White | |
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EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table shows information concerning the compensation of our former principal executive officer, our principal financial officer, our three other most highly compensated executive officers during fiscal 2017, and two former executive officers who would have been included among our three other most highly compensated executive officers had they continued to serve as executive officers through January 28, 2018. We refer to these persons as our "named executive officers." The dollar amounts shown are in U.S. dollars. The amounts originally in Canadian dollars were converted to U.S. dollars for this table using the average of the average exchange rates for each fiscal month during the applicable fiscal year. Applying this formula to fiscal 2017, fiscal 2016 and fiscal 2015, CDN$1.00 was equal to USD$0.775, CDN$1.00 was equal to USD$0.760 and USD$0.773 respectively.
Name and Principal Position | Fiscal Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) | |||||||||||||||
Laurent Potdevin, Former Chief Executive Officer(6) | 2017 | 1,087,018 | — | 2,000,003 | 2,002,978 | — | — | 5,089,999 | |||||||||||||||
2016 | 1,021,635 | — | 1,895,981 | 1,897,736 | 1,549,309 | 191,478 | 6,556,139 | ||||||||||||||||
2015 | 986,540 | — | 2,099,973 | 900,127 | 1,029,948 | 207,714 | 5,224,302 | ||||||||||||||||
Stuart Haselden, Chief Operating Officer & Chief Financial Officer(7) | 2017 | 704,726 | — | 670,615 | 287,828 | 788,259 | — | 2,451,428 | |||||||||||||||
2016 | 642,308 | — | 594,993 | 255,243 | 487,030 | 10,085 | 1,989,659 | ||||||||||||||||
2015 | 571,581 | 500,000 | 1,045,981 | 734,103 | 299,295 | 99,476 | 3,250,436 | ||||||||||||||||
Celeste Burgoyne, Executive Vice President, Americas | 2017 | 497,393 | — | 451,409 | 193,731 | 484,582 | 20,129 | 1,647,244 | |||||||||||||||
2016 | 399,574 | — | 286,140 | 122,740 | 219,912 | — | 1,028,366 | ||||||||||||||||
2015 | 301,408 | — | 192,327 | 81,811 | 132,282 | — | 707,828 | ||||||||||||||||
Lee Holman, Former Executive Vice President, Creative Director(8)(9) | 2017 | 612,781 | — | 595,001 | 255,388 | — | — | 1,463,170 | |||||||||||||||
2016 | 543,270 | — | 350,044 | 150,147 | 411,934 | — | 1,455,395 | ||||||||||||||||
2015 | 443,397 | — | 258,176 | 110,651 | 178,186 | — | 990,410 | ||||||||||||||||
Scott Stump, Former Executive Vice President, Community and Brand(10) | 2017 | 432,167 | — | 546,035 | 234,346 | — | 211,886 | 1,424,434 | |||||||||||||||
2016 | 567,308 | — | 594,993 | 255,243 | 430,161 | 10,652 | 1,858,357 | ||||||||||||||||
2015 | 533,195 | — | 545,998 | 234,028 | 279,217 | — | 1,592,438 | ||||||||||||||||
Michelle Choe, Senior Vice President, Merchandising(11) | 2017 | 580,000 | — | 227,502 | 97,652 | 376,710 | 46,964 | 1,328,828 | |||||||||||||||
2016 | 100,385 | 125,000 | 162,924 | 16,258 | — | — | 404,567 | ||||||||||||||||
Julie Averill, Executive Vice President, Chief Technology Officer(12) | 2017 | 351,908 | 125,000 | 359,609 | 100,706 | 342,861 | — | 1,280,084 | |||||||||||||||
_________
(1) | The dollar amounts shown are in U.S. dollars. Mr. Haselden, Ms. Burgoyne, Mr. Holman and Mr. Stump were paid in Canadian dollars until March 22, 2015, after which time they were paid in U.S. dollars. |
(2) | This column reflects the grant date fair value of performance-based restricted stock units and restricted stock units granted. See the "Grants of Plan-Based Awards Table" for information on performance-based restricted stock units and restricted stock units granted to our named executive officers in fiscal 2017. These amounts reflect the grant date fair value of the awards at target, and do not correspond to the actual value that will be realized by the executive officer. See the notes to our financial |
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statements contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2018 for a discussion of all assumptions made by us in determining the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718 values of our equity awards.
(3) | This column reflects the grant date fair value of stock options granted. See the "Grants of Plan-Based Awards Table" for information on stock options granted to our named executive officers in fiscal 2017. These amounts reflect the grant date fair value of the awards, and do not correspond to the actual value that will be realized by the executive officer. See the notes to our financial statements contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2018 for a discussion of all assumptions made by us in determining the FASB ASC Topic 718 values of our equity awards. |
(4) | Non-Equity Incentive Plan Compensation includes the annual performance-based cash awards paid in accordance with our 2014 Equity Incentive Plan and are reported for the fiscal year in which the relevant performance measures are satisfied rather than when awarded or paid. |
(5) | The following table provides information of all other compensation: |
Name | Fiscal Year | Relocation Costs and Personal Tax Preparation Fees ($) | Severance Payments ($) | Tax Equalization Payments, Including Gross-Ups ($) | Company Match of 401(k) / RRSP ($) | Total All Other Compensation ($) | |||||||||||
Laurent Potdevin | 2017(A) | — | — | — | — | — | |||||||||||
2016 | 23,425 | — | 168,053 | — | 191,478 | ||||||||||||
2015 | 90,563 | — | 117,151 | — | 207,714 | ||||||||||||
Stuart Haselden | 2017(A) | — | — | — | — | — | |||||||||||
2016 | 10,085 | — | — | — | 10,085 | ||||||||||||
2015 | 99,476 | — | — | — | 99,476 | ||||||||||||
Celeste Burgoyne | 2017 | 684 | — | — | 19,445 | 20,129 | |||||||||||
2016(A) | — | — | — | — | — | ||||||||||||
2015(A) | — | — | — | — | — | ||||||||||||
Lee Holman | 2017(A) | — | — | — | — | — | |||||||||||
2016(A) | — | — | — | — | — | ||||||||||||
2015(A) | — | — | — | — | — | ||||||||||||
Scott Stump | 2017 | 33,424 | 178,462 | — | — | 211,886 | |||||||||||
2016 | 10,652 | — | — | — | 10,652 | ||||||||||||
2015(A) | — | — | — | — | — | ||||||||||||
Michelle Choe | 2017 | 46,964 | — | — | — | 46,964 | |||||||||||
2016(A) | — | — | — | — | — | ||||||||||||
Julie Averill | 2017(A) | — | — | — | — | — | |||||||||||
(A)The aggregate of all perquisites and other personal benefits was less than $10,000.
(6) | Mr. Potdevin resigned on February 2, 2018. He will receive aggregate cash payments equal to $4,280,769 in fiscal 2018 and $719,231 in fiscal 2019 in connection with his separation of employment, subject to his continuing compliance with the terms of the separation agreement and release, as well as various other restrictive covenants, including covenants relating to non-competition, non-solicitation, non-disparagement and confidentiality. |
(7) | Mr. Haselden commenced employment as our Chief Financial Officer in February 2015 and received a one year retention bonus of $500,000 in fiscal 2015 as part of his onboarding package. He received a stock option grant with a grant date fair value of $500,075 in fiscal 2015 in connection with the expansion of his role to include certain operational aspects. |
(8) | Mr. Holman worked for lululemon in a non-executive capacity until October 2015, when he began serving as our Executive Vice President, Creative Director. The amounts reported as compensation earned by Mr. Holman during fiscal 2015 include the amounts earned by him in his previous capacity. |
(9) | Mr. Holman resigned effective December 31, 2017. |
(10) | Mr. Stump's employment was terminated effective October 1, 2017. In addition to severance payments described in Mr. Stump's employment agreement, we paid him a cash payment of $30,000 in fiscal 2017 to cover relocation costs and personal tax preparation fees. |
(11) | Ms. Choe commenced employment as our Senior Vice President, Merchandising in November 2016 and received a two year retention bonus of $125,000 and a restricted stock unit grant with a grant fair date value of $125,017 in fiscal 2016 as part of her onboarding package. |
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(12) | Ms. Averill commenced employment as our Executive Vice President, Chief Technology Officer in May 2017 and received a one-year retention bonus of $125,000 and a restricted stock unit grant with a grant fair date value of $125,007 in fiscal 2017 as part of her onboarding package. |
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2017 Grants of Plan-Based Awards
The following table shows each plan-based award made to a named executive officer in fiscal 2017.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock (#) | All Other Option Awards: Number of Securities Underlying Options (#)(2) | Exercise or Base Price of Option Awards ($/Share) | Grant Date Fair Value of Stock and Option Awards ($)(3) | |||||||||||||||||||||||||||||
Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#)(1) | Target (#)(1) | Maximum (#)(1) | ||||||||||||||||||||||||||
Laurent Potdevin(6) | Stock Option | 03/31/2017 | — | — | — | — | — | — | — | 119,745 | 51.87 | 2,002,978 | ||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 03/31/2017 | — | — | — | 19,279 | 38,558 | 77,116 | — | — | — | 2,000,003 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 03/31/2017 | 815,263 | 1,630,526 | 3,261,053 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Stuart Haselden | Stock Option | 03/31/2017 | — | — | — | — | — | — | — | 15,268 | 51.87 | 255,388 | ||||||||||||||||||||||
Stock Option | 06/08/2017 | — | — | — | — | — | — | — | 1,945 | 51.72 | 32,440 | |||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 03/31/2017 | — | — | — | 4,097 | 8,194 | 16,388 | — | — | — | 425,023 | |||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 06/08/2017 | — | — | — | 522 | 1,044 | 2,088 | — | — | — | 53,995 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 03/31/2017 | — | — | — | — | — | — | 3,277 | — | — | 169,978 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 06/08/2017 | — | — | — | — | — | — | 418 | — | — | 21,619 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 03/31/2017 | 303,411 | 606,823 | 1,213,646 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Celeste Burgoyne | Stock Option | 03/31/2017 | — | — | — | — | — | — | — | 9,879 | 51.87 | 165,246 | ||||||||||||||||||||||
Stock Option | 06/13/2017 | — | — | — | — | — | — | — | 1,686 | 52.39 | 28,485 | |||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 03/31/2017 | — | — | — | 2,651 | 5,302 | 10,604 | — | — | — | 275,015 | |||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 06/13/2017 | — | — | — | 453 | 905 | 1,810 | — | — | — | 47,413 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 03/31/2017 | — | — | — | — | — | — | 2,121 | — | — | 110,016 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 06/13/2017 | — | — | — | — | — | — | 362 | — | — | 18,965 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 03/31/2017 | 186,522 | 373,044 | 746,089 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Lee Holman(7) | Stock Option | 03/31/2017 | — | — | — | — | — | — | — | 15,268 | 51.87 | 255,388 | ||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 03/31/2017 | — | — | — | 4,097 | 8,194 | 16,388 | — | — | — | 425,023 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 03/31/2017 | — | — | — | — | — | — | 3,277 | — | — | 169,978 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 03/31/2017 | 212,889 | 425,779 | 851,558 | — | — | — | — | — | — | — | |||||||||||||||||||||||
39 | |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock (#) | All Other Option Awards: Number of Securities Underlying Options (#)(2) | Exercise or Base Price of Option Awards ($/Share) | Grant Date Fair Value of Stock and Option Awards ($)(3) | |||||||||||||||||||||||||||||
Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#)(1) | Target (#)(1) | Maximum (#)(1) | ||||||||||||||||||||||||||
Scott Stump(8) | Stock Option | 03/31/2017 | — | — | — | — | — | — | — | 14,010 | 51.87 | 234,346 | ||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 03/31/2017 | — | — | — | 3,760 | 7,519 | 15,038 | — | — | — | 390,010 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 03/31/2017 | — | — | — | — | — | — | 3,008 | — | — | 156,025 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 03/31/2017 | 145,750 | 291,500 | 583,001 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Michelle Choe | Stock Option | 03/31/2017 | — | — | — | — | — | — | — | 5,838 | 51.87 | 97,652 | ||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 03/31/2017 | — | — | — | 1,567 | 3,133 | 6,266 | — | — | — | 162,509 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 03/31/2017 | — | — | — | — | — | — | 1,253 | — | — | 64,993 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 03/31/2017 | 145,000 | 290,000 | 580,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Julie Averill(9) | Stock Option | 06/08/2017 | — | — | — | — | — | — | — | 6,038 | 51.72 | 100,706 | ||||||||||||||||||||||
Performance-Based Restricted Stock Unit | 06/08/2017 | — | — | — | 1,620 | 3,240 | 6,480 | — | — | — | 167,573 | |||||||||||||||||||||||
Restricted Stock Unit(4) | 06/08/2017 | — | — | — | — | — | — | 3,713 | — | — | 192,036 | |||||||||||||||||||||||
Performance-Based Cash Award(5) | 06/08/2017 | 131,965 | 263,931 | 527,861 | — | — | — | — | — | — | — | |||||||||||||||||||||||
__________
(1) | The performance-based restricted stock units vest based on achievement of performance goals over a three-year performance period. |
(2) | The stock options vest in 25% installments on the four anniversary dates following the grant date. |
(3) | This column reflects the grant date fair value in U.S. dollars of the award granted at target in accordance with FASB ASC Topic 718. See the notes to our financial statements contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2018 for a discussion of all assumptions made by us in determining the FASB ASC Topic 718 values of our equity awards. |
(4) | The restricted stock units vest in installments of 33%, 33% and 34% on the three anniversary dates following the grant date. |
(5) | Each of the performance-based cash awards shown in the table was granted under our 2014 Equity Incentive Plan, which provides flexibility to grant cash incentive awards, as well as equity awards. The material terms of the 2017 performance-based cash awards are described under "Executive Compensation - Compensation Discussion and Analysis" in the section entitled "Annual Cash Incentives." |
(6) | Mr. Potdevin resigned effective February 2, 2018. The awards granted in fiscal 2017 were forfeited. |
(7) | Mr. Holman resigned effective December 31, 2017. The awards granted in fiscal 2017 were forfeited. |
(8) | Mr. Stump's employment was terminated effective October 1, 2017. The awards granted in fiscal 2017 were forfeited. |
(9) | Ms. Averill commenced employment as our Executive Vice President, Chief Technology Officer in May 2017 and received a restricted stock unit grant with a grant date fair value of $125,007 in fiscal 2017 as part of her onboarding package. |
40 | |
Outstanding Equity Awards at 2017 Fiscal Year End
The following tables show information regarding the outstanding equity awards held by each of the named executive officers on January 28, 2018.
Outstanding Stock Option Awards | |||||||||||||
Name | Grant Date(1) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||
Laurent Potdevin(2) | 03/31/2014 | 20,984 | 6,995 | 52.59 | 03/31/2021 | ||||||||
09/15/2014 | 24,967 | 8,322</ | |||||||||||