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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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| Dollar General Corporation 100 Mission Ridge Goodlettsville, Tennessee 37072 |
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Dear Fellow Shareholder:
The 2017 Annual Meeting of Shareholders of Dollar General Corporation will be held on Wednesday, May 31, 2017, at 9:00 a.m., Central Time, at Goodlettsville City Hall Auditorium, 105 South Main Street, Goodlettsville, Tennessee. All shareholders of record at the close of business on March 23, 2017 are invited to attend the annual meeting. For security reasons, however, to gain admission to the meeting you may be required to present photo identification and comply with other security measures.
At this year's meeting, you will have an opportunity to vote on the matters described in our accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. Our 2016 Annual Report also accompanies this letter.
Your interest in Dollar General and your vote are very important to us. We encourage you to read the Proxy Statement and vote your proxy as soon as possible so your vote can be represented at the annual meeting. You may vote your proxy via the Internet or telephone, or if you received a paper copy of the proxy materials by mail, you may vote by mail by completing and returning a proxy card.
On behalf of the Board of Directors, thank you for your continued support of Dollar General.
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Sincerely, |
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/s/ Michael M. Calbert |
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Michael M. Calbert Chairman of the Board |
April 12, 2017
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| Dollar General Corporation 100 Mission Ridge Goodlettsville, Tennessee 37072 |
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: | | Wednesday, May 31, 2017 | ||
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9:00 a.m., Central Time |
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PLACE: |
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Goodlettsville City Hall Auditorium 105 South Main Street Goodlettsville, Tennessee |
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ITEMS OF BUSINESS: |
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To elect as directors the 8 nominees listed in the proxy statement |
| 2) | | To approve the material terms of the performance goals under our Amended and Restated 2007 Stock Incentive Plan for purposes of compensation deductibility under Internal Revenue Code Section 162(m) and the limit on non-employee director compensation set forth in such Plan | |
| 3) | | To approve the material terms of the performance goals under our Amended and Restated Annual Incentive Plan for purposes of compensation deductibility under Internal Revenue Code Section 162(m) | |
| 4) | | To hold an advisory vote to approve our named executive officer compensation as disclosed in this proxy statement | |
| 5) | | To hold an advisory vote on the frequency of future advisory votes on our named executive officer compensation | |
| 6) | | To ratify the appointment of our independent registered public accounting firm for fiscal 2017 | |
| 7) | | To transact any other business that may properly come before the annual meeting and any adjournments of that meeting | |
WHO MAY VOTE: |
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Shareholders of record at the close of business on March 23, 2017 |
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By Order of the Board of Directors, |
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/s/ Christine L. Connolly |
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Goodlettsville, Tennessee April 12, 2017 |
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Christine L. Connolly Corporate Secretary |
Please vote your proxy as soon as possible even if you expect to attend the annual meeting in person. You may vote your proxy via the Internet or by phone by following the instructions on the notice of internet availability or proxy card, or if you received a paper copy of these proxy materials by mail, you may vote by mail by completing and returning the enclosed proxy card in the enclosed reply envelope. No postage is necessary if the proxy is mailed within the United States. You may revoke your proxy by following the instructions listed on page 4 of the proxy statement.
DOLLAR GENERAL CORPORATION
Proxy Statement for
2017 Annual Meeting of Shareholders
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 31, 2017
This Proxy Statement, our 2016 Annual Report and a form of proxy card are available at www.proxyvote.com. You will need your Notice of Internet Availability or proxy card to access the proxy materials.
As permitted by rules adopted by the Securities and Exchange Commission ("SEC"), we are furnishing our proxy materials over the Internet to some of our shareholders. This means that some shareholders will not receive paper copies of these documents. Instead, these shareholders will receive only a Notice of Internet Availability containing instructions on how to access the proxy materials over the Internet. The Notice of Internet Availability also contains instructions on how each of those shareholders can request a paper copy of our proxy materials, including the Proxy Statement, our 2016 Annual Report and a proxy card. Shareholders who do not receive a Notice of Internet Availability will receive a paper copy of the proxy materials by mail, unless they have previously requested delivery of proxy materials electronically. If you received only the Notice of Internet Availability and would like to receive a paper copy of the proxy materials, the notice contains instructions on how you can request copies of these documents.
What is Dollar General Corporation and where is it located?
Dollar General has been delivering value to shoppers for over 75 years through its mission of Serving Others. Dollar General helps shoppers Save time. Save money. Every day!® by offering products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, clothing for the family, housewares and seasonal items at low everyday prices in convenient neighborhood locations. Dollar General operates 13,429 stores in 44 states as of March 3, 2017. Our principal executive offices are located at 100 Mission Ridge, Goodlettsville, Tennessee 37072. Our telephone number is 615-855-4000.
Where is Dollar General common stock traded?
Our stock is traded on the New York Stock Exchange ("NYSE") under the symbol "DG."
What is this document?
This document is the proxy statement of Dollar General Corporation for the Annual Meeting of Shareholders to be held on Wednesday, May 31, 2017. We will begin mailing printed copies of this document or the Notice of Internet Availability to shareholders on or about April 12, 2017. We are providing this document to solicit your proxy to vote upon certain matters at the annual meeting.
We refer to our company as "we," "us" or "Dollar General." Unless otherwise noted or required by context, "2017," "2016," "2015," "2014," and "2013" refer to our fiscal years ending or ended February 2, 2018, February 3, 2017, January 29, 2016, January 30, 2015, and January 31, 2014, respectively.
What is a proxy, who is asking for it, and who is paying for the cost to solicit it?
A proxy is your legal designation of another person, called a "proxy," to vote your stock. The document that designates someone as your proxy is also called a proxy or a proxy card.
Dollar General will pay all solicitation expenses. Our directors, officers and employees are soliciting your proxy on behalf of our Board of Directors and will not receive additional remuneration for doing so except reimbursement for any related out-of-pocket expenses they may incur. We also have retained Innisfree M&A Incorporated to assist in the solicitation of proxies and to separately prepare a shareholder vote analysis of certain proposals for an aggregate fee of approximately $20,000, plus customary costs and expenses. We may reimburse custodians and nominees for their expenses in sending proxy materials to beneficial owners. Solicitation of proxies by mail may be supplemented by telephone, email and other electronic means, advertisements and personal solicitation, or otherwise.
Who may attend the annual meeting?
Only shareholders, their proxy holders and our invited guests may attend the meeting. If your shares are registered in the name of a broker, trust, bank or other nominee, you will need to bring a proxy or a letter from that record holder or your most recent brokerage account statement that confirms your ownership of those shares as of March 23, 2017. For security reasons, we also may require photo identification for admission.
Where can I find directions to the annual meeting?
Directions to Goodlettsville City Hall, where we will hold the annual meeting, are posted on the "Investor Information" section of our website located at www.dollargeneral.com.
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Will the annual meeting be webcast?
Yes. You are invited to visit the "News and EventsEvents and Presentations" section of the "Investor Information" section of our website located at www.dollargeneral.com at 9:00 a.m., Central Time, on May 31, 2017 to access the live webcast of the annual meeting. An archived copy of the webcast will be available on our website for at least 60 days. The information on our website, however, is not incorporated by reference into, and does not form a part of, this proxy statement.
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How many votes must be present to hold the annual meeting?
A quorum, consisting of the presence in person or by proxy of the holders of a majority of shares of our common stock outstanding on March 23, 2017, must exist to conduct any business at the meeting.
What if a quorum is not present at the annual meeting?
If a quorum is not present at the meeting, any officer entitled to preside at or to act as Secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present.
What am I voting on?
You will be asked to vote:
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| on the election of 8 directors listed in this proxy statement; |
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| on the approval of the material terms of the performance goals under our Amended and Restated 2007 Stock Incentive Plan (the "Stock Incentive Plan") for purposes of compensation deductibility under Internal Revenue Code Section 162(m) and the limit on non-employee director compensation set forth in the Stock Incentive Plan; |
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| on the approval of the material terms of the performance goals under our Amended and Restated Annual Incentive Plan (the "Annual Incentive Plan") for purposes of compensation deductibility under Internal Revenue Code Section 162(m); |
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| on the approval on an advisory basis of our named executive officer compensation as disclosed in this proxy statement; |
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| on an advisory basis on the frequency of holding future advisory votes on our named executive officer compensation; and |
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| on the ratification of the appointment of our independent registered public accounting firm (the "independent auditor") for 2017. |
May other matters be raised at the annual meeting?
We are unaware of other matters to be acted upon at the meeting. Under Tennessee law and our governing documents, no other non-procedural business may be raised at the meeting unless proper notice has been given to shareholders. If other business is properly raised, your proxies have authority to vote as they think best, including to adjourn the meeting.
Who is entitled to vote at the annual meeting?
You may vote if you owned shares of Dollar General common stock at the close of business on March 23, 2017. As of that date, there were 274,892,175 shares of Dollar General common stock outstanding and entitled to vote. Each share is entitled to one vote on each matter.
What is the difference between a "shareholder of record" and a "street name" holder?
You are a "shareholder of record" if your shares are registered directly in your name with Wells Fargo Shareowner Services, our transfer agent. You are a "street name" holder if your shares are held in the name of a brokerage firm, bank, trust or other nominee as custodian.
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How do I vote?
If you are a shareholder of record, you may vote your proxy over the telephone or Internet or, if you received printed proxy materials, by marking, signing, dating and returning the printed proxy card in the enclosed envelope. Please refer to the instructions on the Notice of Internet Availability or proxy card, as applicable. Alternatively, you may vote in person at the meeting.
If you are a street name holder, your broker, bank, or other nominee will provide materials and instructions for voting your shares. You may vote in person at the meeting if you obtain and bring to the meeting a legal proxy from your broker, banker, trustee or other nominee giving you the right to vote the shares.
What if I receive more than one Notice of Internet Availability or proxy card?
You will receive multiple Notices of Internet Availability or proxy cards if you hold shares in different ways (e.g., joint tenancy, trusts, custodial accounts, etc.) or in multiple accounts. Street name holders will receive the Notice of Internet Availability or proxy card or other voting information, along with voting instructions, from their brokers. Please vote the shares represented by each Notice of Internet Availability or proxy card you receive to ensure that all your shares are voted.
How will my proxy be voted?
The persons named on the proxy card will vote your proxy as you direct or, if you return a signed proxy card or complete the Internet or telephone voting procedures but do not specify how you want to vote your shares: "FOR" all directors nominated in this proxy statement; "FOR" the approval of the matters pertaining to the Stock Incentive Plan; "FOR" the approval of the matters pertaining to the Annual Incentive Plan; "FOR" approval, on an advisory basis, of the compensation of our named executive officers as disclosed in this proxy statement pursuant to the SEC's compensation disclosure rules; on an advisory basis, for a frequency of once every "3 YEARS" for future advisory votes on our named executive officer compensation; and "FOR" ratification of Ernst & Young LLP as our independent auditor for 2017.
Can I change my mind and revoke my proxy?
Yes. A shareholder of record may revoke a proxy given pursuant to this solicitation by:
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| signing a valid, later-dated proxy card and submitting it so that it is received before the annual meeting in accordance with the instructions included in the proxy card; |
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| at or before the annual meeting, submitting to our Corporate Secretary a written notice of revocation dated later than the date of the proxy; |
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| submitting a later-dated vote by telephone or Internet no later than 11:59 p.m., Eastern time, on May 30, 2017; or |
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| attending the annual meeting and voting in person. |
Your attendance at the annual meeting, by itself, will not revoke your proxy.
A street name holder may revoke a proxy given pursuant to this solicitation by following the instructions of the bank, broker, trustee or other nominee who holds his or her shares.
How many votes are needed to elect directors?
To be elected at the annual meeting, a nominee must receive the affirmative vote of a majority of votes cast by holders of shares entitled to vote at the meeting. Under our Amended and Restated Charter, the "affirmative vote of a majority of votes cast" means that the number of votes cast in favor
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of a nominee's election exceeds the number of votes cast against his or her election. You may vote in favor of or against the election of each nominee, or you may elect to abstain from voting your shares.
What happens if a director fails to receive the required vote for election?
An incumbent director who does not receive the required vote for election at the annual meeting must promptly tender a resignation as a director for the Board's consideration pursuant to our Board-approved director resignation policy outlined in our Corporate Governance Guidelines. Each director standing for re-election at the annual meeting has agreed to resign, effective upon the Board's acceptance of such resignation, if he or she does not receive a majority vote. If the Board rejects the offered resignation, the director will continue to serve until the next annual shareholders' meeting and until his or her successor is duly elected or his or her earlier resignation or removal in accordance with our Bylaws. If the Board accepts the offered resignation, the Board, in its sole discretion, may fill the resulting vacancy or decrease the size of the Board.
How many votes are needed to approve other matters?
The proposals pertaining to the Stock Incentive Plan and to the Annual Incentive Plan, the proposal to approve on an advisory basis the compensation of our named executive officers, and the proposal to ratify the appointment of our independent auditor for 2017 will be approved if the votes cast in favor of the applicable proposal exceed the votes cast against it. The vote on the compensation of our named executive officers is advisory and, therefore, not binding on Dollar General, our Board of Directors, or its Compensation Committee. With respect to these proposals, and any other matter properly brought before the annual meeting, you may vote in favor of or against the proposal, or you may elect to abstain from voting your shares.
For the advisory vote on the frequency of future advisory votes on our named executive officer compensation, the option of 1 year, 2 years or 3 years that receives the highest number of votes cast by shareholders will be the frequency that has been selected by shareholders. However, because this vote is advisory and not binding on Dollar General or our Board of Directors in any way, our Board may decide that it is in the best interests of our shareholders and Dollar General to hold such advisory votes more or less frequently than the option selected by our shareholders. With respect to this proposal, you may vote by choosing the option of 1 year, 2 years, or 3 years, or you may elect to abstain from voting your shares.
What are broker non-votes?
Although your broker is the record holder of any shares that you hold in street name, it must vote those shares pursuant to your instructions. If you do not provide instructions, your broker may exercise discretionary voting power over your shares for "routine" items but not for "non-routine" items. All matters described in this proxy statement, except for the ratification of the appointment of our independent auditor, are considered to be non-routine matters.
"Broker non-votes" occur when shares held of record by a broker are not voted on a matter because the broker has not received voting instructions from the beneficial owner and either lacks or declines to exercise the authority to vote the shares in its discretion.
How will abstentions and broker non-votes be treated?
Abstentions and broker non-votes, if any, will be treated as shares that are present and entitled to vote for purposes of determining whether a quorum is present but will not be counted as votes cast either in favor of or against a particular proposal and will have no effect on the outcome of a particular proposal.
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PROPOSAL 1:
ELECTION OF DIRECTORS
What is the structure of the Board of Directors?
Our Board of Directors must consist of 1 to 15 directors, with the exact number, currently fixed at 8, set by the Board. All directors are elected annually by our shareholders.
Who are the nominees this year?
The nominees for the Board of Directors consist of the 8 current directors. If elected, each nominee would hold office until the 2018 annual meeting of shareholders and until his or her successor is elected and qualified, subject to any earlier resignation or removal. These nominees, their ages at the date of this proxy statement and the calendar year in which they first became a director are listed in the table below.
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| Name | | Age | | Director Since | | |
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| Warren F. Bryant |
| 71 | | 2009 | | |
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| Michael M. Calbert |
| 54 | | 2007 | | |
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| Sandra B. Cochran |
| 58 | | 2012 | | |
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| Patricia D. Fili-Krushel |
| 63 | | 2012 | | |
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| Paula A. Price |
| 55 | | 2014 | | |
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| William C. Rhodes, III |
| 51 | | 2009 | | |
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| David B. Rickard |
| 70 | | 2010 | | |
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| Todd J. Vasos |
| 55 | | 2015 | |
What are the backgrounds of this year's nominees?
Mr. Bryant served as the President and Chief Executive Officer of Longs Drug Stores Corporation, a retail drugstore chain on the West Coast and in Hawaii, from 2002 through 2008 and as its Chairman of the Board from 2003 through his retirement in 2008. Prior to joining Longs Drug Stores, he served as a Senior Vice President of The Kroger Co., a retail grocery chain, from 1999 to 2002. Mr. Bryant has served as a director of Office Depot, Inc. since November 2013 and Loblaw Companies Limited of Canada since May 2013 and served as a director of OfficeMax Incorporated from 2004 to 2013.
Mr. Calbert has served as our Chairman of the Board since January 30, 2016. He joined KKR & Co. L.P. ("KKR") in January 2000 and was directly involved with several KKR portfolio companies until his retirement in January 2014. Mr. Calbert led the Retail industry team within KKR's Private Equity platform prior to his retirement and served as a consultant to KKR from his retirement until June 2015. Mr. Calbert joined Randall's Food Markets beginning in 1994 and served as the Chief Financial Officer from 1997 until it was sold in September 1999. Mr. Calbert also previously worked as a certified public accountant and consultant with Arthur Andersen Worldwide from 1985 to 1994, where his primary focus was the retail and consumer industry. He previously served as our Chairman of the Board from July 2007 until December 2008 and as our lead director from March 2013 until his re-appointment as our Chairman of the Board in January 2016.
Ms. Cochran has served as a director and as President and Chief Executive Officer of Cracker Barrel Old Country Store, Inc. since September 2011. She joined Cracker Barrel in April 2009 as Executive Vice President and Chief Financial Officer, and was named President and Chief Operating Officer in November 2010. She was previously Chief Executive Officer at book retailer Books-A-Million, Inc. from February 2004 to April 2009. She also served as that company's President (August 1999February 2004), Chief Financial Officer (September 1993August 1999) and Vice President of Finance (August 1992September 1993). Ms. Cochran has served as a director of Lowe's Companies, Inc. since January 2016.
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Ms. Fili-Krushel is the former Executive Vice President for NBCUniversal where she served as a strategist and key advisor to the CEO of NBCUniversal from April 2015 to November 2015. She served as Chairman of NBCUniversal News Group, a division of NBCUniversal Media, LLC, composed of NBC News, CNBC, MSNBC and the Weather Channel, from July 2012 until April 2015. She previously served as Executive Vice President of NBCUniversal (January 2011July 2012) with a broad portfolio of functions reporting to her, including operations and technical services, business strategy, human resources and legal. Prior to NBCUniversal, Ms. Fili-Krushel was Executive Vice President of Administration at Time Warner Inc. (July 2001December 2010) where her responsibilities included oversight of philanthropy, corporate social responsibility, human resources, worldwide recruitment, employee development and growth, compensation and benefits, and security. Before joining Time Warner in July 2001, Ms. Fili-Krushel had been Chief Executive Officer of WebMD Health Corp. since April 2000. From July 1998 to April 2000, Ms. Fili-Krushel was President of the ABC Television Network, and from 1993 to 1998 she served as President of ABC Daytime. Before joining ABC, she had been with Lifetime Television since 1988. Prior to Lifetime, Ms. Fili-Krushel held several positions with Home Box Office. Before joining HBO, Ms. Fili-Krushel worked for ABC Sports in various positions.
Ms. Price has been Senior Lecturer at Harvard Business School in the Accounting and Management Unit since July 2014. She was Executive Vice President and Chief Financial Officer of Ahold USA from May 2009 until January 2014. At Ahold, which operates more than 700 supermarkets under the Stop & Shop, Giant and Martin's names as well as the Peapod online grocery delivery service, Ms. Price was responsible for finance, accounting and shared services, strategic planning, real estate development, store format and construction, and information technology. Before joining Ahold, she was the Senior Vice President, Controller and Chief Accounting Officer at CVS Health Corporation (formerly CVS Caremark Corporation) from July 2006 until August 2008. Earlier in her career, Ms. Price served as the Chief Financial Officer for the Institutional Trust Services division of JPMorgan Chase (from August 2002 until September 2005) and held several other senior management positions in the U.S. and the U.K. in the financial services and consumer packaged goods industries. A certified public accountant, she began her career at Arthur Andersen & Co. Ms. Price also has served as a director of Accenture plc since May 2014 and Western Digital Corporation since July 2014 and served as a director of Charming Shoppes, Inc. (Lane Bryant, Catherine's, Fashion Bug, Cacique and Figi's brands) from March 2011 until it was sold in June 2012.
Mr. Rhodes was elected Chairman of AutoZone, Inc., a specialty retailer and distributor of automotive replacement parts and accessories, in June 2007. He has served as President and Chief Executive Officer and as a director of AutoZone since 2005. Prior to his appointment as President and Chief Executive Officer, Mr. Rhodes was Executive Vice PresidentStore Operations and Commercial. Prior to 2004, he had been Senior Vice PresidentSupply Chain and Information Technology since 2002, and prior thereto had been Senior Vice PresidentSupply Chain since 2001. Prior to that time, he served in various capacities with AutoZone since 1994, including Vice PresidentStores in 2000, Senior Vice PresidentFinance and Vice PresidentFinance in 1999, and Vice PresidentOperations Analysis and Support from 1997 to 1999. Prior to 1994, Mr. Rhodes was a manager with Ernst & Young LLP.
Mr. Rickard served as the Executive Vice President, Chief Financial Officer and Chief Administrative Officer of CVS Health Corporation (formerly CVS Caremark Corporation), a retail pharmacy chain and provider of healthcare services and pharmacy benefits management, from September 1999 until his retirement in December 2009. Prior to joining CVS, Mr. Rickard was the Senior Vice President and Chief Financial Officer of RJR Nabisco Holdings Corporation from March 1997 to August 1999. Previously, he was Executive Vice President of International Distillers and Vintners Americas. Mr. Rickard was a director of Jones Lang LaSalle Incorporated from July 2007 to May 2016 and a director of Harris Corporation from October 2001 until October 2016.
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Mr. Vasos has served as Chief Executive Officer and a member of our Board since June 2015. He joined Dollar General in December 2008 as Executive Vice President, Division President and Chief Merchandising Officer. He was promoted to Chief Operating Officer in November 2013. Prior to joining Dollar General, Mr. Vasos served in executive positions with Longs Drug Stores Corporation for seven years, including Executive Vice President and Chief Operating Officer (February 2008 through November 2008) and Senior Vice President and Chief Merchandising Officer (20012008), where he was responsible for all pharmacy and front-end marketing, merchandising, procurement, supply chain, advertising, store development, store layout and space allocation, and the operation of three distribution centers. He also previously served in leadership positions at Phar-Mor Food and Drug Inc. and Eckerd Corporation.
How are directors identified and nominated?
All nominees for election as directors at the annual meeting currently serve on our Board of Directors and were nominated by the Board for re-election upon the recommendation of the Nominating and Governance Committee (the "Nominating Committee"). The Nominating Committee is responsible for identifying, evaluating and recommending director candidates, while our Board is responsible for nominating the director slate for election at the annual meeting.
The Nominating Committee's charter and our Corporate Governance Guidelines require the Nominating Committee to consider candidates recommended by our shareholders, if such recommendations are submitted within the same deadlines and provide the same information that is required for nominating candidates pursuant to the advance notice provisions of our Bylaws (see "Can shareholders nominate or recommend directors?" below), and to apply the same criteria to the evaluation of those candidates as it applies to other director candidates. The Nominating Committee also may use a variety of other methods to identify potential director candidates, such as recommendations by our directors, management, or third-party search firms.
Our employment agreement with Mr. Vasos requires that we nominate him to serve as a member of our Board each year that he is slated for re-election by our shareholders. Our failure to do so could give rise to a claim for breach of contract and may constitute good reason for employment termination by Mr. Vasos under the employment agreement.
How are nominees evaluated; what are the minimum qualifications?
Subject to Mr. Vasos's employment agreement discussed above, the Nominating Committee is charged with recommending to the Board of Directors only those candidates that it believes are qualified to serve as Board members consistent with the criteria for selection of new directors adopted from time to time by the Board and who have not achieved the age of 76, unless the Board has approved an exception to this limit on a case by case basis. If a waiver is granted, it will be reviewed annually.
We have a written policy to endeavor to achieve a mix of Board members that represent a diversity of background and experience in areas that are relevant to our business. To implement this policy, the Committee assesses diversity by evaluating each candidate's individual qualifications in the context of how that candidate would relate to the Board as a whole and also considers more traditional concepts of diversity. The Committee periodically assesses the effectiveness of this policy by considering whether the Board as a whole represents such diverse experience and composition and by recommending to the Board changes to the criteria for selection of new directors as appropriate. The Committee recommends candidates, including those submitted by shareholders, only if it believes the candidate's knowledge, experience and expertise would strengthen the Board and that the candidate is committed to representing the long-term interests of all Dollar General shareholders.
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The Nominating Committee assesses a candidate's independence, background and experience, as well as the current Board's skill needs and diversity. With respect to incumbent directors considered for re-election, the Committee also assesses each director's meeting attendance record and suitability for continued service. In addition, the Committee determines that all nominees are in a position to devote an adequate amount of time to the effective performance of director duties and possess the following characteristics: integrity and accountability, informed judgment, financial literacy, a cooperative approach, a record of achievement, loyalty, and the ability to consult with and advise management.
What particular experience, qualifications, attributes or skills led the Board of Directors to conclude that each nominee should serve as a director of Dollar General?
Our Board of Directors believes that each of the nominees can devote an adequate amount of time to the effective performance of director duties and possesses the minimum qualifications identified above. The Board has determined that the nominees, as a whole, complement each other, meet the Board's skill needs, and represent diverse experience at policy-making levels in areas relevant to our business. The Board also considered the following in determining that the nominees should serve as directors of Dollar General:
Mr. Bryant has over 40 years of retail experience, including experience in marketing, merchandising, operations and finance. His substantial experience in leadership and policy-making roles at other retail companies, together with his current and former experience as a board member for certain other retailers, provides him with an extensive understanding of our industry, as well as with valuable executive management skills and the ability to effectively advise our CEO.
Mr. Calbert has considerable experience in managing private equity portfolio companies and is familiar with corporate finance and strategic business planning activities. As the former head of KKR's Retail industry team, Mr. Calbert has a strong background and extensive experience in advising and managing companies in the retail industry, including evaluating business strategies, financial plans and structures, and management teams. His former service on various private company boards in the retail industry further strengthens his knowledge and experience within our industry. Mr. Calbert also has a significant financial and accounting background evidenced by his prior experience as the chief financial officer of a retail company and his 10 years of practice as a certified public accountant.
Ms. Cochran brings over 20 years of retail experience to Dollar General as a result of her current and former roles at Cracker Barrel Old Country Store and her former roles at Books-A-Million. This experience allows her to provide additional support and perspective to our CEO and our Board. In addition, Ms. Cochran's industry and executive experience provides leadership, consensus-building, strategic planning, risk management and budgeting skills. Ms. Cochran also has significant financial experience, having served as the chief financial officer of two public companies and as vice president, corporate finance of SunTrust Securities, Inc., and our Board has determined that she qualifies as an audit committee financial expert.
Ms. Fili-Krushel's background increases the breadth of experience of our Board as a result of her extensive executive experience overseeing the business strategy, philanthropy, corporate social responsibility, human resources, recruitment, employee growth and development, compensation and benefits, and legal functions at large public companies in the media industry. In addition, her understanding of consumer behavior based on her knowledge of viewership patterns and preferences provides additional perspective to our Board in understanding our customer base.
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Ms. Price brings broad experience across finance, general management and strategy gained from her service in senior executive and management positions at major corporations across several industries, including as Chief Financial Officer of Ahold USA before her retirement in 2014. Ms. Price's numerous years of experience as a certified public accountant, former chief financial officer and former chief accounting officer provide our Board with valuable experience and insight into accounting and finance matters, and consequently, our Board has determined that Ms. Price is an audit committee financial expert. She also brings to our Board a valuable perspective as a member of the faculty at the Harvard Business School and from her service as a board member of several public companies.
Mr. Rhodes has over 20 years of experience in the retail industry, including extensive experience in operations, supply chain and finance, among other areas. This background serves as a strong foundation for offering invaluable perspective and expertise to our CEO and our Board. In addition, his experience as a board chairman and chief executive officer of a public retail company provides leadership, consensus-building, strategic planning and budgeting skills, as well as extensive understanding of both short- and long-term issues confronting the retail industry. Mr. Rhodes also has a strong financial background.
Mr. Rickard held senior management and executive positions for much of his 38 years in the corporate world. He has significant retail experience and a diverse retail industry background, including previous experience serving on the board of another retail company. He also has an extensive financial and accounting background, having served as the chief financial officer of two public companies, including a large retailer. As a result, our Board has determined that Mr. Rickard is an audit committee financial expert and has elected him to serve as the Chairman of the Audit Committee. Mr. Rickard's financial experience within the retail industry also brings expertise and perspective to our Board's discussions regarding strategic planning and budgeting.
Mr. Vasos has extensive retail experience, including over 8 years with Dollar General. His experience overseeing the merchandising, operations, marketing, advertising, procurement, supply chain, store development, store layout and space allocation functions of other retail companies bolsters Mr. Vasos's thorough understanding of all key areas of our business. In addition, Mr. Vasos's service in leadership and policy-making positions of other retail companies has provided him with the necessary leadership skills to effectively guide and oversee the direction of Dollar General and with the consensus-building skills required to lead our management team.
Acting upon the Nominating Committee's recommendation, and after concluding that these nominees possess the appropriate experience, qualifications, attributes and skills, our Board has unanimously nominated these individuals to be elected by our shareholders at our annual meeting.
Can shareholders nominate or recommend directors?
Yes. Shareholders can nominate directors by following the advance notice procedures outlined in our Bylaws. In addition, shareholders can recommend candidates for consideration by our Nominating Committee by submitting such recommendations within the same deadlines and providing the same information that is required for nominating candidates pursuant to the advance notice provisions in our Bylaws. In short, the shareholder must deliver a written notice to our Corporate Secretary at 100 Mission Ridge, Goodlettsville, Tennessee 37072 for receipt no earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the prior year's annual meeting. However, if the meeting is held more than 30 days before or more than 60 days after such anniversary date, the notice must be received no earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the date of such annual meeting. If the first public announcement of the annual meeting date is less
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than 100 days prior to the date of such annual meeting, the notice must be received by the 10th day following the public announcement date.
The notice must contain all information required by our Bylaws about the shareholder proposing the nominee and about the nominee, which generally includes:
In addition, we have a "proxy access" provision in our Bylaws that, beginning with our 2018 annual meeting of shareholders, permits eligible shareholders to nominate candidates for election to our Board. Proxy access candidates will be included in our proxy statement and ballot subject to the terms and conditions set forth in Article I, Section 12 of our Bylaws. The proxy access provision in our Bylaws provides that holders of at least 3% of our outstanding shares, held by up to 20 shareholders, holding the shares continuously for at least 3 years, can nominate up to 20% of our Board for election at an annual shareholders' meeting. A shareholder who wishes to formally nominate a proxy access candidate must follow the procedures and comply with the deadlines described in Article I, Section 12 of our Bylaws. For more specific information regarding these deadlines in respect of the 2018 annual meeting of shareholders, see "Shareholder Proposals for 2018 Annual Meeting" below.
You should consult our Bylaws, posted on the "Investor InformationCorporate Governance" section of our website located at www.dollargeneral.com, for more detailed information regarding the processes described above by which shareholders may nominate directors, as the information above is a summary only. No shareholder nominees have been submitted for this year's annual meeting.
What if a nominee is unwilling or unable to serve?
That is not expected to occur. If it does, the persons designated as proxies on the proxy card are authorized to vote your proxy for a substitute designated by our Board of Directors.
Are there any familial relationships between any of the nominees?
There are no familial relationships between any of the nominees or between any of the nominees and any of our executive officers.
What does the Board of Directors recommend?
Our Board unanimously recommends that you vote FOR the election of each of the director nominees.
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Does the Board of Directors have standing Audit, Compensation and Nominating Committees?
Yes. Our Board of Directors has a standing Audit Committee, Compensation Committee and Nominating Committee. The Board has adopted a written charter for each of these committees, which are available on the "Investor InformationCorporate Governance" section of our website located at www.dollargeneral.com. Current information regarding these committees is set forth below. In addition to the committee functions outlined below, each such committee performs an annual self-evaluation, periodically reviews and reassesses its charter, and evaluates and makes recommendations concerning shareholder proposals that are within the committee's expertise.
Name of Committee & Members |
| Committee Functions |
---|---|---|
|
| |
AUDIT: Mr. Rickard, Chairman |
| Selects independent auditor and discusses qualifications and experience of lead audit partner candidate(s) (committee's Chairman also interviews such candidates(s)) Pre-approves audit engagement fees and terms and all permitted non-audit services and fees Reviews annual report on independent auditor's internal quality control procedures and any material issues raised by its most recent review of internal quality controls Annually evaluates independent auditor's qualifications, performance and independence, as well as lead audit partner, and periodically considers advisability of audit firm rotation Discusses audit scope and any audit problems or difficulties Sets policies regarding hiring of current and former employees of independent auditor Discusses annual audited and quarterly unaudited financial statements with management and independent auditor Discusses types of information to be disclosed in earnings press releases and provided to analysts and rating agencies Discusses policies governing process by which risk assessment and risk management are undertaken Reviews CEO/CFO disclosures regarding any significant deficiencies or material weaknesses in our internal control over financial reporting Reviews internal audit activities, projects and budget Establishes procedures for receipt, retention and treatment of complaints regarding accounting or internal controls Discusses with our general counsel legal matters having an impact on financial statements Furnishes committee report required in our proxy statement |
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Name of Committee & Members |
| Committee Functions |
---|---|---|
|
| |
COMPENSATION: Mr. Bryant, Chairman |
| Reviews and approves corporate goals and objectives relevant to CEO compensation
Determines executive officer compensation (in case of CEO compensation, with opportunity to ratify by independent directors) and recommends Board compensation for Board approval Oversees overall compensation philosophy and principles Establishes short-term and long-term incentive compensation programs for senior officers and approves all equity awards Oversees share ownership guidelines and holding requirements for Board members and senior officers Oversees evaluation process for senior officers Reviews and discusses disclosure regarding executive compensation, including Compensation Discussion and Analysis and compensation tables (in addition to preparing a report on executive compensation for our proxy statement) Selects and determines fees of its compensation consultant Oversees and evaluates independence of its compensation consultant and other advisors |
NOMINATING AND |
| Develops and recommends criteria for selecting new directors |
GOVERNANCE: |
| Screens and recommends to our Board individuals qualified to serve |
Mr. Rhodes, Chairman |
| on our Board Recommends Board committee structure and membership Recommends persons to fill Board and committee vacancies Develops and recommends Corporate Governance Guidelines and corporate governance practices Oversees process governing annual Board, committee and director evaluations |
Does Dollar General have an audit committee financial expert serving on its Audit Committee?
Yes. Our Board has determined that each of Mr. Rickard, Ms. Cochran and Ms. Price is an audit committee financial expert who is independent as defined in NYSE listing standards and in our Corporate Governance Guidelines. The SEC has determined that designation as an audit committee financial expert will not cause a person to be deemed to be an "expert" for any purpose.
How often did the Board and its committees meet in 2016?
During 2016, our Board, Audit Committee, Compensation Committee and Nominating Committee met 7, 6, 6 and 3 times, respectively. Each incumbent director attended at least 75% of the total of all meetings of the Board and all committees on which he or she served which were held during the period for which he or she was a director and a member of each applicable committee.
What is Dollar General's policy regarding Board member attendance at the annual meeting?
Our Board of Directors has adopted a policy that all directors should attend annual shareholders' meetings unless attendance is not feasible due to unavoidable circumstances. All persons serving as Board members at the time attended the 2016 annual shareholders' meeting.
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Does Dollar General separate the positions of Chairman and CEO?
Yes. Mr. Calbert, an independent director, serves as our Chairman of the Board. This decision affords our CEO the opportunity to focus his time and energy on managing our business and allows our Chairman to devote his time and attention to matters of Board oversight and governance. The Board, however, recognizes that no single leadership model is right for all companies and at all times, and the Board will review its leadership structure as appropriate to ensure it continues to be in the best interests of Dollar General and our shareholders.
To further promote effective independent Board leadership, the Board has adopted a number of additional governance practices, including:
Does the Board of Directors evaluate the performance of Board members?
Yes. As part of its responsibility for overseeing the evaluation of the Board of Directors, the Nominating Committee approves an evaluation process to be followed by the Board and each standing committee and encourages our directors to provide candid feedback on any Board member to the Chairman of the Nominating Committee or the Chairman of the Board. Such chairmen meet at least annually to review any such feedback and any other information related to individual director performance and to discuss what, if any, response or follow-up action is appropriate and in Dollar General's best interests.
What is the Board of Director's role in risk oversight?
Our Board of Directors and its committees have an important role in our risk oversight process. Our Board regularly reviews with management our financial and business strategies, including relevant material risks as appropriate. Our General Counsel also periodically provides information to the Board regarding our insurance coverage and programs as well as litigation risks.
The Audit Committee discusses our risk assessment and risk management procedures, primarily through oversight of our enterprise risk management program. Our Internal Audit department coordinates that program, which entails review and documentation of our comprehensive risk management practices. The program evaluates internal and external risks, identifies mitigation strategies, and assesses any remaining residual risk. The program is updated through interviews with senior management and our Board, review of strategic initiatives, review of upcoming legislative or regulatory changes, review of certain internal metrics and review of other outside information concerning business, financial, legal, reputational, and other risks. The results are presented to the Audit Committee at least annually, and categories with high residual risk, along with their mitigation strategies, are reviewed quarterly. Our Audit Committee also quarterly reviews metrics and information pertaining to information security risks and mitigation.
Our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation program. As discussed under "Executive CompensationCompensation Risk Considerations" below, the Compensation Committee also participates in periodic assessments of the risks relating to our overall compensation programs.
While the Audit Committee and the Compensation Committee oversee the risk areas identified above, the entire Board is regularly informed about risks through the committee reporting process. This
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enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. Our Board believes this division of risk management responsibilities effectively addresses the material risks facing Dollar General. Our Board further believes that our leadership structure, described above, supports the risk oversight function of the Board as it allows our independent directors, through the three fully independent Board committees and in executive sessions of independent directors led by our independent Chairman of the Board, to exercise effective oversight of the actions of management in identifying risks and implementing effective risk management policies and controls.
Does Dollar General have a management succession plan?
Yes. Our Corporate Governance Guidelines require our Board of Directors to coordinate with our CEO to ensure that a formalized process governs long-term management development and succession. Our Board formally reviews our management succession plan at least annually. Our comprehensive program encompasses not only our CEO and other executive officers but all employees through the front-line supervisory level. The program focuses on key succession elements, including identification of potential successors for positions where it has been determined that internal succession is appropriate, assessment of each potential successor's level of readiness, and preparation of individual growth and development plans. With respect to CEO succession planning, our long-term business strategy is also considered. In addition, we maintain at all times, and review with the Board periodically, a confidential procedure for the timely and efficient transfer of the CEO's responsibilities in the event of an emergency or his sudden incapacitation or departure.
Are there share ownership guidelines and holding requirements for Board members and senior officers?
Yes. Details of our share ownership guidelines and holding requirements for Board members and senior officers are included in our Corporate Governance Guidelines. See "Compensation Discussion and Analysis" and "Director Compensation" for more information on such ownership guidelines and holding requirements for senior officers and Board members, respectively.
How can I communicate with the Board of Directors?
Our Board-approved process for security holders and other interested parties to contact the Board of Directors, a particular director, or the non-management directors or the independent directors as a group is described on www.dollargeneral.com under "Investor InformationCorporate Governance."
Where can I find more information about Dollar General's corporate governance practices?
Our governance-related information is posted on www.dollargeneral.com under "Investor InformationCorporate Governance," including our Corporate Governance Guidelines, Code of Business Conduct and Ethics, the charter of each of the Audit Committee, the Compensation Committee and the Nominating Committee, and the name(s) of the person(s) chosen to lead the executive sessions of the non-management directors and of the independent directors. This information is available in print to any shareholder who sends a written request to: Investor Relations, Dollar General Corporation, 100 Mission Ridge, Goodlettsville, Tennessee 37072.
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The following table and text summarize the compensation earned by or paid to each of our non-employee directors for 2016. Mr. Vasos was not separately compensated for his service on the Board; his executive compensation is discussed under "Executive Compensation" below. We have omitted the columns pertaining to non-equity incentive plan compensation and change in pension value and nonqualified deferred compensation earnings because they are inapplicable.
Fiscal 2016 Director Compensation
Name | | Fees Earned or Paid in Cash ($)(1) |
| Stock Awards ($)(2) |
| Option Awards ($)(3) |
| All Other Compensation ($)(4) |
| Total ($) |
| |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Warren F. Bryant |
| | 109,500 | | | 136,206 | | | | | | | 1,782 | | | 247,488 | | |||||
Michael M. Calbert |
| | 85,000 | | | 351,055 | | | | | | | 1,782 | | | 437,837 | | |||||
Sandra B. Cochran |
| | 85,000 | | | 136,206 | | | | | | | 1,782 | | | 222,988 | | |||||
Patricia D. Fili-Krushel |
| | 85,000 | | | 136,206 | | | | | | | 1,782 | | | 222,988 | | |||||
Paula A. Price |
| | 85,000 | | | 136,206 | | | | | | | 1,776 | | | 222,982 | | |||||
William C. Rhodes, III |
| | 100,000 | | | 136,206 | | | | | | | 1,782 | | | 237,988 | | |||||
David B. Rickard |
| | 107,500 | | | 136,206 | | | | | | | 1,782 | | | 245,488 | |
We do not compensate for Board service any director who also serves as our employee. We will reimburse directors for certain fees and expenses incurred in connection with continuing education seminars and for travel and related expenses related to Dollar General business.
Each non-employee director receives payment (prorated as applicable) for a fiscal year in quarterly installments of the following cash compensation, as applicable, along with an annual award of RSUs, payable in shares of our common stock, under our Stock Incentive Plan having the estimated value listed below:
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|
| Board Retainer ($) |
| Audit Committee Chairman Retainer ($) |
| Compensation Committee Chairman Retainer ($) |
| Nominating Committee Chairman Retainer ($) |
| Per Meeting Fee for Meetings Attended in Excess of 16 During FY ($) |
| Estimated Value of Equity Award ($) |
| ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 85,000 | | | | 22,500 | | | | 20,000 | | | | 15,000 | | | | 1,500 | | | | 135,000 | | |
The RSUs are awarded annually to those non-employee directors who are elected or re-elected at the annual shareholders' meeting and to any new director appointed after such meeting but before February 1 of a given year. The RSUs are scheduled to vest on the first anniversary of the grant date subject to certain accelerated vesting conditions. Directors may elect to defer receipt of shares underlying the RSUs.
In addition to the fees outlined above, the Chairman of the Board receives an annual retainer delivered in the form of RSUs, payable in shares of our common stock under our Stock Incentive Plan and scheduled to vest on the first anniversary of the grant date, subject to certain accelerated vesting conditions, having an estimated value of $200,000.
The form and amount of director compensation as outlined above were recommended by the Compensation Committee, and approved by the Board, after taking into account market benchmarking data, recommendations of the Committee's compensation consultant, and, for the additional equity award to the Chairman, the amount of time anticipated to be devoted to services to the Company.
In addition, our Board has recommended that shareholders approve a $750,000 annual limit on total non-employee director compensation as set forth in our Stock Incentive Plan. See "Proposal 2" below.
Up to 100% of cash fees earned for Board services in a fiscal year may be deferred under the Non-Employee Director Deferred Compensation Plan. Benefits are payable upon separation from service in the form, as elected by the director at the time of deferral, of a lump sum distribution or monthly payments for 5, 10 or 15 years. Participating directors can direct the hypothetical investment of deferred fees into funds identical to those offered in our 401(k) Plan and will be credited with the deemed investment gains and losses. The amount of the benefit will vary depending on the fees the director has deferred and the deemed investment gains and losses. Benefits upon death are payable to the director's named beneficiary in a lump sum. In the event of a director's disability (as defined in the Non-Employee Director Deferred Compensation Plan), the unpaid benefit will be paid in a lump sum. Participant deferrals are not contributed to a trust, and all benefits are paid from Dollar General's general assets.
Our non-employee directors are subject to share ownership guidelines, expressed as a multiple of the annual cash retainer payable for service on our Board, and holding requirements. The current ownership guideline is 5 times and should be acquired within 5 years of election to the Board. When the ownership guideline is increased, incumbent non-employee directors are allowed an additional year to acquire the incremental multiple. Each non-employee director is required to retain ownership of 50% of all net after-tax shares granted by Dollar General until the share ownership target is reached. Please see our Corporate Governance Guidelines for additional information. Administrative details pertaining to these matters are established by the Compensation Committee.
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Is Dollar General subject to the NYSE governance rules regarding director independence?
Yes. A majority of our directors must satisfy the independence requirements set forth in the NYSE listing standards. The Audit Committee, the Compensation Committee and the Nominating Committee also must consist solely of independent directors to comply with NYSE listing standards and, in the case of the Audit Committee, with SEC rules. The NYSE listing standards define specific relationships that disqualify directors from being independent and further require that the Board affirmatively determine that a director has no material relationship with Dollar General in order to be considered "independent." The SEC's rules and NYSE listing standards contain separate definitions of independence for members of audit committees and compensation committees, respectively.
How does the Board of Directors determine director independence?
The Board of Directors determines the independence of each director and director nominee in accordance with guidelines it has adopted, which include all elements of independence set forth in the NYSE listing standards and SEC rules as well as certain Board-adopted categorical independence standards. These guidelines are found in our Corporate Governance Guidelines, which are posted on the "Investor InformationCorporate Governance" section of our website located at www.dollargeneral.com.
The Board first considers whether any director or nominee has a relationship covered by the NYSE listing standards that would prohibit an independence finding for Board or committee purposes. The Board then analyzes any relationship of the remaining eligible directors and nominees with Dollar General or our management that falls outside the parameters of the Board's separately adopted categorical independence standards to determine if that relationship is material. The Board may determine that a person who has a relationship outside such parameters is nonetheless independent because the relationship is not considered to be material. Any director who has a material relationship with Dollar General or its management is not considered to be independent. Absent special circumstances, the Board does not consider or analyze any relationship that falls within the parameters of the Board's separately adopted categorical independence standards.
Are all of the directors and nominees independent?
No. Our Board of Directors consists of Warren F. Bryant, Michael M. Calbert, Sandra B. Cochran, Patricia D. Fili-Krushel, Paula A. Price, William C. Rhodes, David B. Rickard and Todd J. Vasos. Messrs. Rickard and Bryant and Mss. Cochran and Price serve on our Audit Committee, Messrs. Bryant and Rhodes and Ms. Fili-Krushel serve on our Compensation Committee, and Mr. Rhodes and Mss. Cochran and Fili-Krushel serve on our Nominating Committee.
Our Board has affirmatively determined that Messrs. Bryant, Calbert, Rhodes and Rickard and Mss. Cochran, Fili-Krushel and Price, but not Mr. Vasos, are independent from our management under both the NYSE listing standards and our additional standards. Except as described below, any relationship between an independent director and Dollar General or our management fell within the Board-adopted categorical standards and, accordingly, was not reviewed or considered by our Board in making independence decisions. The Board also has determined that the current members of the Audit Committee, the Compensation Committee and the Nominating Committee meet the independence requirements for membership on those committees set forth in the NYSE listing standards, our additional standards and, as to the Audit Committee, SEC rules.
In reaching the determination that Ms. Cochran is independent, the Board considered that Ms. Cochran's brother, Stephen Brophy, has been employed by the Company since 2009 and currently
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serves in a non-officer position. For 2016, Mr. Brophy earned from Dollar General total cash compensation (comprised of his base salary and bonus compensation) of less than $270,000 and received an annual equity award consisting of 1,958 non-qualified stock options, a target award of 224 performance share units, or "PSUs" (199 PSUs were ultimately earned as a result of our adjusted EBITDA and adjusted ROIC performance), and 224 RSUs. In March 2017, Mr. Brophy received an annual equity award consisting of 1,763 non-qualified stock options and 440 RSUs. All equity awards were granted on terms consistent with the annual equity awards received by all Dollar General employees at the same job grade level as Mr. Brophy and on terms substantially similar to the forms of award agreements on file with the SEC. We expect Mr. Brophy's total cash compensation for 2017 to not exceed $280,000.
Mr. Brophy also is eligible to participate in employee benefits plans and programs available to our other full-time employees. Ms. Cochran does not serve on the Compensation Committee which approves decisions pertaining to Mr. Brophy's compensation and she does not participate in his performance evaluations. Mr. Brophy's cash compensation and equity awards were approved by the Compensation Committee pursuant to our related-party transactions approval policy.
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TRANSACTIONS WITH MANAGEMENT AND OTHERS
Does the Board of Directors have a related-party transactions approval policy?
Yes. Our Board of Directors has adopted a written policy for the review, approval or ratification of "related party" transactions. A "related party" for this purpose includes our directors, director nominees, executive officers and greater than 5% shareholders, and any of their immediate family members, and a "transaction" includes one in which (1) the total amount may exceed $120,000, (2) Dollar General is a participant, and (3) a related party will have a direct or indirect material interest (other than as a director or a less than 10% owner of another entity, or both).
The policy requires prior Board approval for known related party transactions, subject to certain exceptions identified below. In addition, at least annually after receiving a list of immediate family members and affiliates from our directors and executive officers, relevant internal departments determine if any transactions were unknowingly entered into with a related party and the Board is presented with a list of any such transactions, subject to the exceptions identified below, for review. The related party may not participate in any discussion or approval of the transaction and must provide to the Board all material information concerning the transaction.
Our Chairman and our CEO each is authorized to approve a related party transaction in which he is not involved if the total anticipated amount is less than $1 million and he informs the Board of the transaction. In addition, the transactions below are deemed pre-approved without Board review or approval:
What related-party transactions existed in 2016 or are planned for 2017?
Other than compensation paid or to be paid during 2016 and 2017 to one of our non-officer employees who is a family member of Ms. Cochran, as discussed further under "Director Independence" above, there are no transactions that have occurred since the beginning of 2016, or any currently proposed transactions, that involve Dollar General and exceed $120,000 and in which a related party had or has a direct or indirect material interest.
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This section provides details of the compensation for fiscal 2016 for our named executive officers: Todd J. Vasos, Chief Executive Officer; John W. Garratt, Executive Vice President and Chief Financial Officer; Jeffery C. Owen, Executive Vice President, Store Operations; Rhonda M. Taylor, Executive Vice President and General Counsel; and James W. Thorpe, Executive Vice President and Chief Merchandising Officer.
Compensation Discussion and Analysis
Overview
Our executive compensation program is designed to serve the long-term interests of our shareholders. To deliver superior shareholder returns, we believe it is critical to offer a competitive compensation package that will attract, retain and motivate experienced executives with the requisite expertise. Our program is designed to balance the short-term and long-term components and thus incent achievement of our annual and long-term business strategies, to pay for performance and to maintain our competitive position in the market in which we compete for executive talent.
Compensation Best Practices. We strive to align our executives' interests with those of our shareholders and to follow sound corporate governance practices.
Compensation Practice | | |
| Dollar General Policy |
---|---|---|---|---|
Pay for Performance | | ü | | A significant portion of targeted direct compensation is linked to the financial performance of key metrics. All of our annual bonus compensation and equity incentive compensation is performance based. See "Pay for Performance." |
Robust share ownership guidelines and holding requirements |
|
ü |
|
Our share ownership guidelines and holding requirements create further alignment with shareholders' long-term interests. See "Share Ownership Guidelines and Holding Requirements." |
Clawback policy |
|
ü |
|
Performance-based incentive compensation paid or awarded to an executive officer may be recouped, or "clawed back," in certain situations. See "Significant Compensation-Related Actions." |
No hedging or pledging Dollar General securities or holding Dollar General securities in margin accounts |
|
ü |
|
Our policy prohibits executive officers and Board members from hedging their ownership of our stock, pledging our securities as collateral, and holding our securities in a margin account. See "Policy Against Hedging and Pledging Transactions." |
No excise tax gross-ups and minimal income tax gross-ups |
|
ü |
|
We do not provide tax gross-up payments other than on relocation-related items. |
Double-trigger provisions |
|
ü |
|
Beginning in March 2016, equity awards include a "double-trigger" vesting provision upon a change in control. See "Significant Compensation-Related Actions." |
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Compensation Practice | | |
| Dollar General Policy |
---|---|---|---|---|
No repricing or cash buyout of underwater stock options without shareholder approval | | ü | | Our equity incentive plan prohibits repricing underwater stock options, reducing the exercise price of stock options or replacing awards with cash or another award type, without shareholder approval. |
Annual compensation risk assessment |
|
ü |
|
At least annually, our Compensation Committee assesses the risk of our compensation program. |
Independent compensation consultant |
|
ü |
|
Our Compensation Committee retains an independent consultant to provide advice on executive and non-employee director compensation matters. |
Pay for Performance. Consistent with our philosophy, and as illustrated below, a significant portion of annualized target total direct compensation for our named executive officers in 2016 was performance based and linked to changes in our stock price.
CEO | | Other NEOs (Average) |
||
|
||||
| | |||
| | | | |
STIShort-Term
Cash Incentive (Teamshare bonus program)
LTILong-Term Equity Incentive (stock options and performance share units)
The following payouts were earned as a result of performance versus the financial targets used for our 2016 performance-based compensation:
Significant Compensation-Related Actions. The most significant recent compensation-related actions pertaining to our named executive officers include:
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Shareholder Response. The most recent shareholder advisory vote on our named executive officer compensation was held in 2014, based on the three-year frequency approved by our shareholders in 2011. Excluding abstentions and broker non-votes, 96.0% of total votes were cast in support of the program. Because we viewed this outcome as overwhelmingly supportive of our compensation policies and practices, we did not believe the vote required consideration of changes to the program. Nonetheless, because market practices and our business needs continue to evolve, we continually evaluate our program and make changes when warranted. A shareholder advisory vote on our named executive officer compensation will be held at our 2017 annual meeting of shareholders, and the timing of the next such vote will depend upon the Board's decision after considering the results of the say on pay frequency vote discussed in Proposal 4 below.
Philosophy and Objectives
We strive to attract, retain and motivate persons with superior ability, to reward outstanding performance, and to align the long-term interests of our named executive officers with those of our shareholders. The material compensation principles applicable to the compensation of our named executive officers are outlined below:
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We have employment agreements with the named executive officers to promote executive continuity, aid in retention and secure valuable protections for Dollar General, such as non-compete, non-solicitation and confidentiality obligations.
Oversight and Process
Oversight. The Compensation Committee of our Board of Directors, consisting entirely of independent directors, determines and approves the compensation of our named executive officers. Beginning in 2016, the independent members of our Board are provided the opportunity to ratify the Committee's determinations pertaining to the level of CEO compensation.
Use of Outside Advisors. Pearl Meyer serves as the current independent compensation consultant to the Compensation Committee. Prior to the Committee's selection of Pearl Meyer in May 2016, Meridian Compensation Partners ("Meridian") or its predecessor served as the Committee's compensation consultant since 2007. In each case, the Committee determined that each consultant was independent and that its work did not raise any conflicts of interest. When requested by the Committee, a representative of the Committee's consultant attends Committee meetings and private sessions of Committee members, and Committee members are free to consult directly with the Committee's consultant as desired.
The Committee (or its Chairman) determines the scope of services to be provided by the Committee's consultant and approves a written agreement that details the terms under which such consultant will provide independent advice to the Committee. The approved scope of the consultant's (both Meridian previously, and Pearl Meyer currently) work generally includes the performance of analyses and provision of independent advice related to our executive and non-employee director compensation programs and related matters in support of the Committee's decisions, and more specifically, includes performing preparation work associated with Committee meetings, providing advice in areas such as compensation philosophy, compensation risk assessment, market comparator group, incentive plan design, executive compensation disclosure, emerging best practices and changes in the regulatory environment, and providing competitive market studies. The Committee's consultant, along with management, also prepares benchmarking data for consideration by the Committee in making decisions on items such as base salary, the Teamshare bonus program, and the long-term incentive program.
Management's Role. Financial performance targets used in our incentive compensation programs typically are derived from our annual financial plan prepared by our executive management team and reviewed and approved by our Board of Directors. Mr. Vasos, Mr. Bob Ravener (Executive Vice President and Chief People Officer), and non-executive members of the human resources group provide assistance to the Compensation Committee and the Committee's consultant regarding executive compensation matters, including conducting research, compiling data and making recommendations regarding amount, mix and program structure alternatives, market comparator group composition and compensation-related governance practices, as well as providing information to and coordinating with the Committee's consultant as requested. Additionally, Ms. Taylor may provide legal advice to the Committee regarding executive compensation and related governance and legal matters and contractual arrangements from time to time. Although these recommendations may impact each of such officers' compensation to the extent they participate in the plans and programs, none of such officers make recommendations to the Committee regarding their specific compensation. For the role of management in named executive officers' performance evaluations, see "Use of Performance Evaluations" below. Although the Committee values and solicits management's input, it retains and exercises sole authority to make decisions regarding named executive officer compensation.
Use of Performance Evaluations. The Compensation Committee, together with the Chairman of the Board, assesses the performance of the CEO, and the CEO evaluates and reports to the
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Committee on the performance of each of the other named executive officers, in each case versus previously established goals. These evaluations are subjective; no objective criteria or relative weighting is assigned to any individual goal or factor.
The Committee historically used the overall performance rating as an eligibility threshold for a Teamshare bonus payment. Although an unsatisfactory rating generally would preclude a Teamshare bonus payment, performance ratings were not used to determine the amount of such payment for a named executive officer rated satisfactory. Rather, such amount has been determined solely based upon the level of achievement of the applicable financial measure. However, beginning with the 2016 Teamshare bonus program, performance evaluation results have the potential to affect the amount of Teamshare bonus payout because the Committee is allowed to adjust payments downward within certain limitations depending upon the named executive officer's performance rating. The Committee did not exercise any such negative discretion for the 2016 Teamshare payouts to named executive officers.
Performance ratings historically have served as an eligibility threshold for base salary increases, and beginning with the 2016 base salary adjustments, also directly impacted the amount of a named executive officer's annual base salary increase. The Committee starts with the percentage base salary increase that equals the overall budgeted increase for our U.S.-based employee population and approves differing merit increases to base salary based upon each named executive officer's individual performance rating. The Committee then considers whether additional adjustments are necessary to reflect performance, responsibilities or qualifications; to bring pay within a reasonable range of the market comparator group; due to a change in role or duties; to achieve a better balance between base salary and incentive compensation; or for other reasons the Committee believes justify a variance from the merit increase.
An unsatisfactory performance rating also would reduce the number of, or completely eliminate, stock options awarded to the named executive officer in the following year. None of the named executive officers received an unsatisfactory performance rating for 2015 or 2016. Beginning in 2017, individual performance, along with other factors, may be used as part of a subjective assessment to determine whether each named executive officer's equity award value should be increased or decreased from the baseline target that is derived from benchmarking information.
Use of Market Benchmarking Data. The Compensation Committee approves, periodically reviews, and utilizes a market comparator group when making compensation decisions (see "Philosophy and Objectives"). The market comparator group data typically is considered annually for base salary adjustments, target equity award values, Teamshare target bonus opportunities and total direct compensation, and periodically when considering structural changes to our executive compensation program. The Committee most recently updated our market comparator group in December 2015 to include several retail and distribution companies with a broad range of products and to exclude certain companies focused on apparel. However, consistent with the cycle of purchasing and aging market data discussed below, the Committee continued to use our previous market comparator group for 2016 non-CEO compensation decisions.
Each market comparator group consists of companies selected according to their similarity to our operations, services, revenues, markets, availability of information, and any other information the Committee deems appropriate. Such companies are likely to have executive positions comparable in
25
breadth, complexity and scope of responsibility to ours. Thus, our market comparator group for 2016 CEO compensation decisions consisted of:
| Aramark | | Dollar Tree | | Rite Aid | | Sysco |
| AutoZone | | Kohl's | | Ross Stores | | TJX Companies |
| Bed, Bath & Beyond | | L Brands | | Staples | | Tractor Supply |
| Best Buy | | Office Depot | | Starbucks | | Yum! Brands |
| Dicks Sporting Goods | | | |
Our market comparator group for 2016 non-CEO compensation decisions consisted of:
| AutoZone | | Kohl's | | Rite Aid | | The Gap |
| Dollar Tree | | L Brands | | Ross Stores | | TJX Companies |
| Family Dollar | | Macy's | | Staples | | Yum! Brands |
| J.C. Penney | | Office Depot | | Starbucks | |
The Committee's consultant annually provides market data for the CEO to ensure that the Committee is aware of any significant movement in CEO compensation levels within the market comparator group. For each named executive officer position below CEO, the Committee biennially considers market comparator group data provided by the Committee's consultant. In alternating years, the Committee uses prior year data after applying an aging factor recommended by the Committee's consultant. For 2016 CEO compensation decisions, the Committee considered proxy data provided by Meridian from the 2016 market comparator group. For the 2016 non-CEO named executive officer compensation decisions, the Committee considered market data provided by Meridian in 2015 using Aon Hewitt data. For non-CEO named executive officers other than Mr. Owen, data reviewed were from the market comparator group. For Mr. Owen, for whom insufficient market comparator group data was available, the data reviewed were from a broader group of retailers comprising a subset of companies included within the Aon Hewitt Total Compensation MeasurementTM (TCM) database (see list of companies included as Appendix A attached to this proxy statement). For all non-CEO named executive officers, the market data were aged, per Meridian's recommendation, by 3% to keep pace with the market for 2016.
In setting base salary levels for named executive officers positions below the CEO, the Committee considers the market values for individual positions. In determining the short-term cash and long-term equity targets for named executive officer positions below the CEO, the Committee considers blended market values for comparable positions, rather than values for individual positions.
Elements of Named Executive Officer Compensation
We provide compensation in the form of base salary, short-term cash incentives, long-term equity incentives, benefits and limited perquisites. We believe each of these elements is a necessary component of the total compensation package and is consistent with compensation programs at companies with whom we compete both for business and talent.
Mr. Vasos's 2016 Compensation Generally. The Compensation Committee considered the base salary, short-term incentive and long-term incentive components of Mr. Vasos's compensation, as well as his total compensation, in each case in comparison to the market comparator group (see "Use of Market Benchmarking Data") and in light of both his fiscal 2015 performance and experience level, as well as our pay for performance philosophy, considerations relating to equitable pay among the CEO and all other senior officers, and the other relevant compensation principles (see "Philosophy and Objectives"). As a result of such considerations, the Committee approved an increase in Mr. Vasos's base salary and long-term incentive grant value for 2016. The Committee agreed that these changes resulted in a 2016 target total compensation opportunity that was appropriately market aligned, reflective of our pay-for-performance philosophy and equitable with respect to the compensation of our other executive officers.
26
Base Salary. Base salary promotes our recruiting and retention objectives by reflecting the salaries for comparable positions in the competitive marketplace, rewarding strong performance, and providing a stable and predictable income source for our executives. Our employment agreements with the named executive officers set forth minimum base salary levels, but the Compensation Committee retains sole discretion to increase these levels from time to time. The Committee routinely considers annual base salary adjustments in March.
(a) Salary Adjustment for Mr. Vasos. The Compensation Committee determined that Mr. Vasos should receive a 10.0% base salary increase, effective on April 1, 2016. The primary considerations with respect to Mr. Vasos's base salary increase were his strong performance since becoming CEO in May 2015 while still recognizing his limited experience in the CEO role compared to the experience level of the CEO market comparator group, the sizable base salary increase he had received upon his promotion in May 2015, and equitability as compared to the base salary increases of the other executive officers.
(b) Salary Adjustments for Named Executive Officers Other than Mr. Vasos. In light of the market benchmarking data and each named executive officer's 2015 performance rating, Messrs. Garratt, Owen and Thorpe received a 2.78% base salary increase, and Ms. Taylor received a 3.28% base salary increase (see "Use of Performance Evaluations" and "Use of Market Benchmarking Data"). Along with the named executive officers' other 2016 compensation, these salary adjustments maintained each of their total compensation within a reasonable range of the market comparator group median in light of the responsibilities of the position and experience of each named executive officer. In each case, the salary adjustment became effective on April 1, 2016.
Short-Term Cash Incentive Plan. Our short-term cash incentive plan, called Teamshare, is established under our shareholder-approved Annual Incentive Plan. The Teamshare program provides an opportunity to receive a cash bonus payment equal to a certain percentage of base salary based upon Dollar General's achievement of one or more pre-established financial performance targets. Accordingly, Teamshare fulfills an important part of our pay for performance philosophy while aligning the interests of our named executive officers and our shareholders.
(a) 2016 Teamshare Structure. The Compensation Committee uses adjusted EBIT as the Teamshare financial performance measure because it is a comprehensive measure of our corporate performance that aligns with our shareholders' interests. For purposes of the 2016 Teamshare program, adjusted EBIT is defined as our operating profit as calculated in accordance with U.S. generally accepted accounting principles, but excludes:
The Committee used our 2016 annual financial plan adjusted EBIT performance goal of $2.155 billion as the target for the 2016 Teamshare program and retained the threshold (below which no bonus may be earned) and maximum (above which no further bonus may be earned) performance
27
levels at 90% and 120% of the target level, respectively. These threshold and maximum performance levels were again used, as they continue to reflect the practices of our market comparator group. Payouts for financial performance are based on actual results and are interpolated on a straight-line basis between threshold and target and between target and maximum.
The bonus payable to each named executive officer upon achieving the target level of financial performance is equal to the applicable percentage of base salary shown in the table below, subject to the Committee's exercise of negative discretion based on the individual's performance (see "Use of Performance Evaluations"). These percentages for each non-CEO named executive officer remained unchanged from those in effect at the end of the prior year based on the Committee's review of the market comparator group data in light of the named executive officer's total compensation and the responsibilities of the position and experience level of each non-CEO named executive officer in his or her position. Mr. Vasos's percentage also remained unchanged for the reasons outlined above under "Mr. Vasos's 2016 Compensation Generally."
Name | | Target % of Base Salary* |
| |
---|---|---|---|---|
Mr. Vasos |
| 100 | | |
All other named executive officers |
| 65 | |
(b) 2016 Teamshare Results. The Compensation Committee certified the adjusted EBIT performance result at $2.083 billion (96.64% of target) resulting in 2016 Teamshare payouts to each of the named executive officers of 83.22% of the target percentages set forth in the table above. Such amounts are reflected in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table.
Long-Term Equity Incentive Program. Long-term equity incentives are an important part of our pay for performance philosophy and are designed to motivate named executive officers to focus on long-term success for shareholders while rewarding them for a long-term commitment to us. The Compensation Committee considers annual equity awards each March at its regular quarterly meeting and considers special equity awards as necessary in connection with one-time events such as a new hire, promotion or special performance. Equity awards are made under our shareholder-approved Stock Incentive Plan.
(a) 2016 Equity Awards for Mr. Vasos. After considering the market comparator group data pertaining to long-term incentive compensation, the Compensation Committee determined to provide Mr. Vasos with a $5.5 million estimated value for his 2016 equity grants. Specifically, the Committee determined that Mr. Vasos's annual equity grant should reflect a mix of 50% stock options and 50% PSUs to more closely align to market practices and to alleviate tax deductibility concerns relating to RSUs which previously represented 25% of the annual award mix, and approved a $4.0 million equity grant value award to Mr. Vasos in accordance with the terms outlined in "2016 Annual Equity Awards for Named Executive Officers Other than Mr. Vasos" below. In further recognition of his 2015 performance, to incent his continued performance and to aid in his retention, in March 2016, the Committee approved an additional non-qualified stock option award to Mr. Vasos having an approximate value of $1.5 million to purchase 85,759 shares of our common stock. Subject to certain limited vesting acceleration events, such options are scheduled to vest ratably in installments of 331/3% on each of the third, fourth and fifth anniversaries of the March 16, 2016 grant date, subject to Mr. Vasos's continued employment with us and holding requirements through the fifth anniversary of the grant date. The options will terminate no later than ten years from the grant date. The Committee
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believed the $5.5 million estimated combined value of these equity awards was within a reasonable range of the market comparator group data in light of Mr. Vasos's time in the CEO role as compared to other CEOs in the market comparator group and in light of his total compensation given his 10.0% base salary increase for 2016.
(b) 2016 Annual Equity Awards for Named Executive Officers Other than Mr. Vasos. Each year, the Compensation Committee determines a targeted equity award value for each named executive officer derived from benchmarking information and the appropriate mix of vehicles in which to deliver such targeted value (see "Use of Market Benchmarking Data"). In 2016, with the exception of Mr. Garratt, the targeted value for each non-CEO named executive officer was unchanged from the prior year's targeted value for such job level based on the Committee's review of the market comparator group data. Mr. Garratt's targeted value was increased from $335,000 in 2015 to $1.1 million in 2016 as a result of his promotion in December 2015 and a review of the market comparator group data. In addition, the equity mix was delivered 50% in options and 50% in PSUs for the reasons outlined in "2016 Equity Awards for Mr. Vasos" above.
The options are granted with a per share exercise price equal to the fair market value of one share of our common stock on the grant date. The options vest 25% annually on April 1 of each of the four fiscal years following the fiscal year in which the grant is made, subject to the named executive officer's continued employment with us and certain accelerated vesting provisions. The PSUs can be earned if specified performance goals are achieved during the performance period (which was fiscal year 2016) and if certain additional vesting requirements are met.
For PSUs the Committee selects and sets targets for financial performance measures, then establishes threshold and maximum levels of performance derived from those targets. The number of PSUs earned depends on the level of financial performance achieved versus the goals. The Committee selected adjusted EBITDA (weighted 50%) and adjusted ROIC (weighted 50%) as the 2016 financial performance measures for the PSUs, and set target performance levels equal to our 2016 financial plan. These financial measures and weightings have been used for the PSUs since 2013 to appropriately balance the emphasis placed upon earnings performance as well as rigorous capital management over the long-term.
The adjusted EBITDA performance target is computed as income (loss) from continuing operations before cumulative effect of change in accounting principles plus interest and other financing costs, net, provision for income taxes, and depreciation and amortization, but excludes the impact of all items excluded from the 2016 Teamshare program adjusted EBIT calculation outlined above, as well as share-based compensation charges. The adjusted ROIC performance target is calculated as (a) the result of (x) the sum of (i) our operating income, plus (ii) depreciation and amortization, plus (iii) minimum rentals, minus (y) taxes, divided by (b) the result of (x) the sum of the averages of: (i) total assets, plus (ii) accumulated depreciation and amortization, minus (y) (i) cash, minus (ii) goodwill, minus (iii) accounts payable, minus (iv) other payables, minus (v) accrued liabilities, plus (vi) 8x minimum rentals but excludes the impact of all items excluded from the 2016 Teamshare program adjusted EBIT calculation outlined above.
The following table shows how the PSUs would be earned at each of the threshold, target and maximum performance levels. PSUs earned for financial performance between these levels are interpolated in a manner similar to that used for our 2016 Teamshare bonus program, and the number of PSUs earned could vary between 0% and 300% of the target award. The following tables also show the actual results of the 2016 financial performance measures and the actual number of PSUs earned.
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|
| |
| Adjusted EBITDA | | Adjusted ROIC | | |
| |
|||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| Level | | Result v. Target (%) |
| EBITDA Result ($) (in millions) |
| Units Earned (% of Target) |
| Result v. Target (%) |
| ROIC Result (%) |
| Units Earned (% of Target) |
| Total Units Earned (% of Target) |
| |
|||||||||||||||||||||
|
| Below Threshold |
| | <90 | | | | <2,323 | | | | 0 | | | | <94.80 | | | | <18.22 | | | | 0 | | | | 0 | | | ||||||||
|
| Threshold |
| | 90 | | | | 2,323 | | | | 25 | | | | 94.80 | | | | 18.22 | | | | 25 | | | | 50 | | |
|
|||||||
|
| Target |
| | 100 | | | | 2,582 | | | | 50 | | | | 100.00 | | | | 19.22 | | | | 50 | | | | 100 | | | ||||||||
|
| Maximum |
| | 120 | | | | 3,098 | | | | 150 | | | | 110.41 | | | | 21.22 | | | | 150 | | | | 300 | | |
|
|||||||
|
| 2016 Results |
| | 96.8 | | | | 2,498 | | | | 42.0 | | | | 99.4 | | | | 19.10 | | | | 47.0 | | | | 89.0 | | |
|
| Name | | 2016 PSUs Earned | | |
---|---|---|---|---|---|---|
|
| Mr. Vasos |
| 24,357 | | |
|
| All other named executive officers |
| 6,698 | |
One-third of the earned PSUs vested on the last day of the one-year performance period, and the remaining two-thirds will vest equally on each of April 1, 2018 and April 1, 2019, subject to the named executive officer's continued employment with us and certain accelerated vesting provisions. All vested PSUs will be settled in shares of our common stock.
(c) Share Ownership Guidelines and Holding Requirements. As shown below, senior officers are subject to share ownership guidelines and holding requirements. The share ownership guideline is a multiple of annual base salary as in effect from time to time and is to be achieved within a five-year time period.
|
| Officer Level
|
| Multiple of Base Salary | | |
|||
---|---|---|---|---|---|---|---|---|---|
| | CEO | | | 5X | | |||
| | EVP | | | 3X | | |||
| | SVP | | | 2X | |
Each senior officer is required to retain ownership of 50% of all net after-tax shares issuable upon vesting or exercise of compensatory awards until he or she reaches the target ownership level. Administrative details pertaining to these matters are established by the Compensation Committee.
(d) Policy Against Hedging and Pledging Transactions. Our policy prohibits Board members and executive officers from (1) pledging Dollar General securities as collateral, (2) holding Dollar General securities in a margin account, and (3) hedging their ownership of Dollar General stock, such as entering into or trading prepaid variable forward contracts, equity swaps, collars, puts, calls, options (other than those granted by us) or other derivative instruments related to Dollar General stock.
Benefits and Perquisites. Our named executive officers participate in certain benefits on the same terms that are offered to all of our salaried employees. We also provide them with limited additional benefits and perquisites for retention and recruiting purposes, to replace benefit opportunities lost due to regulatory limits, and to enhance their ability to focus on our business. We do not provide tax gross-up payments on any benefits and perquisites other than relocation-related items. The primary additional benefits and perquisites include the following:
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70% of base salary thereafter. We also pay the premiums under a group long-term disability plan, which provides 60% of base salary up to a maximum monthly benefit of $20,000.
Severance Arrangements
As noted above, we have an employment agreement with each of our named executive officers that, among other things, provides for such executive's rights upon a termination of employment in exchange for valuable business protection provisions for us. We believe that reasonable severance benefits are appropriate to protect the named executive officer against circumstances over which he or she does not have control and as consideration for the promises of non-disclosure, non-competition, non-solicitation and non-interference that we require in our employment agreements. A change in control, by itself ("single trigger"), does not trigger any severance provision applicable to our named executive officers, except for the provisions related to outstanding long-term equity awards granted prior to 2016. The 2016 annual equity awards do not provide for single trigger vesting acceleration but rather require a termination event within a certain period of time following a change in control to accelerate vesting of such equity awards.
Considerations Associated with Regulatory Requirements
Under Section 162(m) of the Internal Revenue Code, we generally may not take a tax deduction for individual compensation over $1 million paid in any taxable year to each of the persons who were, at the end of the fiscal year, our CEO or one of the other named executive officers (other than our Chief Financial Officer). As a result, we may not deduct any salary, signing bonus or other annual compensation paid or imputed to such covered officers that causes non-performance-based compensation to exceed the $1 million limit. Certain performance-based compensation is exempt from the deduction limit.
We believe that our Stock Incentive Plan and our Annual Incentive Plan currently satisfy, and if Proposals 2 and 3 are approved, will continue to satisfy the requirements of Section 162(m) such that we may deduct compensation expense realized in connection with any (1) payments made under our Teamshare program, (2) stock options and stock appreciation rights, and (3) performance-based restricted stock and RSU awards. However, restricted stock or RSUs that solely vest over time are not "performance-based compensation" under Section 162(m), and we will be unable to deduct compensation expense realized in connection with those time-vested awards to persons covered by Section 162(m) to the extent their non-performance-based compensation exceeds $1 million. Our policies do not restrict the Compensation Committee from exercising discretion to approve compensation packages that may result in certain non-deductible compensation expenses but that the Committee nonetheless determines to be in our shareholders' best interests.
The Committee administers our executive compensation program with the good faith intention of complying with Section 409A of the Internal Revenue Code, which relates to the taxation of nonqualified deferred compensation arrangements.
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The Compensation Committee of our Board of Directors reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this document.
This report has been furnished by the members of the Compensation Committee:
The above Compensation Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Dollar General filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Dollar General specifically incorporates this report by reference therein.
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The following table summarizes compensation paid to or earned by our named executive officers in each of the 2016, 2015 and 2014 fiscal years. We have omitted from this table the columns for "Bonus" and "Change in Pension Value and Nonqualified Deferred Compensation Earnings" because they are inapplicable.
Name and Principal Position(1) | | Year | | Salary ($)(2) |
| Stock Awards ($)(3) |
| Option Awards ($)(4) |
| Non-Equity Incentive Plan Compensation ($)(5) |
| All Other Compensation ($) |
| Total ($) |
| |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Todd J. Vasos, |
| 2016 | | 1,083,375 | | 2,317,164 | | 4,194,777 | | | 915,411 | | | | 82,561 | (6) | | 8,593,288 | | |||||||
Chief Executive Officer |
| 2015 | | 926,605 | | 808,022 | | 5,932,285 | | | 956,548 | | | | 99,541 | | | 8,723,001 | | |||||||
|
| 2014 | | 765,342 | | 821,048 | | 653,913 | | | 521,486 | | | | 67,422 | | | 2,829,211 | | |||||||
| | | | | | | | | | | | | | | | |||||||||||
John W. Garratt, |
| 2016 | | 511,603 | | 637,226 | | 655,955 | | | 277,981 | | | | 47,247 | (7) | | 2,130,012 | | |||||||
Executive Vice President & |
| 2015 | | 339,405 | | 180,374 | | 303,694 | | | 199,223 | | | | 66,150 | | | 1,088,846 | | |||||||
Chief Financial Officer |
| | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||
Jeffery C. Owen, |
| 2016 | | 613,924 | | 637,226 | | 655,955 | | | 333,578 | | | | 55,863 | (8) | | 2,296,546 | | |||||||
Executive Vice President, |
| | | | | | | | | | | | ||||||||||||||
Store Operations |
| | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||
Rhonda M. Taylor, |
| 2016 | | 539,371 | | 637,226 | | 655,955 | | | 293,300 | | | | 95,609 | (9) | | 2,221,461 | | |||||||
Executive Vice President & |
| 2015 | | 515,645 | | 592,530 | | 599,657 | | | 362,026 | | | | 66,702 | | | 2,136,560 | | |||||||
General Counsel |
| | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||
James W. Thorpe, |
| 2016 | | 649,736 | | 637,226 | | 655,955 | | | 353,036 | | | | 55,073 | (10) | | 2,351,026 | | |||||||
Executive Vice President & |
| | | | | | | | | | | | ||||||||||||||
Chief Merchandising Officer |
| | | | | | | | | | | |
Fiscal Year | | Mr. Vasos ($) |
| Mr. Garratt ($) |
| Mr. Owen ($) |
| Ms. Taylor ($) |
| Mr. Thorpe ($) |
| |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2016 |
| | 6,951,492 | | | | 1,911,679 | | | | 1,911,679 | | | | 1,911,679 | | | | 1,911,679 | | | |||||
2015 |
| | 1,212,033 | | | | 270,561 | | | | N/A | | | | 888,794 | | | | N/A | | | |||||
2014 |
| | 1,234,699 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | | |
Information regarding the assumptions made in the valuation of these awards is set forth in Note 9 of the annual consolidated financial statements in our 2016 Form 10-K.
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34
Grants of Plan-Based Awards in Fiscal 2016
The table below shows each named executive officer's fiscal 2016 Teamshare bonus opportunity under "Estimated Possible Payouts Under Non-Equity Incentive Plan Awards." Actual amounts earned under the fiscal 2016 Teamshare program are shown in the Summary Compensation Table and, for those who received such payments, represent prorated payment on a graduated scale for financial performance between the threshold and target performance levels. See "Short-Term Cash Incentive Plan" in "Compensation Discussion and Analysis" for discussion of such Teamshare program.
The table below also shows information regarding equity awards made to our named executive officers for fiscal 2016, all of which were granted pursuant to our Stock Incentive Plan. The awards listed under "Estimated Possible Payouts Under Equity Incentive Plan Awards" include the threshold, target and maximum number of PSUs which could be earned by each named executive officer based upon the level of achievement of fiscal 2016 financial performance measures. The awards listed under "All Other Option Awards" include non-qualified stock options that vest over time based upon the applicable named executive officer's continued employment by Dollar General. See "Long-Term Equity Incentive Program" in "Compensation Discussion and Analysis" above for further discussion of these awards. We have omitted from this table the column for All Other Stock Awards because it is inapplicable.
|
| |
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
| Estimated Possible Payouts Under Equity Incentive Plan Awards |
| |
| |
| |
| ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| |
| All Other Option Awards: Number of Securities Underlying Options (#) |
| |
| |
| ||||||||||||||||||||||||||||||||||||||
|
| |
| Exercise or Base Price of Option Awards ($/Sh)(1) |
| Grant Date Fair Value of Stock and Option Awards ($)(2) |
| ||||||||||||||||||||||||||||||||||||||||
Name | | Grant Date |
| Threshold ($) |
| Target ($) |
| Maximum ($) |
| Threshold (#) |
| Target (#) |
| Maximum (#) |
| ||||||||||||||||||||||||||||||||
Mr. Vasos |
| | | | 550,000 | | | 1,100,000 | | | 3,300,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | | | | | | | | | | | | | 119,599 | | | | 84.67 | | | | 2,385,270 | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | | | | | | | | | | | | | 85,759 | | | | 84.67 | | | | 1,809,506 | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | 13,684 | | | | 27,367 | | | | 82,101 | | | | | | | | | | | | 2,317,164 | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Mr. Garratt |
| | | | 167,018 | | | 334,035 | | | 1,002,105 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | | | | | | | | | | | | | 32,890 | | | | 84.67 | | | | 655,955 | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | 3,763 | | | | 7,526 | | | | 22,578 | | | | | | | | | | | | 637,226 | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Mr. Owen |
| | | | 200,421 | | | 400,842 | | | 1,202,526 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | | | | | | | | | | | | | 32,890 | | | | 84.67 | | | | 655,955 | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | 3,763 | | | | 7,526 | | | | 22,578 | | | | | | | | | | | | 637,226 | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Ms. Taylor |
| | | | 176,222 | | | 352,443 | | | 1,057,329 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | | | | | | | | | | | | | 32,890 | | | | 84.67 | | | | 655,955 | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | 3,763 | | | | 7,526 | | | | 22,578 | | | | | | | | | | | | 637,226 | | | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||
Mr. Thorpe |
| | | | 212,112 | | | 424,224 | | | 1,272,673 | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | | | | | | | | | | | | | 32,890 | | | | 84.67 | | | | 655,955 | | | ||||||||||
|
| 3/16/16 | | | | | | | | | | | | | 3,763 | | | | 7,526 | | | | 22,578 | | | | | | | | | | | | 637,226 | | |
35
Outstanding Equity Awards at 2016 Fiscal Year-End
The table below sets forth information regarding awards granted under our Stock Incentive Plan and held by our named executive officers as of the end of fiscal 2016. We have omitted from this table all columns for "Equity Incentive Plan Awards" because they are inapplicable. All awards included in the table, to the extent they have not vested, are subject to certain accelerated vesting provisions as described in "Potential Payments upon Termination or Change in Control." PSUs and RSUs reported in the table are payable in shares of our common stock on a one-for-one basis.
|
| |
| Option Awards | | Stock Awards | | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | | Grant Date |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
| Number of Securities Underlying Unexercised Options (#) Unexercisable |
| Option Exercise Price ($) |
| Option Expiration Date |
| Number of Shares or Units of Stock That Have Not Vested (#) |
| Market Value of Shares or Units of Stock That Have Not Vested ($)(10) |
| |||||||||||||||||||
Mr. Vasos |
| 03/20/12 | | | 37,440 | (1) | | | | | | | 45.25 | | | | 03/20/2022 | | | | | | | | | | | |||||||
|
| 03/18/13 | | | 20,619 | (1) | | | 6,873 | (1) | | | 48.11 | | | | 03/18/2023 | | | | | | | | | | | |||||||
|
| 12/03/13 | | | 2,160 | (1) | | | 720 | (1) | | | 56.48 | | | | 12/03/2023 | | | | | | | | | | | |||||||
|
| 03/18/14 | | | 18,964 | (1) | | | 18,962 | (1) | | | 57.91 | | | | 03/18/2024 | | | | | | | | | | | |||||||
|
| 03/17/15 | | | 11,198 | (2) | | | 33,588 | (2) | | | 74.72 | | | | 03/17/2025 | | | | | | | | | | | |||||||
|
| 06/03/15 | | | | | | | 256,682 | (3) | | | 76.00 | | | | 06/03/2025 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | 119,599 | (2) | | | 84.67 | | | | 03/16/2026 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | 85,759 | (3) | | | 84.67 | | | | 03/16/2026 | | | | | | | | | | | |||||||
|
| 03/18/14 | | | | | | | | | | | | | | | | | | | 2,253 | (4) | | | 164,784 | | | |||||||
|
| 03/17/15 | | | | | | | | | | | | | | | | | | | 3,766 | (5) | | | 275,445 | | | |||||||
|
| 03/16/16 | | | | | | | | | | | | | | | | | | | 16,238 | (6) | | | 1,187,647 | | | |||||||
|
| 03/18/14 | | | | | | | | | | | | | | | | | | | 2,357 | (7) | | | 172,391 | | | |||||||
|
| 03/17/15 | | | | | | | | | | | | | | | | | | | 3,604 | (8) | | | 263,597 | | | |||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Mr. Garratt |
| 12/03/14 | | | 2,517 | (1) | | | 2,514 | (1) | | | 66.69 | | | | 12/03/2024 | | | | | | | | | | | |||||||
|
| 03/17/15 | | | 2,502 | (2) | | | 7,500 | (2) | | | 74.72 | | | | 03/17/2025 | | | | | | | | | | | |||||||
|
| 12/02/15 | | | 1,958 | (1) | | | 5,871 | (1) | | | 65.35 | | | | 12/02/2025 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | 32,890 | (2) | | | 84.67 | | | | 03/16/2026 | | | | | | | | | | | |||||||
|
| 03/17/15 | | | | | | | | | | | | | | | | | | | 840 | (5) | | | 61,438 | | | |||||||
|
| 03/16/16 | | | | | | | | | | | | | | | | | | | 4,464 | (6) | | | 326,497 | | | |||||||
|
| 03/17/15 | | | | | | | | | | | | | | | | | | | 804 | (8) | | | 58,805 | | | |||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Mr. Owen |
| 08/25/15 | | | 8,928 | (1) | | | 26,775 | (1) | | | 73.73 | | | | 08/25/2025 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | 32,890 | (2) | | | 84.67 | | | | 03/16/2026 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | | | | | | | | | | | | | 4,464 | (6) | | | 326,497 | | | |||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Ms. Taylor |
| 03/24/10 | | | 7,926 | (9) | | | | | | | 25.25 | | | | 03/24/2020 | | | | | | | | | | | |||||||
|
| 03/20/12 | | | 4,729 | (1) | | | | | | | 45.25 | | | | 03/20/2022 | | | | | | | | | | | |||||||
|
| 03/18/13 | | | 2,250 | (1) | | | 749 | (1) | | | 48.11 | | | | 03/18/2023 | | | | | | | | | | | |||||||
|
| 05/28/13 | | | 5,181 | (1) | | | 1,727 | (1) | | | 54.48 | | | | 05/28/2023 | | | | | | | | | | | |||||||
|
| 03/18/14 | | | 4,236 | (1) | | | 4,234 | (1) | | | 57.91 | | | | 03/18/2024 | | | | | | | | | | | |||||||
|
| 03/17/15 | | | 8,213 | (2) | | | 24,630 | (2) | | | 74.72 | | | | 03/17/2025 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | 32,890 | (2) | | | 84.67 | | | | 03/16/2026 | | | | | | | | | | | |||||||
|
| 03/18/14 | | | | | | | | | | | | | | | | | | | 503 | (4) | | | 36,789 | | | |||||||
|
| 03/17/15 | | | | | | | | | | | | | | | | | | | 2,762 | (5) | | | 202,013 | | | |||||||
|
| 03/16/16 | | | | | | | | | | | | | | | | | | | 4,464 | (6) | | | 326,497 | | | |||||||
|
| 03/18/14 | | | | | | | | | | | | | | | | | | | 526 | (7) | | | 38,472 | | | |||||||
|
| 03/17/15 | | | | | | | | | | | | | | | | | | | 2,642 | (8) | | | 193,236 | | | |||||||
| | | | | | | | | | | | | | | | |||||||||||||||||||
Mr. Thorpe |
| 08/25/15 | | | 14,189 | (1) | | | 42,561 | (1) | | | 73.73 | | | | 08/25/2025 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | 32,890 | (2) | | | 84.67 | | | | 03/16/2026 | | | | | | | | | | | |||||||
|
| 03/16/16 | | | | | | | | | | | | | | | | | | | 4,464 | (6) | | | 326,497 | | |
36
Option Exercises and Stock Vested During Fiscal 2016
|
| Option Awards | | Stock Awards | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | | Number of Shares Acquired on Exercise (#)(1) |
| Value Realized on Exercise ($)(2) |
| Number of Shares Acquired on Vesting (#)(3) |
| Value Realized on Vesting ($)(4) |
| ||||||||||||
Mr. Vasos |
| | | | | | | | | | 17,558 | | | | 1,392,973 | | | ||||
Mr. Garratt |
| | | | | | | | | | 2,637 | | | | 198,581 | | | ||||
Mr. Owen |
| | | | | | | | | | 2,234 | | | | 163,395 | | | ||||
Ms. Taylor |
| | 2,358 | | | | 140,985 | | | | 4,916 | | | | 393,116 | | | ||||
Mr. Thorpe |
| | | | | | | | | | 2,234 | | | | 163,395 | | |
We have omitted the Pension Benefits table because it is inapplicable.
37
Nonqualified Deferred Compensation
Fiscal 2016
Information regarding each named executive officer's participation in our CDP/SERP Plan is included in the following table. The material terms of the CDP/SERP Plan are described after the table. Please also see "Benefits and Perquisites" in "Compensation Discussion and Analysis" above. We have omitted from this table the column pertaining to "Aggregate Withdrawals/Distributions" during the fiscal year because it is inapplicable.
Name | | Executive Contributions in Last FY ($)(1) |
| Registrant Contributions in Last FY ($)(2) |
| Aggregate Earnings in Last FY ($)(3) |
| Aggregate Balance at Last FYE ($)(4) |
| ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mr. Vasos |
| | 101,996 | | | | 40,502 | | | | 102,514 | | | | 778,627 | | | ||||
Mr. Garratt |
| | 25,580 | | | | 12,272 | | | | 2,505 | | | | 42,466 | | | ||||
Mr. Owen |
| | 30,696 | | | | 17,377 | | | | 3,191 | | | | 53,797 | | | ||||
Ms. Taylor |
| | 26,969 | | | | 81,144 | | | | 29,216 | | | | 345,506 | | | ||||
Mr. Thorpe |
| | 422,328 | | | | 19,163 | | | | 29,917 | | | | 506,176 | | |
Pursuant to the CDP, each named executive officer may annually elect to defer up to 65% of his base salary if his compensation exceeds the limit set forth in Section 401(a)(17) of the Internal Revenue Code, and up to 100% of his bonus pay if his compensation equals or exceeds the highly compensated limit under Section 414(q)(1)(B) of the Internal Revenue Code. We currently match base pay deferrals at a rate of 100%, up to 5% of annual salary, with annual salary offset by the amount of match-eligible salary under the 401(k) Plan. All named executive officers are 100% vested in all compensation and matching deferrals and earnings on those deferrals.
Pursuant to the SERP, we make an annual contribution equal to a certain percentage of a participant's annual salary and bonus to eligible participants who are actively employed in an eligible job grade on January 1 and continue to be employed as of December 31 of a given year. The contribution percentage is based on age, years of service and job grade. Persons hired after May 27, 2008 are not eligible to participate in the SERP. The fiscal 2016 contribution percentage was 7.5% for Ms. Taylor, and she is 100% vested in her SERP account. No other named executive officer was eligible to participate in the SERP in 2016.
The amounts deferred or contributed to the CDP/SERP Plan are credited to a liability account, which is then invested at the participant's option in an account that mirrors the performance of a fund or funds selected by the Compensation Committee or its delegate. Beginning on August 2, 2008, these funds are identical to the funds offered in our 401(k) Plan.
For a participant who ceases employment with at least 10 years of service or after reaching age 50 and whose CDP account balance or SERP account balance exceeds certain dollar thresholds, the account balance will be paid by (a) lump sum, (b) monthly installments over a 5, 10 or 15-year period or (c) a combination of lump sum and installments, pursuant to the participant's election. Otherwise, payment is made in a lump sum. The vested amount will be payable at the time designated
38
by the CDP/SERP Plan upon the participant's termination of employment. A participant's CDP/SERP benefit normally is payable in the following February if employment ceases during the first 6 months of a calendar year or is payable in the following August if employment ceases during the last 6 months of a calendar year. However, participants may elect to receive an in-service lump sum distribution of vested amounts credited to the CDP account, provided that the date of distribution is no sooner than 5 years after the end of the year in which the amounts were deferred. In addition, a participant who is actively employed may request an "unforeseeable emergency hardship" in-service lump sum distribution of vested amounts credited to the participant's CDP account. Account balances are payable in cash.
As a result of our change in control which occurred in 2007, the CDP/SERP Plan liabilities through July 6, 2007 were fully funded into an irrevocable rabbi trust. We also funded into the rabbi trust deferrals into the CDP/SERP Plan between July 6, 2007 and October 15, 2007. All CDP/SERP Plan liabilities incurred on or after October 15, 2007 are unfunded.
Potential Payments upon Termination or Change in Control
Our agreements with our named executive officers and certain plans and programs in which our named executive officers participate, in each case as in effect at the end of our 2016 fiscal year, provide for benefits or payments upon certain employment termination or change in control events. These benefits and payments are discussed below except to the extent a benefit or payment is available generally to all salaried employees and does not discriminate in favor of our executive officers or to the extent already discussed under "Nonqualified Deferred Compensation Fiscal 2016" above.
Payments Upon Termination Due to Death or Disability
Pre-2012 Equity Awards. Ms. Taylor has options outstanding that were granted prior to 2012. All such options are fully vested and generally may be exercised for a period of one year from termination of employment due to death or disability (as defined in the applicable award agreement) unless such options have expired earlier.
Post-2011 Equity Awards. If a named executive officer's employment with us terminates due to death or disability (as defined in the applicable award agreement):
39
date of such event and shall be paid within 30 days thereafter. Otherwise, any earned but unvested PSUs from such awards shall be forfeited and cancelled on the date of the termination of employment.
Other Payments. In the event of death, a named executive officer's beneficiary will receive payments under our group life insurance program in an amount, up to a maximum of $3 million, equal to 2.5 times such officer's annual base salary. In addition, in the event of disability (as defined in the governing document), a named executive officer would receive 60% of covered monthly earnings up to $20,000 per month under our long-term disability insurance program. In the event of death or disability (as defined in the CDP/SERP Plan), a named executive officer's CDP/SERP Plan benefit will be payable in a lump sum within 60 days after the end of the calendar quarter in which such termination event occurs, provided that we may delay payment in the event of disability until as soon as reasonably practicable after receipt of the disability determination by the Social Security Administration. Additionally, in the event of death on or after the last day of a fiscal year, a named executive officer will receive payment for his or her incentive bonus earned for that fiscal year under the terms of our Teamshare program (which otherwise generally requires that a participant remain employed on the payment date to be entitled to any incentive bonus earned for that fiscal year).
Payments Upon Termination Due to Retirement
Except as provided immediately below with respect to stock options, PSUs and RSUs awarded after 2011, retirement (as defined in the applicable governing document) is not treated differently from any other voluntary termination without good reason (as defined in the relevant agreements, and as discussed below under "Payments Upon Voluntary Termination") under any of our plans or agreements for named executive officers.
In the event a named executive officer retires:
40
PSUs in the death and disability scenarios discussed above for the 2016 PSUs during these respective time periods.
Payments Upon Voluntary Termination
The payments to be made to a named executive officer upon voluntary termination vary depending upon whether the resignation occurs with or without "good reason" (as defined in each named executive officer's employment agreement or equity award agreement, as applicable) or after our failure to offer to renew, extend or replace the applicable employment agreement under certain circumstances.
Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement. If a named executive officer resigns with good reason (as defined in the applicable equity award agreement), he or she will forfeit all then unvested equity awards and generally may exercise any vested options up to 90 days following the resignation date, but no later than the 10th anniversary of the grant date. Solely with respect to the special stock option awards granted to Mr. Vasos on June 3, 2015 and March 16, 2016, Mr. Vasos will be required to hold any net shares acquired upon exercise for a period of time ending on the fifth anniversary of the applicable grant date. If a named executive officer resigns under the circumstances described in (2) below, his or her equity will be treated as described under "Voluntary Termination without Good Reason" below. See "Payments After a Change in Control" for a discussion of treatment of equity awards if a named executive officer resigns with good reason within two years following a change in control.
If a named executive officer resigns (1) with good reason (as defined in the applicable employment agreement) after giving 30 days (90 days in the case of Mr. Vasos) written notice within 30 days after the event purported to give rise to the claim for good reason and opportunity for us to cure any such claimed event within 30 days after receiving such notice, or (2) within 60 days (90 days in the case of Mr. Vasos) of our failure to offer to renew, extend or replace his or her employment agreement before, at or within 6 months (one year in the case of Mr. Vasos) after the end of the agreement's term (unless we enter into a mutually acceptable severance arrangement or the resignation is a result of the named executive officer's retirement or termination other than for good reason), then in each case the named executive officer will receive the following benefits generally on or beginning on the 60th day after termination of employment but contingent upon the execution and effectiveness of
41
a release of certain claims against us and our affiliates in the form attached to the employment agreement:
Note that any amounts owed to a named executive officer in the form of salary continuation that would otherwise have been paid during the 60 day period after employment termination will instead be payable in a single lump sum on the 60th day after such termination date and the remainder will be paid in the form of salary continuation payments over the remaining 24 month period as set forth above.
However, in certain cases, some or all of the payments and benefits provided on termination of employment may be delayed for six months following termination to comply with the requirements of Section 409A of the Internal Revenue Code. Any payment required to be delayed would be paid at the end of the six-month period in a lump sum, and any payments due after the six-month period would be paid at the normal payment date provided for under the applicable employment agreement.
The named executive officer will forfeit any unpaid severance amounts, and we retain any other rights we have available under law or equity, upon a material breach of any continuing obligation under the applicable employment agreement or the release, which include the following business protection provisions:
42
position" means any employment, consulting, advisory, directorship, agency, promotional or independent contractor arrangement between the named executive officer and any person engaged wholly or in material part in the business in which we are engaged (including, but not limited to, those entities identified in the applicable employment agreement), or any person then planning to enter the discount consumable basics retail business, if the named executive officer is required to perform services which are substantially similar to those he or she provided or directed at any time while employed by us.
Voluntary Termination without Good Reason. If a named executive officer resigns without good reason, he or she will forfeit all then unvested equity awards as well as all vested but unexercised options that were granted prior to 2012. The named executive officer generally may exercise any vested options that were granted after 2011 up to 90 days following the resignation date, but no later than the 10th anniversary of the grant date. Solely with respect to the special stock option awards granted to Mr. Vasos on June 3, 2015 and March 16, 2016, Mr. Vasos will be required to hold any net shares acquired upon exercise for a period of time ending on the fifth anniversary of the applicable grant date.
Payments Upon Involuntary Termination
The payments to be made to a named executive officer upon involuntary termination vary depending upon whether termination is with or without "cause" (as defined in each named executive officer's employment agreement or equity award agreement, as applicable).
Involuntary Termination with Cause. Upon an involuntary termination with cause, a named executive officer will forfeit all unvested equity grants, all vested but unpaid PSUs and all vested but unexercised options.
Involuntary Termination without Cause. Upon an involuntary termination without cause, a named executive officer:
See "Payments After a Change in Control" for a discussion of treatment of equity awards if a named executive officer is involuntarily terminated without cause within two years following a change in control.
43
Payments After a Change in Control
Upon a change in control (as defined under the applicable governing document), regardless of whether the named executive officer's employment terminates:
Upon the named executive officer's "qualifying termination," which includes involuntary termination without cause or resignation with good reason (unless cause to terminate exists), in each case within two years following a change in control (provided that the officer was continuously employed by us until the change in control) and as each is defined in the applicable equity award agreement, (1) all of his or her options awarded after 2015 will immediately vest and become exercisable as to 100% of the shares subject to such options on the termination date (but only to the extent such options have not otherwise terminated) and the officer may exercise any vested options up to three years following the termination date, but no later than the 10th anniversary of the grant date; and (2) all of his or her previously earned, or deemed earned, but unvested PSUs awarded after 2015 that have not been previously forfeited will immediately vest, become nonforfeitable and be paid on the termination date. To qualify as a resignation with good reason for this purpose, the officer must have provided written notice of the existence of the circumstances providing grounds for resignation with good reason within 30 days of the initial existence of such grounds and must have given Dollar General at least 30 days from receipt of such notice to cure such condition. In addition, the resignation must have become effective no later than one year after the initial existence of the condition constituting good reason.
Except as described above with respect to equity awards granted after 2015, upon an involuntary termination without cause or a resignation with good reason following the change in control, a named executive officer will receive the same severance payments and benefits as described above under "Voluntary Termination with Good Reason or After Failure to Renew the Employment Agreement." However, a named executive officer will have one year from the termination date (but no later than the 10th anniversary of the grant date) in which to exercise vested options that were granted after 2011 but prior to 2016 if he or she resigns or is involuntarily terminated within two years following the change in control under any scenario other than retirement or involuntary termination with cause (in which respective cases, he or she will have five years from the retirement date (but no later than the 10th anniversary of the grant date) to exercise vested options and will forfeit any vested but unexercised options held at the time of the termination with cause).
In the event of a change in control as defined in Section 280G of the Internal Revenue Code, each named executive officer's employment agreement provides for capped payments (taking into consideration all payments and benefits covered by Section 280G of the Internal Revenue Code) of
44
$1 less than the amount that would trigger the "golden parachute" excise tax under federal income tax rules (the "excise tax") unless he or she signs a release and the after-tax benefit would be at least $50,000 more than it would be without the payments being capped. In such case, such officer's payments and benefits would not be capped and such officer would be responsible for the payment of the excise tax. We would not pay any additional amount to cover the excise tax. The table below reflects the uncapped amounts, subject to reduction in the circumstances described in this paragraph.
The following table reflects potential payments to each named executive officer in various termination and change in control scenarios based on compensation, benefit, and equity levels in effect on, and assuming the scenario was effective as of, February 3, 2017. For stock valuations, we have used the closing price of our stock on the NYSE on February 3, 2017 ($73.14). The table below reports only amounts that are increased, accelerated or otherwise paid or owed as a result of the applicable scenario and, as a result, exclude earned but unpaid base salary through the employment termination date and equity awards and CDP/SERP Plan benefits that had vested prior to the event. For more information regarding the CDP/SERP Plan benefits, see "Nonqualified Deferred Compensation Fiscal 2016" above. The table also excludes any amounts that are available generally to all salaried employees and do not discriminate in favor of our executive officers. The amounts shown are merely estimates. We cannot determine actual amounts to be paid until a termination or change in control scenario occurs.
45
Potential Payments to Named Executive Officers Upon Occurrence of
Various Termination Events or Change in Control as of February 3, 2017
|
| Name/Item | | Death ($) |
| Disability ($) |
| Retirement ($)(1) |
| Voluntary Without Good Reason ($) |
| Involuntary Without Cause or Voluntary With Good Reason ($) |
| Involuntary With Cause ($) |
| Change in Control Without Qualifying Termination ($) |
| Change in Control With Qualifying Termination ($) |
| |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| Mr. Vasos |
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
|
| Equity Vesting Due to Event |
| 1,942,859 | | | 1,942,859 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | 1,349,035 | | | | 2,536,682 | | | |||||||||
|
| Cash Severance |
| 915,411 | | | n/a | | | | n/a | | | | n/a | | | | 5,315,411 | | | | n/a | | | | | | | | 5,315,411 | | | |||||||||
|
| Health Payment |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 10,632 | | | | n/a | | | | | | | | 10,632 | | | |||||||||
|
| Outplacement(2) |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 8,500 | | | | n/a | | | | | | | | 8,500 | | | |||||||||
|
| Life Insurance Proceeds |
| 2,750,000 | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | n/a | | | |||||||||
|
| Total |
| 5,608,270 | | | 1,942,859 | | | | n/a | | | | n/a | | | | 5,334,543 | | | | n/a | | | | 1,349,035 | | | | 7,871,225 | | | |||||||||
|
| | ||||||||||||||||||||||||||||||||||||||||
|
| Mr. Garratt |
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
|
| Equity Vesting Due to Event |
| 345,587 | | | 345,587 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | 182,193 | | | | 508,690 | | | |||||||||
|
| Cash Severance |
| 277,981 | | | n/a | | | | n/a | | | | n/a | | | | 1,675,960 | | | | n/a | | | | | | | | 1,675,960 | | | |||||||||
|
| Health Payment |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 21,060 | | | | n/a | | | | | | | | 21,060 | | | |||||||||
|
| Outplacement(2) |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 8,500 | | | | n/a | | | | | | | | 8,500 | | | |||||||||
|
| Life Insurance Proceeds |
| 1,285,000 | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | n/a | | | |||||||||
|
| Total |
| 1,908,568 | | | 345,587 | | | | n/a | | | | n/a | | | | 1,705,520 | | | | n/a | | | | 182,193 | | | | 2,214,210 | | | |||||||||
|
| | ||||||||||||||||||||||||||||||||||||||||
|
| Mr. Owen |
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
|
| Equity Vesting Due to Event |
| 163,395 | | | 163,395 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | 326,497 | | | |||||||||
|
| Cash Severance |
| 333,578 | | | n/a | | | | n/a | | | | n/a | | | | 1,671,094 | | | | n/a | | | | | | | | 1,671,094 | | | |||||||||
|
| Health Payment |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 21,060 | | | | n/a | | | | | | | | 21,060 | | | |||||||||
|
| Outplacement(2) |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 8,500 | | | | n/a | | | | | | | | 8,500 | | | |||||||||
|
| Life Insurance Proceeds |
| 1,542,000 | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | n/a | | | |||||||||
|
| Total |
| 2,038,973 | | | 163,395 | | | | n/a | | | | n/a | | | | 1,700,655 | | | | n/a | | | | | | | | 2,027,152 | | | |||||||||
|
| | ||||||||||||||||||||||||||||||||||||||||
|
| Ms. Taylor |
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
|
| Equity Vesting Due to Event |
| 749,361 | | | 749,361 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | 585,967 | | | | 912,464 | | | |||||||||
|
| Cash Severance |
| 293,300 | | | n/a | | | | n/a | | | | n/a | | | | 1,768,319 | | | | n/a | | | | | | | | 1,768,319 | | | |||||||||
|
| Health Payment |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 19,829 | | | | n/a | | | | | | | | 19,829 | | | |||||||||
|
| Outplacement(2) |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 8,500 | | | | n/a | | | | | | | | 8,500 | | | |||||||||
|
| Life Insurance Proceeds |
| 1,356,000 | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | n/a | | | |||||||||
|
| Total |
| 2,398,661 | | | 749,361 | | | | n/a | | | | n/a | | | | 1,796,648 | | | | n/a | | | | 585,967 | | | | 2,709,111 | | | |||||||||
|
| | ||||||||||||||||||||||||||||||||||||||||
|
| Mr. Thorpe |
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||
|
| Equity Vesting Due to Event |
| 163,395 | | | 163,395 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | 326,497 | | | |||||||||
|
| Cash Severance |
| 353,036 | | | n/a | | | | n/a | | | | n/a | | | | 1,768,575 | | | | n/a | | | | | | | | 1,768,575 | | | |||||||||
|
| Health Payment |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 19,109 | | | | n/a | | | | | | | | 19,109 | | | |||||||||
|
| Outplacement(2) |
| n/a | | | n/a | | | | n/a | | | | n/a | | | | 8,500 | | | | n/a | | | | | | | | 8,500 | | | |||||||||
|
| Life Insurance Proceeds |
| 1,632,000 | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | | | | | | n/a | | | |||||||||
|
| Total |
| 2,148,431 | | | 163,395 | | | | n/a | | | | n/a | | | | 1,796,184 | | | | n/a | | | | | | | | 2,122,681 | | | |||||||||
|
| | ||||||||||||||||||||||||||||||||||||||||
|
| (1) None of the named executive officers were eligible for retirement on February 3, 2017. |
|
|
||||||||||||||||||||||||||||||||||||||
|
| (2) Estimated based on information provided by our outplacement services provider. |
|
|
46
Compensation Committee Interlocks and Insider Participation
Each of Messrs. Bryant and Rhodes and Ms. Fili-Krushel was a member of our Compensation Committee during 2016. None of these persons (1) was at any time during 2016 an officer or employee of Dollar General or any of our subsidiaries; (2) was at any time prior to 2016 an officer of Dollar General or any of our subsidiaries; or (3) had any relationship requiring disclosure under the section of this document entitled "Transactions with Management and Others." Also, none of our executive officers serves, or in the past fiscal year has served, as a director of, or as a member of the compensation committee (or other board committee performing equivalent functions) of, any entity that has one or more of its executive officers serving as a director of Dollar General or as a member of our Compensation Committee.
Compensation Risk Considerations
In November 2016, our Compensation Committee, with input from its compensation consultant and management, reviewed our compensation policies and practices for all employees, including executive officers, to assess the risks that may arise from our compensation programs. The assessment included a review of our compensation programs for certain design features which could potentially encourage excessive risk-taking or otherwise generate risk to Dollar General. As a result of that assessment, the Compensation Committee concluded, after considering the degree to which identified risk-aggravating factors were offset by risk-mitigating factors, that the net risks created by our overall compensation program were not reasonably likely to have a material adverse effect on Dollar General. The Compensation Committee rolled forward this assessment in March 2017 to consider any changes to the compensation program since November 2016 and reached the same conclusion as it reached in November 2016.
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For purposes of the tables below, a person is a "beneficial owner" of a security over which that person has or shares voting or investment power or which that person has the right to acquire beneficial ownership within 60 days. Unless otherwise noted, to our knowledge these persons have sole voting and investment power over the shares listed. Percentage computations are based on 274,892,175 shares of our common stock outstanding as of March 23, 2017.
Security Ownership of Certain Beneficial Owners
The following table shows the amount of our common stock beneficially owned as of March 23, 2017 by those known by us to beneficially own more than 5% of our common stock.
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership |
| Percent of Class |
---|---|---|---|---|
T. Rowe Price Associates, Inc.(1) |
| 30,616,623 | | 11.1% |
GIC Private Limited(2) |
| 24,086,726 | | 8.8% |
BlackRock, Inc.(3) |
| 21,672,311 | | 7.9% |
The Vanguard Group(4) |
| 16,869,920 | | 6.1% |
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Security Ownership of Officers and Directors
The following table shows the amount of our common stock beneficially owned as of March 23, 2017 by our current directors and our named executive officers individually and by our current directors and all of our current executive officers as a group. Unless otherwise noted, these persons may be contacted at our executive offices.
Name of Beneficial Owner | | Amount and Nature of Beneficial Ownership |
| Percent of Class |
| |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Warren F. Bryant(1)(2) |
| | 30,895 | | | | * | | | |||
Michael M. Calbert(1)(2)(3) |
| | 90,793 | | | | * | | | |||
Sandra B. Cochran(1)(2) |
| | 17,650 | | | | * | | | |||
Patricia D. Fili-Krushel(1)(2)(4) |
| | 16,217 | | | | * | | | |||
Paula A. Price(1)(2)(5) |
| | 6,598 | | | | * | | | |||
William C. Rhodes, III(1)(2)(6) |
| | 51,859 | | | | * | | | |||
David B. Rickard(1)(2) |
| | 31,142 | | | | * | | | |||
Todd J. Vasos(1) |
| | 214,286 | | | | * | | | |||
John W. Garratt(1) |
| | 21,354 | | | | * | | | |||
Jeffery C. Owen(1) |
| | 20,386 | | | | * | | | |||
Rhonda M. Taylor(1) |
| | 62,240 | | | | * | | | |||
James W. Thorpe(1) |
| | 24,947 | | | | * | | | |||
All current directors and executive officers as a group (15 persons)(1)(2)(3)(4)(5)(6) |
| | 869,847 | | | | * | | |
49
PROPOSAL 2:
VOTE REGARDING THE AMENDED AND RESTATED
2007 STOCK INCENTIVE PLAN
What are shareholders being asked to approve?
Our Board of Directors is asking you to approve the material terms of the performance goals under our Dollar General Corporation Amended and Restated 2007 Stock Incentive Plan (the "Stock Incentive Plan") for purposes of compensation deductibility under Internal Revenue Code Section 162(m) and an annual limit on non-employee director compensation set forth in the Stock Incentive Plan. For the avoidance of doubt, approval of this Proposal 2 will not in any way impact or increase the number of shares available for awards under the Stock Incentive Plan, will not expand the types of awards available under or the types of individuals eligible to participate in the plan, and will not extend the term of the plan.
On November 30, 2016, upon the recommendation of our Compensation Committee, our Board of Directors approved a revision to the performance goals and the addition of an annual limit on non-employee director compensation (subject to exception approved by the Board in extraordinary circumstances), in each case as set forth in the Stock Incentive Plan and described in this proposal, subject to shareholder approval at the annual meeting, neither of which shall be effective unless and until such shareholder approval is obtained. A copy of the Stock Incentive Plan, including the changes being submitted to shareholders at the annual meeting, is attached as Appendix B to this proxy statement.
Why are shareholders being asked to approve the material terms of the performance goals under the Stock Incentive Plan?
Section 162(m) of the Internal Revenue Code limits our ability to deduct from our U.S. federal corporate income taxes compensation in excess of $1 million per year paid to "covered employees" (generally consisting of each of the persons who were, at the end of each fiscal year, our Chief Executive Officer or one of the other named executive officers other than our Chief Financial Officer) unless the compensation qualifies as "performance-based." Compensation cannot qualify as "performance-based" unless the material terms of the performance goals are disclosed to and approved by shareholders every five years. For purposes of Section 162(m), material terms include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goals may be based and (iii) the maximum amount of compensation that can be paid to an employee under the plan if the performance goals are achieved. Each of these material terms as they relate to the Stock Incentive Plan is discussed below, and shareholder approval of this Proposal 2 will be deemed to constitute approval of the material terms of the performance goals under the Stock Incentive Plan for purposes of the shareholder approval requirements of Section 162(m).
The Stock Incentive Plan was established in 2007 and is designed to permit Dollar General to grant awards that qualify as performance-based compensation for purposes of satisfying the requirements of Section 162(m). Shareholders last approved the material terms of the performance goals under the Stock Incentive Plan in 2012. Shareholder approval of the material terms of the performance goals under the Stock Incentive Plan is only one of several requirements for amounts paid under the Stock Incentive Plan to qualify for the "performance-based compensation" exemption, and any such approval should not be viewed as a guarantee that we will be able to deduct any or all compensation under the Stock Incentive Plan. In addition, nothing in this proposal or in the Stock Incentive Plan precludes us or the Compensation Committee from making any payment or granting any awards that are not intended to qualify for tax deductibility under Section 162(m).
50
Why are shareholders being asked to approve the annual limit on non-employee director compensation set forth in the Stock Incentive Plan?
The Stock Incentive Plan imposes a maximum $750,000 limit on the compensation, measured as the sum of any cash compensation and the grant date fair value of awards granted under the Stock Incentive Plan, which may be paid and awarded to a non-employee director for such service during any fiscal year. Our Board of Directors adopted this provision in order to place a reasonable limit on the aggregate amount of cash and equity compensation that may be awarded to each non-employee director during each fiscal year. In setting this limit, our Board, on the recommendation of the Compensation Committee and based on the input provided by the Compensation Committee's independent compensation consultant, considered the effectiveness and reasonableness of the cash and equity compensation that we offer to our non-employee directors along with industry benchmarks, the current and future responsibilities of our non-employee directors, and whether such a limit provides sufficient flexibility to adjust non-employee director compensation in the future if such changes are advisable to remain competitive with our peers. We believe that such a limit allows us to stay within reasonable bounds of what the market requires in a competitive environment, while also placing meaningful restrictions on the amount of compensation that may be awarded to our non-employee directors.
Why should shareholders approve this proposal?
We believe the Stock Incentive Plan is important to our continued growth and success. Its purpose is to attract and retain management and other personnel and key service providers, to motivate management personnel by means of growth-related incentives to achieve long-range goals, and to further align the interests of plan participants with those of our shareholders.
Approval of this proposal will, among other things, preserve what we believe is an essential tool to provide an incentive for management and other personnel and key service providers to contribute to our future growth and success and will provide a meaningful limit within which our Board of Directors and the Compensation Committee, along with its independent compensation consultant, can determine non-employee director compensation.
What happens if shareholders do not approve this proposal?
If this proposal is not approved at the annual meeting:
51
How does the Stock Incentive Plan compare to compensation best practices?
The Stock Incentive Plan includes a number of important provisions, summarized below, that are designed to protect our shareholders' interests and that reflect our commitment to best practices and effective management of equity compensation:
How does the Stock Incentive Plan work?
A description of the Stock Incentive Plan's provisions is set forth below. This summary is qualified in its entirety by reference to the Stock Incentive Plan attached as Appendix B.
Administration. The Stock Incentive Plan is administered by the Compensation Committee, which may delegate some or all of its authority to a subcommittee consisting solely of at least two directors who qualify as "non-employee directors" for purposes of Rule 16b-3 of the Securities Exchange Act of 1934 (or any successor rule), "independent directors" within the meaning of NYSE listing standards, and "outside directors" within the meaning of Section 162(m) (or any successor
52
section). If at any time Dollar General has not appointed such a committee, the Board itself may administer the Stock Incentive Plan. We refer to the individuals administering the Stock Incentive Plan as the "Committee." Subject to the terms of the Stock Incentive Plan, the Committee may select participants to receive awards, determine the types, terms and conditions of awards, adopt rules for the plan's administration, and interpret plan provisions.
Shares of Common Stock Reserved for Issuance under the Stock Incentive Plan. This proposal does not increase the number of shares available for issuance under the Stock Incentive Plan. Subject to adjustment in connection with certain significant corporate events, the maximum number of shares that may be issued under the Stock Incentive Plan is 31,142,858. As of March 23, 2017, awards relating to 14,941,885 shares have been issued or are subject to outstanding awards granted under the Stock Incentive Plan, and 16,200,973 shares remain available for awards under the Stock Incentive Plan. As of March 23, 2017, the closing price per share of our common stock as reported on the NYSE was $68.90.
The common stock issued or to be issued under the Stock Incentive Plan consists of authorized but unissued shares or issued shares that we have reacquired. The issuance of shares or the payment of cash in consideration of the substitution, cancellation or termination of an award will reduce the total number of shares available under the Stock Incentive Plan to the extent of the number of shares subject to such substituted, cancelled or terminated award, provided that shares subject to awards that are either repurchased by Dollar General or withheld or tendered to satisfy tax withholding obligations, the exercise price of a stock option or the purchase price for any other award will immediately become available for new awards to be granted under the Stock Incentive Plan. In addition, if any shares covered by an award under the Stock Incentive Plan are forfeited, or if an award expires unexercised, then the number of shares relating to such forfeited or expired awards will, to the extent of any such forfeiture or expiration, immediately become available for new awards to be granted under the Stock Incentive Plan.
Eligibility. Awards may be made under the Stock Incentive Plan to any of our employees, non-employee members of our Board of Directors, any consultant or other person having a service relationship with Dollar General and any of our subsidiaries and affiliates. On March 23, 2017, there were 8 executive officers, 7 non-employee members of our Board of Directors, 1,730 employees and no consultants or other service providers eligible to participate in the Stock Incentive Plan.
Stock Options and Stock Appreciation Rights. The Stock Incentive Plan permits the grant of stock options that are intended to qualify, as well as stock options that are not intended to qualify, as incentive stock options under the Internal Revenue Code.
The per share exercise price of a stock option may not be less than 100% of the fair market value of one share of our common stock on the grant date. The fair market value is generally determined as the closing price of our common stock on the grant date. In the case of shareholders who own 10% or more of our outstanding common stock and who receive incentive stock options, the per share exercise price may not be less than 110% of the fair market value of one share of our common stock on the grant date.
The Committee determines the term of each stock option, which may not exceed ten years from the grant date. If the grantee owns 10% or more of our outstanding common stock, a stock option intended to be an incentive stock option must expire five years following the grant date. Subject to these limitations, the Committee determines when each stock option may be exercised, vesting requirements, and such other terms, conditions or restrictions on the grant or the option exercise as the Committee deems appropriate, including whether a participant will receive dividend equivalent rights on vested stock options.
In general, a participant may pay the exercise price of a stock option in cash, through the withholding of shares underlying the option, or, with the Committee's consent, by delivering shares that
53
the participant has held for such period of time, if any, as determined by the Committee to avoid adverse accounting consequences, or by a combination of these methods that complies with the terms of the Stock Incentive Plan, the award agreement, and any applicable Committee guidelines in effect at the time.
The Stock Incentive Plan permits the Committee to grant stock appreciation rights, either independent of or in connection with stock options, and to determine their terms. A stock appreciation right entitles the participant to receive an amount equal to the product of (i) the excess of the fair market value of one share of our common stock on the exercise date over the exercise price of the stock appreciation right, multiplied by (ii) the number of shares covered by the stock appreciation right. The per share exercise price of a stock appreciation right granted independent of a stock option may not be less than the fair market value of one share of our common stock on the grant date. The per share exercise price of a stock appreciation right granted in connection with a stock option will be the per share exercise price of the related stock option. The exercise of a stock appreciation right granted in connection with a stock option shall cause a reduction in the number of shares subject to the stock option equal to the number of shares with respect to which the stock appreciation right is exercised. Conversely, the exercise of a related stock option shall cause a reduction in the number of shares subject to the stock appreciation right equal to the number of shares with respect to which the related option is exercised. A participant may pay the exercise price of a stock appreciation right in shares, in cash, or in a combination of shares and cash, all as the Committee shall determine.
No amendment or modification may be made to an outstanding stock option or stock appreciation right if it would be treated as a repricing under the rules of the stock exchange on which the shares of our common stock are listed (currently the NYSE), including replacement with cash or another award type, without the prior approval of our shareholders.
Unless the Committee provides otherwise, stock options and stock appreciation rights granted under the Stock Incentive Plan may not be sold, transferred, pledged or assigned other than by will or under applicable laws of descent and distribution.
Subject to adjustment in connection with certain significant corporate events, the maximum number of shares of our common stock that can be awarded in the form of stock options and stock appreciation rights under the Stock Incentive Plan to any participant is 4.5 million per fiscal year.
Other Stock-Based Awards. The Committee may also grant or sell to participants unrestricted shares; restricted shares; and awards that are valued by reference to the fair market value, or a number of shares, of our common stock, awards that are otherwise based on the fair market value, or a number of shares, of our common stock, and awards that are payable in the form of shares of our common stock (which may include, without limitation, restricted stock units, performance shares, performance share units, and bonus stock). In this proxy statement, we sometimes refer to these awards as "Other Stock-Based Awards."
The Committee will determine the form, terms and conditions of Other Stock-Based Awards, including vesting provisions and whether such awards will be settled in shares, in cash, or in a combination of shares and cash. Other Stock-Based Awards may be granted alone or in connection with any other awards under the Stock Incentive Plan, and may provide for vesting upon the completion of a specified period of service, the occurrence of an event, and/or the attainment of performance objectives.
Other Stock-Based Awards may be granted in a manner intended to qualify as performance-based compensation meeting the requirements of Section 162(m). To qualify as performance-based:
54
Under the Internal Revenue Code, a director is an "outside director" if he or she is not a current employee of Dollar General; is not a former employee who receives compensation for prior services (other than under a qualified retirement plan); has not been an officer of Dollar General; and does not receive, directly or indirectly (including amounts paid to an entity that employs the director or in which the director has at least a 5% ownership interest), remuneration from Dollar General in any capacity other than as a director.
Under the Stock Incentive Plan, the Committee may base the objective performance goals on one or more of the following business criteria, which may relate to Dollar General, to one or more of our affiliates, to one or more of our or our affiliates' divisions or units, or to any combination of the foregoing:
| net earnings or net income (before or after taxes)
earnings per share
net sales or revenue growth
gross or net operating profit
return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue)
cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital)
earnings before or after taxes, interest, depreciation, and/or amortization
gross or operating margins
productivity ratios
share price (including, but not limited to, growth measures and total shareholder return) |
| expense targets
margins
operating efficiency
customer satisfaction
working capital targets
economic value added
volume
capital expenditures
market share
costs
regulatory ratings
asset quality
net worth
safety |
The criteria listed above may be measured on an absolute basis, on a basis relative to one or more peer group companies or indices, or any combination of the foregoing, as determined by the Committee. In addition, to the extent consistent with Section 162(m) (or any successor section), the performance goals may be calculated without regard to non-recurring items, as the Committee may determine in its sole discretion.
Subject to adjustment in connection with certain significant corporate events, the maximum number of shares of our common stock that can be awarded under the Stock Incentive Plan in the form of Other Stock-Based Awards to any participant is 1.5 million per fiscal year. In addition, Other Stock-Based Awards granted in a manner intended to qualify for the exemption from the compensation deductibility limitation imposed by Section 162(m) are considered "performance-based awards." The maximum amount of a "performance-based award" denominated in shares of our common stock that may be granted during a calendar year to any participant is 24 million.
55
The list of objective performance goals on which "performance-based awards" may be based under the Stock Incentive Plan must be approved by our shareholders at least every five years (or earlier if the list is changed) in order for compensation based on these goals to be considered performance-based compensation under Section 162(m). Approval of the material terms of the performance goals in this Proposal 2 will restart the five-year period for re-approval.
The foregoing notwithstanding, in its discretion, the Committee also may use other performance goals for awards under the Stock Incentive Plan that are not intended to qualify as performance-based compensation under Section 162(m).
Dividend Equivalent Rights. The Committee may grant to participants, either alone or in connection with the grant of another award (other than unearned performance shares), and determine the terms of, dividend equivalent rights. A dividend equivalent right is the right to receive a payment in respect of one share of our common stock that is equal to the amount of any dividend paid in respect of one share of our common stock held by a Dollar General shareholder.
Amendment or Termination of the Stock Incentive Plan. The Board of Directors generally may terminate the Stock Incentive Plan at any time and for any reason and may amend the plan. Shareholder approval is required for any such amendment to become effective if (1) required by the Internal Revenue Code or other applicable law, rule or regulation; or (2) the amendment increases the aggregate number of shares available for awards under the plan, decreases the exercise price of outstanding stock options or stock appreciation rights, changes the requirements relating to the Committee or extends the term of the Stock Incentive Plan. No Stock Incentive Plan termination or amendment may, without the participant's consent, adversely affect a participant in more than a minimal manner with respect to any awards then outstanding.
Amendments of Awards. The Committee may amend the terms and conditions of any outstanding awards consistent with the terms of the Stock Incentive Plan, except that a participant's consent would be required to modify an outstanding award in a manner that adversely impacts, other than in a de minimis manner, a participant, unless such modification is provided for or contemplated in the terms of the award agreement or the Stock Incentive Plan.
Effect of Certain Corporate Transactions. In the event of a change in control of Dollar General, the Committee may accelerate the vesting of any outstanding awards, cancel outstanding awards for fair value (as determined in its sole discretion), substitute new awards that will substantially preserve the otherwise applicable terms and value of the awards being substituted, or provide for a period of at least 10 business days prior to the change in control in which any stock option or stock appreciation right will be fully exercisable and then shall terminate upon the change in control. The Committee may take any of the foregoing actions with respect to any given outstanding award or group or types of awards, and shall not be required to take any of the foregoing actions uniformly with respect to all outstanding awards.
Adjustments for Share Dividends, Share Splits and Similar Events. Upon any share dividend, share split, spin-off, share combination, reclassification, recapitalization, liquidation, dissolution, reorganization, merger, change in control of Dollar General, payment of a dividend (other than a cash dividend paid as part of a regular dividend program), exchange of shares or other corporate exchange, equity restructuring, or other similar transaction or occurrence that affects our equity securities or the value of our equity securities, the Committee must adjust the number and kind of shares subject to and available for issuance under the Stock Incentive Plan, including participant maximums, adjust awards then outstanding under the plan (including the number and kind of securities subject to the award and, if applicable, the share and/or exercise price), and/or take such other action (including, without limitation, providing for the payment of a cash amount to holders of outstanding awards), in each case
56
as it deems reasonably necessary to address, on an equitable basis, the effect of the applicable corporate event on the Stock Incentive Plan and any outstanding awards.
What are the federal income tax consequences of awards granted under the Stock Incentive Plan?
Incentive Stock Options. The grant of an incentive stock option will not be a taxable event for the participant or for Dollar General. A participant will not recognize taxable income upon exercise of an incentive stock option (except that the alternative minimum tax may apply), and any gain realized upon a disposition of our common stock received pursuant to the exercise of an incentive stock option will be taxed as long-term capital gain if the participant holds the shares of common stock for at least two years after the grant date and for one year after the exercise date (the "holding period requirement"). Dollar General will not be entitled to any business expense deduction with respect to the exercise of an incentive stock option, except as discussed below.
For the exercise of an option to qualify for the foregoing tax treatment, the participant generally must be our employee or an employee of one of our subsidiaries from the option grant date through a date within three months before the option exercise date.
If all of the foregoing requirements except the holding period requirement are met, the participant will recognize ordinary income upon the disposition of the common stock in an amount generally equal to the excess of the fair market value of our common stock at the time the option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the realized gain, if any, will be capital gain. Dollar General will be allowed a business expense deduction to the extent the participant recognizes ordinary income, subject to our compliance with Section 162(m) and to certain reporting requirements.
Special rules govern the tax treatment of the use of common stock to pay the exercise price of an option. Accordingly, to the extent any award agreement permits the use of our common stock to pay for the exercise price, special rules apply.
Non-Qualified Stock Options. The grant of a non-qualified stock option will not be a taxable event for the participant or Dollar General. Upon exercising a non-qualified option, a participant will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of our common stock on the option exercise date. Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a non-qualified option, the participant will have taxable capital gain or loss, measured by the difference between the amount realized on the disposition and the tax basis of the shares of common stock (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised).
If Dollar General complies with applicable reporting requirements and with the restrictions of Section 162(m), Dollar General will be entitled to a business expense deduction in the same amount and generally at the same time as the participant recognizes ordinary income.
If the Committee permits such a transfer, a participant who has transferred a non-qualified stock option to a family member by gift will realize taxable income at the time the non-qualified stock option is exercised by the family member. The participant will be subject to withholding of income and employment taxes at that time. The family member's tax basis in the shares of common stock will be the fair market value of the shares of common stock on the option exercise date. The transfer of vested non-qualified stock options will be treated as a completed gift for gift and estate tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the participant's estate for estate tax purposes.
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Special rules govern the tax treatment of the use of common stock to pay the exercise price of an option. Accordingly, to the extent any award agreement permits the use of common stock to pay for the exercise price, special rules apply.
Stock Appreciation Rights. There are no immediate tax consequences of receiving an award of stock appreciation rights under the Stock Incentive Plan. Upon exercising a stock appreciation right, a participant will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of our common stock on the exercise date. If Dollar General complies with applicable reporting requirements and with the restrictions of Section 162(m), Dollar General will be entitled to a business expense deduction in the same amount and generally at the same time as the participant recognizes ordinary income.
Other Stock-Based Awards. The Committee may grant or sell to participants Other Stock-Based Awards, the form and terms of which will be determined by the Committee. The federal income tax consequences of Other-Stock Based Awards will depend on the form and terms of those awards. The summary below describes the federal income tax consequences of some of the Other-Stock Based Awards the Committee has granted or sold or may be likely to grant or sell to participants.
Unrestricted Shares. Participants who are awarded unrestricted shares of common stock will be required to recognize ordinary income in an amount equal to the fair market value of the shares of our common stock on the grant date, reduced by the amount, if any, paid for such shares. If Dollar General complies with applicable reporting requirements and with the restrictions of Section 162(m), Dollar General will be entitled to a business expense deduction in the same amount and generally at the same time as the participant recognizes ordinary income.
Restricted Shares. A participant who is awarded restricted shares of common stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares of common stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, the participant may elect under Section 83(b) of the Internal Revenue Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the common stock on the grant date (less the purchase price, if any), determined without regard to the restrictions. If the participant does not make such a Section 83(b) election, the fair market value of the common stock on the date the restrictions lapse (less the purchase price, if any) will be treated as compensation income to the participant and will be taxable in the year the restrictions lapse and dividends paid while the common stock is subject to restrictions will be subject to withholding taxes. If Dollar General complies with applicable reporting requirements and with the restrictions of Section 162(m), Dollar General will be entitled to a business expense deduction in the same amount and generally at the same time as the participant recognizes ordinary income.
Restricted Stock Units. There are no immediate tax consequences of receiving an award of restricted stock units under the Stock Incentive Plan. A participant who is awarded restricted stock units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant at the end of the restriction period or, if later, the payment date. If Dollar General complies with applicable reporting requirements and with the restrictions of Section 162(m), Dollar General will be entitled to a business expense deduction in the same amount and generally at the same time as the participant recognizes ordinary income.
Performance Share Units. There are no immediate tax consequences of receiving an award of performance share units under the Stock Incentive Plan. A participant who is awarded performance share units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such participant on the payment date. If Dollar General complies with applicable reporting requirements and with the restrictions of Section 162(m), Dollar General will be entitled to a
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business expense deduction in the same amount and generally at the same time as the participant recognizes ordinary income.
Dividend Equivalent Rights. A participant generally will not recognize taxable income when a dividend equivalent right is granted. The participant, however, will generally recognize ordinary income upon receiving payment of cash and/or shares for the dividend equivalent right. The amount included in the participant's income will equal the amount of cash and the fair market value of the shares received. Dollar General generally will be entitled to a corresponding tax deduction at the time the participant recognizes ordinary income with respect to a dividend equivalent right.
Section 280G. To the extent payments that are contingent on a change in control are determined to exceed certain Internal Revenue Code limitations, they may be subject to a 20% nondeductible excise tax, and Dollar General's deduction with respect to the associated compensation expense may be disallowed in whole or in part.
Section 409A. The Stock Incentive Plan is intended to comply with Section 409A of the Internal Revenue Code to the extent that such section would apply to any award under the plan. Section 409A governs the taxation of deferred compensation. Any participant granted an award that is deemed to be deferred compensation, such as a grant of restricted stock units, that does not qualify for an exemption from Section 409A, and does not comply with Section 409A, could be subject to immediate taxation on the award as soon as the award is no longer subject to a substantial risk of forfeiture (even if the award is not exercisable) and an additional 20% tax (and a further additional tax based upon an amount of interest determined under Section 409A) on the value of the award.
What new plan benefits will be awarded under the Stock Incentive Plan?
Future participation and the types of awards that may be granted under the Stock Incentive Plan are subject to the discretion of the Committee and have not been established. As a result, the specific benefits and amounts payable in the future to any participant or groups of participants if this proposal is approved are not currently determinable.
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What awards have been granted under the Stock Incentive Plan?
The following table sets forth the shares of common stock underlying awards that have been granted or shares of common stock that have been issued to the listed individuals under the Stock Incentive Plan through March 23, 2017:
Name and Principal Position | | Number of Shares Underlying Restricted Stock/ Stock Units(1) |
| Number of Shares Underlying Options(2) |
| Number of Shares of Purchased Stock(3) |
| Number of Shares of Common Stock(4) |
| |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Todd J. Vasos, |
|
| 185,637 | | | | 1,274,076 | | | | 74,286 | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
John W. Garratt, |
| | 37,369 | | | | 93,438 | | | | | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
Jeffery C. Owen, |
|
| 41,076 | | | | 283,031 | | | | 11,429 | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
Rhonda M. Taylor, |
| | 48,909 | | | | 189,583 | | | | 6,114 | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
James W. Thorpe, |
|
| 34,901 | | | | 366,537 | | | | | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
All current executive officers as a group (8 persons) |
| | 445,862 | | | | 3,141,620 | | | | 154,532 | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
All current non-employee directors as a group (7 persons) |
| | 57,759 | | | | 117,588 | | | | | | | | | | | |||||
| | | | | | | | | | | ||||||||||||
All employees, including all current officers who are not executive officers, as a group(5) |
| | 3,450,229 | | | | 20,124,453 | | | | 884,005 | | | | 173,039 | | |
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What does the Board of Directors recommend?
Our Board unanimously recommends that shareholders vote FOR approval of the $750,000 annual limit on compensation, measured as the sum of cash compensation and the grant date fair value of any equity awards, granted under the Stock Incentive Plan during any fiscal year to a non-employee director as compensation for such services (subject to exception approved by our Board in extraordinary circumstances) and of the material terms of the performance goals under the Stock Incentive Plan for purposes of compensation deductibility under Section 162(m), including (i) the participants eligible to receive such compensation, (ii) the business criteria that may be used as performance goals for awards, and (iii) the maximum amount of compensation which may be paid to any participant if the performance goals are achieved.
Equity Compensation Plan Table
The following table sets forth information about securities authorized for issuance under our compensation plans (including individual compensation arrangements) as of February 3, 2017:
Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |
| Weighted-average exercise price of outstanding options, warrants and rights (b) |
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders(1) |
| | 3,531,759 | |