UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

PRELIMINARY SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)

 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

x

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

BEST BUY CO., INC.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 

 



 

 

BEST BUY CO., INC.
7601 Penn Avenue South
Richfield, Minnesota 55423

 

NOTICE OF 2008 REGULAR MEETING OF SHAREHOLDERS

 

Time:

 

9:30 a.m., Central Time, on Wednesday, June 25, 2008

Place:

 

Best Buy Corporate Campus — Theater

7601 Penn Avenue South

Richfield, Minnesota 55423

 

 

 

Items of

 Business:

 

1.

To elect five Class 1 directors to serve on our Board of Directors for a term of two years and to ratify the appointment of one Class 2 director.

 

 

 

 

 

 

2.

To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending February 28, 2009.

 

 

 

 

 

 

3.

To approve our 2008 Employee Stock Purchase Plan.

 

 

 

 

 

 

4.

To approve an amendment to our Restated Articles of Incorporation to require a majority voting standard for the election of directors.

 

 

 

 

 

 

5.

To transact such other business as may properly come before the meeting.

 

 

 

Record Date:

 

You may vote if you were a shareholder of record of Best Buy Co., Inc. as of the close of business on Monday, April 28, 2008.

 

 

 

Proxy Voting:

 

Your vote is important. You may vote via proxy:

 

 

 

 

 

 

1.

By visiting www.proxyvote.com on the Internet;

 

 

 

 

 

 

 

 

2.

By calling (within the U.S. or Canada) toll-free at 1-800-690-6903; or

 

 

 

 

 

 

 

 

3.

By signing and returning the enclosed proxy card.

 

 

 

Regardless of whether you expect to attend the meeting in person, please vote your shares in one of the three ways outlined above.

 

 

By Order of the Board of Directors

 

Minneapolis, Minnesota

Elliot S. Kaplan

[May 12, 2008]

Secretary

 

Help us make a difference by eliminating paper proxy mailings to your home or business.  As permitted by rules recently adopted by the U.S. Securities and Exchange Commission, we are pleased to make this proxy statement and our annual report to shareholders available electronically via the Internet.  If you received a Notice by mail, you will not receive a printed copy of the proxy materials. You may, however, opt to receive a printed copy of our proxy materials by following the instructions for requesting such materials included in the Notice.

 



 

TABLE OF CONTENTS

 

GENERAL INFORMATION

 

Background

 

Voting Procedure

 

Proxy Solicitation

 

Additional Information

 

CORPORATE GOVERNANCE AT BEST BUY

 

Board Meetings and Attendance

 

Committees of the Board

 

Director Nomination Process

 

Director Independence

 

Executive Sessions of Non-Management and Independent Directors

 

Communications With the Board of Directors

 

Director Orientation and Continuing Education

 

Director Compensation

 

ITEM OF BUSINESS NO. 1 — ELECTION OF DIRECTORS

 

General Information

 

Board Structure

 

Voting Information

 

Board Voting Recommendation

 

Nominees and Directors

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Compensation Philosophy, Objectives and Process

 

Compensation for Group 1 Officers

 

Compensation for Group 2 Officers

 

Other Compensation Matters

 

Compensation and Human Resources Committee Report on Executive Compensation

 

Compensation of Executive Officers

 

Summary Compensation Table

 

Grants of Plan-Based Awards

 

Outstanding Equity Awards at Fiscal Year-End

 

Options Exercised and Stock Vested

 

Non-Qualified Deferred Compensation

 

Potential Payments Upon Termination or Change-in-Control

 

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

 

AUDIT COMMITTEE REPORT

 

Pre-Approval Policy

 

ITEM OF BUSINESS NO. 2 — RATIFICATION OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Principal Accountant Fees and Services

 

Board Voting Recommendation

 

ITEM OF BUSINESS NO. 3 — APPROVAL OF OUR 2008 EMPLOYEE STOCK PURCHASE PLAN

 

Information About the Plan

 

Board Voting Recommendation

 

ITEM OF BUSINESS NO. 4 — APPROVAL OF AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION

 

Information About the Amendment

 

Board Voting Recommendation

 

OTHER BUSINESS

 

PROPOSALS FOR THE NEXT REGULAR MEETING

 

APPENDIX

 

Best Buy Co., Inc. Amended and Restated Articles of Incorporation

 

Best Buy Co., Inc. 2008 Employee Stock Purchase Plan

 

Best Buy Co., Inc. Audit Committee Charter

 

 



 

BEST BUY CO., INC.

7601 Penn Avenue South

Richfield, Minnesota 55423

 

 

PROXY STATEMENT

 

 

REGULAR MEETING OF SHAREHOLDERS — JUNE 25, 2008

 

GENERAL INFORMATION

 

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Best Buy Co., Inc. (“Best Buy,” “we,” “us,” or “our”) to be voted at our 2008 Regular Meeting of Shareholders (the “Meeting”) to be held on Wednesday, June 25, 2008, at 9:30 a.m., Central Time, at the Best Buy Corporate Campus - Theater, 7601 Penn Avenue South, Richfield, Minnesota, or at any postponement or adjournment of the Meeting. The mailing of proxy materials to shareholders will commence on or about [May 12, 2008].

 

Background

 

What is the purpose of the Meeting?

 

At the Meeting, shareholders will vote on the items of business outlined in the Notice of 2008 Regular Meeting of Shareholders (the “Notice”), included as the cover page to this proxy statement. In addition, management will report on our business and respond to questions from shareholders.

 

Why am I receiving this proxy statement and a proxy card?

 

You are receiving this proxy statement and a proxy card because you owned shares of Best Buy Common Stock as of April 28, 2008, the record date for the Meeting, and are entitled to vote on the items of business at the Meeting. This proxy statement describes the items that will be voted on at the Meeting and provides information on these items so that you can make an informed decision.

 

Who may vote?

 

In order to vote at the Meeting, you must be a shareholder of record of Best Buy as of April 28, 2008, the record date for the Meeting. If your shares are held in “street name” (that is, through a bank, broker or other nominee), you will receive instructions from the shareholder of record that you must follow in order for your shares to be voted as you choose.

 

When is the record date?

 

The Board has established April 28, 2008, as the record date for the Meeting.

 

How many shares of Best Buy Common Stock are outstanding?

 

As of the record date, there were 411,800,087 shares of Best Buy Common Stock outstanding. There are no other classes of capital stock outstanding.

 

Voting Procedure

 

On what items of business am I voting?

 

You are being asked to vote on the following items of business:

 

·     The election of five Class 1 directors for a term of two years and the ratification of one Class 2 director;

 

·     The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending February 28, 2009;

 

·     The approval of our 2008 Employee Stock Purchase Plan;

 

·     The amendment to our Restated Articles of Incorporation to require a majority voting standard for the election of directors; and

 

·     Such other business as may properly come before the Meeting.

 

How do I vote?

 

If you are a shareholder of record (that is, if your shares are owned in your name and not in “street name”), you may vote:

 

3



 

·     Via the Internet at www.proxyvote.com;

 

·     By telephone (within the U.S. or Canada) toll-free at 1-800-690-6903;

 

·     By signing and returning the enclosed proxy card; or

 

·     By attending the Meeting and voting in person.

 

If you wish to vote by Internet or telephone, you must do so before 11:59 p.m., Eastern Time, on Tuesday, June 24, 2008. After that time, Internet and telephone voting will not be permitted, and a shareholder wishing to vote, or revoke an earlier proxy, must submit a signed proxy card or vote in person.

 

In accordance with the new rules of the U.S. Securities and Exchange Commission (“SEC”), we are sending all shareholders who have not affirmatively opted to receive paper materials, all of their proxy materials via the Internet.  However, you may opt to receive paper copies of proxy materials, at no cost to you, by following the instructions we will provide in advance of the distribution of our 2008 proxy materials.

 

“Street name” shareholders who wish to vote at the Meeting will need to obtain a proxy form from the institution that holds their shares of record.

 

How are my voting instructions carried out?

 

When you vote via proxy, you appoint Richard M. Schulze and Elliot S. Kaplan (the “Proxy Agents”) as your representatives at the Meeting. The Proxy Agents will vote your shares at the Meeting, or at any postponement or adjournment of the Meeting, as you have instructed them on the proxy card. If you return a properly executed proxy card without specific voting instructions, the Proxy Agents will vote your shares in accordance with the Board’s recommendations. With proxy voting, your shares will be voted regardless of whether you attend the Meeting. Even if you plan to attend the Meeting, it is advisable to vote your shares via proxy in advance of the Meeting in case your plans change.

 

If an item comes up for vote at the Meeting, or at any postponement or adjournment of the Meeting, that is not described in the Notice, the Proxy Agents will vote the shares subject to your proxy at their discretion.

 

How many votes do I have?

 

You have one vote for each share you own, and you can vote those shares for each item of business to be addressed at the Meeting.

 

How many shares must be present to hold a valid Meeting?

 

For us to hold a valid Meeting, we must have a quorum, which means that a majority of the outstanding shares of our Common Stock that are entitled to vote are present at the Meeting. Your shares will be counted as present at the Meeting if you:

 

·     Vote via the Internet or by telephone;

 

·     Properly submit a proxy card (even if you do not provide voting instructions); or

 

·     Attend the Meeting and vote in person.

 

How many votes are required to approve an item of business?

 

Pursuant to our Amended and Restated By-laws, each item of business to be voted on by the shareholders requires the affirmative vote of the holders of a majority of the shares of Best Buy Common Stock present at a meeting and entitled to vote. Due to a recent change to Minnesota law, directors are to be elected by a plurality of the voting power of the shares present at a meeting, unless otherwise provided in a company’s articles of incorporation. Election by plurality means that the candidate receiving the most votes for a position will be elected. Our Restated Articles of Incorporation do not address the vote required to elect directors. Accordingly, at the Meeting, directors will be elected by a plurality.  Our Board has approved, and recommends shareholder approval of, an amendment to our Restated Articles of Incorporation to require that directors receive a majority of the votes cast in order to be elected to the Board. See Item of Business No. 4 — Approval of Amendment to Our Restated Articles of Incorporation beginning on page [__].

 

The election of directors and the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm are considered “routine” matters under New York Stock Exchange (“NYSE”) rules. The NYSE rules allow brokerage firms to vote their clients’ shares on routine matters if the clients do not provide voting instructions. The approval of our 2008 Employee Stock Purchase Plan and the amendment to our Restated Articles of Incorporation are considered “non-routine” matters under NYSE rules. The NYSE rules do not allow brokerage firms to vote their clients’ shares on non-routine matters in the absence of affirmative voting instructions.

 

If your brokerage firm votes your shares on routine matters because you do not provide voting instructions, your shares will be counted for purposes of establishing a quorum to conduct business at the Meeting and in determining the number of shares voted for or against the routine matter. If your brokerage firm lacks discretionary voting power with respect to an item that is not a routine matter and you do not provide voting instructions (a “broker non-vote”), your shares will be counted for purposes of establishing a quorum to conduct business at the Meeting, but will not be counted in determining the number of shares voted for or against the matter. Abstentions are counted as present and entitled to vote for purposes of determining a quorum and will have the same effect as votes against a proposal.

 

What if I change my mind after I vote via proxy?

 

You may revoke your proxy at any time before your shares are voted by:

 

4



 

·     Submitting a later-dated proxy prior to the Meeting (by mail, Internet or telephone);

 

·     Voting in person at the Meeting; or

 

·     Providing written notice to Best Buy’s Secretary at our principal office.

 

Where can I find the voting results of the Meeting?

 

We will announce the preliminary voting results at the Meeting. We will publish the final voting results in our Quarterly Report on Form 10-Q for our second fiscal quarter ending August 30, 2008. Our Quarterly Report on Form 10-Q is required to be filed with the SEC within 40 days of the end of our fiscal quarter.

 

Proxy Solicitation

 

How are proxies solicited?

 

We will request that brokerage firms, banks, other custodians, nominees, fiduciaries and other representatives of shareholders forward notices and, as applicable, proxy materials and annual reports to the beneficial owners of our Common Stock. We expect to solicit proxies primarily by mail, but directors, officers and other employees of Best Buy may also solicit proxies in person, by telephone, through electronic transmission and by facsimile transmission. Directors and employees of Best Buy do not receive additional compensation for soliciting shareholder proxies.

 

Who will pay for the cost of soliciting proxies?

 

We pay all of the costs of preparing, printing and distributing proxy materials. We will reimburse brokerage firms, banks and other representatives of shareholders for reasonable expenses incurred as defined in the NYSE schedule of charges.

 

How can multiple shareholders sharing the same address request to receive only one set of proxy materials and other investor communications?

 

If you opt to continue to receive paper copies of our proxy materials, you may elect to receive future proxy materials, as well as other shareholder communications, in a single package per address. This practice, known as “householding,” is designed to reduce our printing and postage costs. To make the election, please indicate on your proxy card under “Householding Election” your consent to receive such communications in a single package per address. Once we receive your consent, we will send a single package per household until you revoke your consent by notifying our Investor Relations Department at 7601 Penn Avenue South, Richfield, MN 55423, or by telephone at (612) 291-6147. We will start sending you individual copies of notices and, as applicable, proxy materials and investor communications within 30 days of your revocation.

 

Can I receive the proxy materials electronically?

 

Yes. Shareholders who have not affirmatively opted to receive paper proxy materials through the mail will receive a notice of availability and will receive our proxy materials electronically via the Internet. Electronic delivery saves us the costs of printing and mailing these materials. We encourage our shareholders to receive proxy materials via the Internet because it reduces our expenses for shareholder meetings.  You may opt to receive paper copies of proxy materials, at no cost to you, by following the instructions we will provide in advance of the distribution of our 2008 proxy materials.

 

An electronic version of this proxy statement is posted on our Web site at www.BestBuy.com — select the “For Our Investors” link and then either the “SEC Filings” link or the “Corporate Governance” link.

 

Additional Information

 

Where can I find additional information about Best Buy?

 

Our Annual Report to Shareholders, our reports on Forms 10-K, 10-Q and 8-K, and other publicly available information should be consulted for other important information about Best Buy. You can also find additional information about Best Buy on our Web site at www.BestBuy.com.

 

CORPORATE GOVERNANCE AT BEST BUY

 

Our Board is elected by the shareholders to oversee our business and affairs. In addition, the Board advises management regarding a broad range of subjects including Best Buy strategies and operating plans. Members of the Board monitor and evaluate our business performance through regular communication with our Chief Executive Officer and other members of management, and by attending Board meetings and Board committee meetings.

 

The Board values effective corporate governance and adherence to high ethical standards. As such, the Board has adopted Corporate Governance Principles for our directors and our Code of Business Ethics, both of which are posted on our Web site at www.BestBuy.com — select the “For Our Investors” link and then the “Corporate Governance” link. Paper copies of these documents are available to shareholders free of charge upon request.

 

Board Meetings and Attendance

 

The Board held four regular meetings and one special meeting during the fiscal year ended March 1, 2008. Each incumbent director attended, in person or by telephone, at least 75% of the meetings of both the Board and Board committees on which he or she served. The average attendance by current directors at Board and Board committee meetings exceeded 95%. Our Board does not have a formal policy relating to Board member attendance at our regular meetings of shareholders; however, our directors generally attend the shareholders’ meeting each year. Each of the
then-serving directors attended the 2007 Regular Meeting of Shareholders.

 

5



 

Committees of the Board

 

The Board has the following four committees:

 

·     Audit Committee;

 

·     Compensation and Human Resources Committee;

 

·     Nominating, Corporate Governance and Public Policy Committee; and

 

·     Finance and Investment Policy Committee.

 

The charters of the Audit Committee, Compensation and Human Resources Committee, Nominating, Corporate Governance and Public Policy Committee and the Finance and Investment Policy Committee are posted on our Web site at www.BestBuy.com — select the “For Our Investors” link and then the “Corporate Governance” link. The charters include information regarding the committees’ composition, purpose and responsibilities. Paper copies of these documents are available to shareholders free of charge upon request.

 

The Board has determined that all members of the Audit Committee, Compensation and Human Resources Committee, and Nominating, Corporate Governance and Public Policy Committee are independent directors as defined under the SEC and NYSE corporate governance rules, as applicable.

 

The Board committees have responsibilities as follows:

 

Audit Committee.   This committee discharges the Board’s oversight responsibility to Best Buy’s shareholders and the investment community regarding: (i) the integrity of our financial statements and financial reporting processes; (ii) our internal accounting systems and financial and operational controls; (iii) the qualifications and independence of our independent registered public accounting firm; (iv) the performance of our internal audit function and our independent registered public accounting firm; and (v) our compliance with ethics programs, including our Code of Business Ethics, and legal and regulatory requirements.

 

In carrying out these duties, this committee maintains free and open communication between the Board, our independent registered public accounting firm, our internal auditors and management. This committee meets with management, our internal audit staff and our independent registered public accounting firm at least quarterly. In addition, this committee conducts quarterly conference calls with management and our independent registered public accounting firm prior to our earnings releases to discuss the results of our independent registered public accounting firm’s quarterly reviews and fiscal year-end audit.

 

Compensation and Human Resources Committee.   The responsibilities of this committee are to: (i) determine and approve our Chief Executive Officer’s compensation and benefits package; (ii) determine and approve executive and director compensation; (iii) appoint officers at the level of senior vice president and above, other than our Chief Executive Officer; (iv) oversee cash and equity-based incentive compensation and other employee benefit plans; (v) oversee our human capital policies and programs; and (vi) oversee the development of executive succession plans.

 

Nominating, Corporate Governance and Public Policy Committee.   This committee discharges the Board’s responsibilities related to general corporate governance, including Board organization, membership, training and evaluation. It also reviews and recommends to the Board corporate governance principles, presents qualified individuals for election to the Board, and oversees the evaluation of the performance of the Board and its committees. Finally, this committee oversees matters of public policy and social responsibility that affect us domestically and internationally. For additional information regarding our director nomination process, see Director Nomination Process on page [__].

 

Finance and Investment Policy Committee.   This committee advises the Board regarding our financial policies and financial condition to help enable us to achieve our long-range goals. It evaluates and monitors the: (i) protection and safety of our cash and investments; (ii) achievement of reasonable returns on financial assets within acceptable risk tolerance; (iii) maintenance of adequate liquidity to support our activities; (iv) assessment of the cost and availability of capital; and (v) alignment of our strategic goals and financial resources.

 

The following table shows the date each committee was established, the number of meetings held in fiscal 2008 and the names of the directors serving on each committee as of April 1, 2008:

 

Committee

 

Date Established

 

Number of
 Meetings
 During
 Fiscal 2008

 

Members

Audit

 

June 1, 1984

 

9

 

Hatim A. Tyabji*
Matthew H. Paull
Mary A. Tolan

Compensation and Human Resources

 

February 13, 1997

 

10

 

Frank D. Trestman*
Kathy J. Higgins Victor
Ronald James
Hatim A. Tyabji

Nominating, Corporate Governance and Public Policy

 

February 13, 1997

 

4

 

Kathy J. Higgins Victor*
Ronald James
Rogelio M. Rebolledo

 

6



 

Finance and Investment Policy

 

September 13, 2006

 

9

 

Elliot S. Kaplan*
Allen U. Lenzmeier
Matthew H. Paull
Mary A. Tolan
Frank D. Trestman

 

* Chairman

 

Director Nomination Process

 

The Nominating, Corporate Governance and Public Policy Committee (“Nominating Committee”) is responsible for screening and recommending to the full Board director candidates for nomination. The Nominating Committee will often engage a third-party search firm to assist in identifying appropriate candidates to consider as additions to our Board. When there is an opening on the Board, the Nominating Committee will also consider nominations received from our shareholders, provided that proposed candidates meet the requisite director qualification standards discussed below.

 

When the Board elects to fill a vacancy on the Board, the committee will announce the open position and post any additional search criteria on our Web site at www.BestBuy.com — select the “For Our Investors” link and then the “Corporate Governance” link. Candidates recommended by shareholders, if qualified, will be considered in the same manner as any other candidate.

 

The Nominating Committee will then evaluate the resumes of any qualified candidates recommended by a search firm or shareholders, as well as by members of the Board. Generally, in order to be considered for nomination, a candidate must have:

 

·     High professional and personal ethics and values;

 

·     A strong record of significant leadership and meaningful accomplishments in his or her field;

 

·     Broad policy-making experience;

 

·     The ability to think strategically;

 

·     Sufficient time to carry out the duties of Board membership; and

 

·     A commitment to enhancing shareholder value and representing the interests of all shareholders.

 

All candidates are evaluated based on these qualification standards and the current needs of the Board.

 

Shareholder nominations must be accompanied by a candidate resume which addresses the extent to which the nominee meets the director qualification standards and any additional search criteria posted on our Web site. Nominations will be considered only if we are currently seeking to fill an open director position. All nominations by shareholders should be submitted as follows:

 

Chairman, Nominating, Corporate Governance and Public Policy Committee

c/o Mr. Joseph M. Joyce

Senior Vice President, General Counsel and Assistant Secretary

Best Buy Co., Inc.

7601 Penn Avenue South

Richfield, Minnesota, 55423

 

Director Independence

 

Pursuant to its Corporate Governance Principles, the Board has established independence standards consistent with the requirements of the SEC and NYSE corporate governance rules, as applicable. To be considered independent under the NYSE rules, the Board must affirmatively determine that a director or director nominee does not have a material relationship with Best Buy (directly, or as a partner, shareholder or officer of an organization that has a relationship with Best Buy). In addition, NYSE rules provide that no director or director nominee may be deemed independent if the director or director nominee

 

— has in the past three years:

 

·     Received (or whose immediate family member has received as a result of service as an executive officer) more than $120,000 during any 12-month period in direct compensation from Best Buy, other than director and committee fees and certain pension payments and other deferred compensation;

 

·     Been an employee of Best Buy;

 

·     Had an immediate family member who was an executive officer of Best Buy;

 

·     Worked on (or whose immediate family member has worked on) our audit as a partner or an employee of our internal auditors or independent registered public accounting firm; or

 

·     Been (or whose immediate family member has been) employed as an executive officer of another company whose compensation committee at that time included a present executive officer of Best Buy; or

 

7



 

— is:

 

·     A partner or employee of our internal auditor or independent registered public accounting firm (or whose immediate family member is currently a partner of such firm or is employed in the audit, assurance or tax compliance practice of such firm); or

 

·     An employee (or has an immediate family member who is an executive officer) of another company that makes payments to Best Buy, or receives payments from Best Buy, for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

 

Under our director independence standards described above, the Board has determined that each director (including former directors Ari Bousbib and James E. Press), with the exception of Messrs. Schulze, Anderson, Lenzmeier and Kaplan, is independent. The Board based these determinations primarily on a review of the responses of the directors to questions regarding employment and compensation history, affiliations, and family and other relationships, and on discussions with our directors. The Board also reviewed the relationships between Best Buy and companies with which our directors are affiliated and determined that the relationships with affiliates of current directors, Messrs. Mikan, Paull, Rebolledo and Trestman, as well as former directors, Messrs. Bousbib and Press, are not material and do not impair the directors’ independence. For additional information regarding these relationships, see Certain Relationships and Related-Party Transactions on page [__].

 

George L. Mikan III, was appointed as a Class 2 director in April 2008. Since 2003, we have had a health benefit services agreement with UnitedHealth Group Incorporated.  Mr. Mikan is executive vice president and chief financial officer of UnitedHealth.  The amounts we have paid to UnitedHealth, most of which are for employee medical and pharmaceutical costs administered on our behalf by UnitedHealth, were an insignificant portion of the annual consolidated revenue of each of the companies for each of the past three fiscal years.  In addition, Mr. Mikan did not participate in negotiating or executing our agreement.

 

Mr. Paull is the former corporate senior executive vice president and chief financial officer of McDonald’s, Inc.  From time to time, we have purchases from and sales to McDonald’s. We have also periodically had co-marketing agreements with McDonald’s.  The amounts involved represented an insignificant portion of the annual consolidated gross revenue of each of the companies for each of the past three fiscal years. In addition, Mr. Paull did not participate in negotiating or executing our agreements.

 

Our vendor agreement with Pepsi Bottling Group, Inc., of which Mr. Rebolledo was chairman of its Mexican subsidiary, does not constitute a material transaction. We purchase Pepsi products for resale in our corporate and retail locations and Pepsi Bottling Group purchases products and gift cards from our Business to Business group. The amounts involved represented an insignificant portion of the consolidated gross revenue of both companies for each of the past three fiscal years. In addition, Mr. Rebolledo did not participate in negotiating or executing our agreements.

 

Mr. Trestman’s and his son-in-law’s interest in a development in which we lease retail space was not deemed material because the amount of the annual lease payment is less than $1 million and the retail square-footage leased constitutes less than 15% of the total leaseable square-footage in the development. In addition, Mr. Trestman did not participate in negotiating or executing our lease agreement.

 

During fiscal 2008, we had an elevator service and preventative maintenance agreement with Otis Elevator Company, of which Mr. Bousbib is president. The agreement was deemed not material because it was entered into prior to Mr. Bousbib’s membership on the Board and because the value of the agreement was small and represented an insignificant portion of both Best Buy’s and Otis’ annual consolidated gross revenue for each of the past three fiscal years. In addition, Mr. Bousbib did not participate in negotiating or executing our agreement with Otis.  Mr. Bousbib did not stand for ratification as a director at our 2007 Regular Meeting of Shareholders.

 

Mr. Press was president of Toyota Motor North America, the American subsidiary of Toyota Motor Corporation Ltd. During fiscal 2008, we had lease agreements with another subsidiary of Toyota. The amounts involved represented an insignificant portion of the annual consolidated gross revenue of each of the companies for each of the past three fiscal years.  Mr. Press resigned from our Board on November 1, 2007, after accepting a position with Chrysler LLC and Cerberus Capital Management, L.P.

 

Executive Sessions of Non-Management and Independent Directors

 

In order to promote open discussion among non-management directors, the Board has a policy of conducting executive sessions of non-management directors in connection with each regularly scheduled Board meeting. The executive sessions of non-management directors are chaired by the Secretary, provided the Secretary is a non-management director. The independent directors meet in executive session during each regularly scheduled Board meeting. This session is chaired by the independent directors on a rotating basis.

 

Communications With the Board

 

Shareholders and interested parties who wish to contact the Board, any individual director, or the non-management or independent directors as a group, are welcome to do so in writing, addressed to such person(s) in care of:

 

Mr. Joseph M. Joyce

Senior Vice President, General Counsel and Assistant Secretary

Best Buy Co., Inc.

7601 Penn Avenue South

Richfield, Minnesota 55423

 

Mr. Joyce will forward all written shareholder correspondence to the appropriate Board member(s), except for spam, junk mail, mass mailings, customer complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Mr. Joyce may, at his discretion, forward certain correspondence, such as customer-related inquiries, elsewhere within Best Buy for review and possible response. Comments or questions regarding Best Buy’s accounting, internal controls or auditing matters will be referred to members of the Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters will be referred to members of the Nominating Committee.

 

8



 

Director Orientation and Continuing Education

 

Our Nominating Committee oversees the orientation and continuing education of our directors. Director orientation familiarizes directors with our strategic plans; significant financial, accounting and risk management issues; compliance programs and other controls; policies; principal officers and internal auditors; and our independent registered public accounting firm. The orientation also addresses Board procedures, directors’ responsibilities, Corporate Governance Principles and our Board committee charters.

 

We also offer continuing education programs to assist the directors in maintaining their expertise in these areas. In addition, our directors have the opportunity to attend commercial director education seminars related to the director’s committee assignment(s) or to the work of the Board. In fiscal 2008, we conducted an orientation for a new member of the Board.

 

Director Compensation

 

Overview of Director Compensation

 

In April of each year, the Compensation and Human Resources Committee (“Compensation Committee”) reviews the total compensation paid to non-management directors. The purpose of the review is to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform the Board’s duties, and to fairly compensate directors for their service. The review is comprehensive and includes consideration of qualitative and comparative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Compensation Committee considers: (i) the time and effort involved in preparing for Board, committee and management meetings and the additional duties assumed by committee chairs; (ii) the level of continuing education required to remain informed of broad corporate governance trends, and material developments and strategic initiatives within Best Buy; and (iii) the risks associated with fulfilling fiduciary duties. To supplement the qualitative analysis, the Compensation Committee also considers the total value of the compensation as compared with director compensation at other Fortune 100 companies and our peer group of companies, which is described in How We Determine Compensation on page [__].

 

Director Summary Compensation Table

 

The following table summarizes the compensation earned by our non-management directors and management directors that are not named executive officers (as described on page [__]), during fiscal 2008:

 

 

 

Fees

 

 

 

Non-qualified

 

 

 

 

 

 

 

Earned

 

 

 

Deferred

 

 

 

 

 

 

 

Or Paid

 

Option

 

Compensation

 

All Other

 

 

 

Name

 

In Cash

1

Awards

2

Earnings

3

Compensation

 

Total

 

Ari Bousbib4

 

$

 

$

150,075

 

$

 

$

 

$

150,075

 

Kathy J. Higgins Victor

 

85,000

 

150,075

 

 

 

235,075

 

Ronald James

 

75,000

 

150,075

 

 

 

225,075

 

Elliot S. Kaplan

 

85,000

 

150,075

 

 

 

235,075

 

Allen U. Lenzmeier

 

 

150,075

 

 

64,724

5

214,799

 

George L. Mikan III

 

 

 

 

 

 

Matthew H. Paull

 

75,000

 

150,075

 

 

 

225,075

 

James E. Press6

 

50,000

 

150,075

 

 

 

200,075

 

Rogelio M. Rebolledo

 

75,000

 

150,075

 

 

 

225,075

 

Richard M. Schulze

 

 

7

 

294,461

8

294,461

 

Mary A. Tolan

 

75,000

 

150,075

 

 

 

225,075

 

Frank D. Trestman

 

90,000

 

150,075

 

 

 

240,075

 

Hatim A. Tyabji

 

90,000

 

150,075

 

 

 

240,075

 

 

1                 Management directors did not receive any cash compensation for their service as directors during fiscal 2008. The cash compensation in fiscal 2008 for each of our non-management directors consisted of:

 

Annual retainer

 

$

75,000

 

Annual committee chair retainer (Audit Committee or Compensation Committee)

 

15,000

 

Annual committee chair retainer (all other committees)

 

10,000

 

 

The annual retainer and the annual committee chair retainer for non-management directors who serve during only a portion of a fiscal year is prorated. All annual retainers are paid in quarterly installments.

 

2                 These amounts reflect the expense recognized for financial statement reporting purposes in fiscal 2008 in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),  Share-Based Payment  (“123(R)”), for stock options granted under our 2004 Omnibus Plan, as amended. The amounts reported have been adjusted to eliminate service-based forfeiture assumptions used for financial reporting purposes. The assumptions used in calculating these amounts are set forth in Note 5, Shareholders’ Equity, to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008.

 

At March 1, 2008, the aggregate number of stock option awards outstanding was: Mr. Bousbib — 12,500 shares; Ms. Higgins Victor — 37,500 shares; Mr. James — 37,500 shares; Mr. Kaplan — 93,750 shares; Mr. Lenzmeier — 817,500 shares; Mr. Paull — 37,500 shares; Mr. Press — 9,375 shares; Mr. Rebolledo — 12,500 shares; Mr. Schulze — 1,965,000 shares; Ms. Tolan — 32,000 shares; Mr. Trestman — 105,750 shares; and Mr. Tyabji — 93,750 shares.

 

3                 We do not provide guaranteed, above-market or preferential earnings on compensation deferred under our Fourth Amended and Restated Deferred Compensation Plan (“Deferred Compensation Plan”). The options available for notional investment of deferred compensation are similar to those available under the Best Buy Retirement Savings Plan (“Retirement Savings Plan”) and are described in Non-Qualified Deferred Compensation on page [__].

 

9



 

4                 For personal reasons, Mr. Bousbib decided not to stand for ratification as a director at the June 27, 2007, Regular Meeting of Shareholders.

 

5                 The amount includes: (a) payment of $60,000 in salary for Mr. Lenzmeier’s employment as Vice Chairman, as described below in Employment Arrangement for Allen U. Lenzmeier; (b) payment of $1,922 in matching contributions under our Retirement Savings Plan; (c)  payment of $1,000 automobile allowance (Mr. Lenzmeier’s automobile allowance was terminated effective May 1, 2007); (d) payment of $72 in premiums for executive long-term disability insurance; and (e) reimbursement of $1,730 for tax preparation expenses.

 

6                 Mr. Press was appointed as a Class 2 director effective December 20, 2006.  Mr. Press terminated his service with the Board on November 1, 2007, after accepting a new position with Chrysler LLC and Cerberus Capital Management, L.P.

 

7                   Mr. Schulze requested that he not be granted a long-term incentive award and that the number of options to purchase shares he would have received be contributed to a discretionary award pool to be distributed to employees.

 

8                 The amount includes: (a) payment of $280,769 in salary for Mr. Schulze’s employment as Chairman of the Board, as described below in Employment Arrangement for Richard M. Schulze ; (b) payment of $3,298 in matching contributions under our Retirement Savings Plan; (c) payment of $9,145 in premiums for life insurance coverage exceeding $50,000; (d)  payment of $1,000 automobile allowance (Mr. Schulze’s automobile allowance was terminated effective May 1, 2007); and (e) payment of $249 in premiums for executive long-term disability insurance. Not reflected in the amount are the following benefits Mr. Schulze received from third-parties in connection with his relationship with Best Buy: (a) satellite TV service; and (b) cellular phone equipment and service.

 

Employment Arrangement for Richard M. Schulze

 

In April 2007, we entered into an amended employment arrangement with Richard M. Schulze, a founder of Best Buy and our former Chief Executive Officer, and our current Chairman of the Board. Mr. Schulze’s responsibilities as Chairman include Board oversight, corporate strategic planning and mentoring company officers. Mr. Schulze also periodically represents Best Buy at public functions and actively engages with employees at designated company functions. Under the amended arrangement, Mr. Schulze’s annual salary was reduced from $1 million to $150,000, for as long as he is physically and mentally proficient to act as Chairman, subject to his election as a director by our shareholders. The arrangement allows for annual increases based on the consumer price index. Mr. Schulze is not eligible to participate in our equity-based compensation programs for employees. However, he is eligible to receive options to purchase the same number of shares granted to non-management directors, as described in Director Equity Awards on page [__]. In addition, he receives the following benefits: (i) reimbursement of all business-related expenses, including travel, entertainment, room and board; (ii) eligibility for Mr. Schulze and his spouse to participate in health benefit programs generally available to our employees; (iii) office facilities at our corporate campus, including full administrative support services; and (iv) eligibility to participate in our Retirement Savings Plan and Deferred Compensation Plan.

 

Employment Arrangement for Allen U. Lenzmeier

 

We entered into an employment arrangement with Allen U. Lenzmeier, our Vice Chairman, in April 2006 and the agreement was subsequently amended in April 2007. As Vice Chairman, Mr. Lenzmeier provides consulting services to us in connection with international expansion projects. Under the arrangement, we agreed to pay Mr. Lenzmeier an annual salary of $60,000 to serve as Vice Chairman on a part-time basis. Mr. Lenzmeier is not eligible to participate in our equity-based compensation programs for employees, except our 2003 Employee Stock Purchase Plan (“ESPP”) and, if adopted, our 2008 Employee Stock Purchase Plan. However, he is eligible to receive options to purchase the same number of shares granted to non-management directors, as described in Director Equity Awards below. In addition, he receives the following benefits: (i) reimbursement of all business-related expenses, including travel, entertainment, room and board; (ii) office facilities at our corporate campus, including administrative support services; and (iii) eligibility to participate in our Retirement Savings Plan and Deferred Compensation Plan.

 

Director Equity Awards

 

A significant portion of director compensation is linked to our stock performance in the form of stock option grants. Each April, in connection with the Compensation Committee’s annual review of director compensation, the Compensation Committee considers a stock option award for directors. On April 10, 2007, the Compensation Committee granted to each then-serving director, other than management directors who are eligible to participate in our equity-based compensation programs for employees, an option to purchase 7,500 shares of Best Buy Common Stock at an exercise price of $47.46 per share. Mr. Schulze requested that he not be granted a long-term incentive award and that the number of options to purchase shares he would have received be contributed to a discretionary award pool to be distributed to employees. The grants were made under the Omnibus Plan, vested immediately on the grant date and can generally be exercised over a 10-year period.

 

The Compensation Committee also considers stock option grants for new directors at the time they are appointed to the Board. Because annual director stock option grants are made in April, special appointment-based grants are prorated based on the number of months remaining prior to the time when the Compensation Committee expects to consider the next annual director grant.

 

Director Stock Ownership Guidelines

 

The Compensation Committee has established stock ownership guidelines for our non-management directors. Each non-management director is expected to own shares of our Common Stock equivalent in value to five times their annual cash retainer. Newly appointed directors have five years from their date of appointment to achieve the expected level of stock ownership.

 

10



 

Deferred Compensation Plan

 

Each calendar year, we offer directors the right to defer up to 100% of their annual and committee chair retainers under our Deferred Compensation Plan which is described in Non-Qualified Deferred Compensation Plan on page [__]. No company contributions or matching contributions are made for the benefit of directors under the Deferred Compensation Plan.

 

Other Benefits

 

We reimburse all directors for travel and other necessary business expenses incurred in performance of their services for us. In addition, we extend coverage to all directors under a directors’ and officers’ indemnity insurance policy.

 

ITEM OF BUSINESS NO. 1 — ELECTION OF DIRECTORS

 

General Information

 

Our Amended and Restated By-laws provide that the Board may consist of a maximum of 12 directors, five of whom are designated as Class 1 directors and seven of whom are designated as Class 2 directors. Directors are elected for a term of two years, and the terms are staggered so that Class 1 directors are elected in even-numbered years and Class 2 directors are elected in odd-numbered years.

 

Board Structure

 

Our Board is committed to having a sound governance structure that promotes the best interests of all Best Buy shareholders. To that end, our Board has evaluated and actively continues to examine emerging corporate governance trends and best practices. Shareholder perspectives play an important role in that process. The level of importance afforded to shareholder perspectives by our Board is evident upon a closer review of the Board’s governance structure. Some key points regarding that structure are as follows:

 

·     We believe that two-year terms allow our directors to have a longer-term orientation to our business and encourage long-term, strategic thinking. At the same time, this structure holds the directors accountable to our shareholders, as the entire Board is subject to re-election as early as 53 weeks from any regular meeting of shareholders. Moreover, we believe that the two-year terms promote continuity and foster an appropriate “institutional memory” among Board members.

 

·     Our Board is predominantly independent. Of our 12 directors, only three are Best Buy employees (including our Chairman of the Board, who is a founder of Best Buy and a major shareholder). Further, the Board has affirmatively determined that eight of our 12 directors are independent under SEC and NYSE corporate governance rules, as applicable.

 

·     We have separated the roles of Chairman of the Board and Chief Executive Officer. Our Chairman focuses on Board oversight responsibilities, strategic planning and mentoring company officers. Our Chairman also periodically represents Best Buy at public functions and actively engages with employees at designated company functions. Our Chief Executive Officer focuses on the development and execution of company strategies.

 

·     Our Board is very active. Our directors attended, on average, over 95% of fiscal 2008 Board and Board committee meetings.

 

We believe our Board structure serves the interests of shareholders by balancing Board continuity and the promotion of long-term thinking with the need for director accountability.

 

Voting Information

 

You may vote for all, some or none of the nominees to be elected to the Board. However, you may not vote for more individuals than the number nominated. Each of the nominees has agreed to continue serving as a director if elected. However, if any nominee becomes unwilling or unable to serve and the Board elects to fill the vacancy, the Proxy Agents named in the proxy will vote for an alternative person nominated by the Board. Our Restated Articles of Incorporation prohibit cumulative voting, which means you can vote only once for any nominee. The affirmative vote of a plurality of the voting power of the shares present and entitled to vote at the Meeting is required to elect each director nominee.

 

IF YOU RETURN A PROXY CARD THAT IS PROPERLY SIGNED BUT YOU HAVE NOT MARKED YOUR VOTE, THAT PROXY WILL BE VOTED TO ELECT ALL OF THE NOMINEES.

 

Board Voting Recommendation

 

Management and the Board recommend that shareholders vote FOR the re-election of Bradbury H. Anderson, Kathy J. Higgins Victor, Allen U. Lenzmeier, Rogelio M. Rebolledo and Frank D. Trestman as Class 1 directors. If elected, each Class 1 director will hold office until the election of directors at our 2010 Regular Meeting of Shareholders and until his or her successor has been duly elected and qualified, or until his or her earlier death, resignation or removal.

 

The Board appointed George L. Mikan III, as a Class 2 director, effective April 9, 2008. Mr. Mikan was recommended to the Board by an independent third-party search firm. Management and the Board recommend that shareholders ratify the appointment of Mr. Mikan as a Class 2 director at the Meeting. If ratified, Mr. Mikan will hold office until the election of directors at the 2009 Regular Meeting of Shareholders and until his successor has been duly elected and qualified, or until his earlier death, resignation or removal.

 

All of the nominees are currently members of the Board.

 

11



 

Nominees and Directors

 

There are no family relationships among the nominees or between any nominees and any of our other directors.

 

ITEM OF BUSINESS NO. 1.1

 

Class 1 Director Nominees

 (ages as of March 1, 2008)

 

Bradbury H. Anderson, 58, has been a director since August 1986 and is our Vice Chairman and Chief Executive Officer. He assumed the responsibility of Chief Executive Officer in June 2002, having previously served as President and Chief Operating Officer since April 1991. He has been employed in various capacities with us since 1973. In addition, he serves on the board of General Mills, Inc., as well as on the boards of the Retail Industry Leaders Association, the American Film Institute, Minnesota Early Learning Foundation, Best Buy Children’s Foundation, Minnesota Public Radio and Waldorf College.

 

 

 

 

Kathy J. Higgins Victor, 51, has been a director since November 1999. Since 1994, she has been president of Centera Corporation, an executive development and leadership coaching firm she founded which is located in Minneapolis, Minnesota. From 1991 to 1994, she was the senior vice president of human resources at Northwest Airlines, Inc., and prior to that held senior executive positions at The Pillsbury Company and Burger King Corporation. She is on the board of the University of St. Thomas.

 

 

 

 

Allen U. Lenzmeier, 64, has been a director since February 2001 and is our Vice Chairman, serving on a part-time basis to support our international expansion. Prior to his promotion to Vice Chairman in 2004, he served in various capacities since joining us in 1984, including as President and Chief Operating Officer from 2002 to 2004, and as President of Best Buy Retail Stores from 2001 to 2002. He serves on the board of UTStarcom, Inc. He is also a national trustee for the Boys and Girls Clubs of America and serves on its Twin Cities board.

 

 

 

 

Rogelio M. Rebolledo, 63, has been a director since August 2006. In 2007, Mr. Rebolledo retired from his position as chairman of PBG Mexico, the Mexican operations of Pepsi Bottling Group, Inc. He began his 30-year career with PepsiCo Inc. at Sabritas, the salty snack food unit of Frito-Lay International in Mexico. He was responsible for the development of the international Frito-Lay business, first in Latin America and then in Asia. From 2001 to 2003, he was president and chief executive officer of Frito-Lay International. He also served as president and chief executive officer of Pepsi Bottling Group’s Mexico operations from January 2004 until being named chairman.

 

12



 

 

Frank D. Trestman, 73, has been a director since December 1984. Since 1989, he has been president of Trestman Enterprises, an investment and business development firm in Minneapolis, Minnesota, and chairman of The Avalon Group, a real estate development partnership in Minneapolis. From 1987 to 1989, he was a consultant to McKesson Corporation, a distributor of pharmaceutical products, and medical supplies and equipment. From 1983 to 1987, he was chairman of the board and chief executive officer of Mass Merchandisers, Inc., a distributor of non-food products to retailers in the grocery business. He is also on the board of the Harry Kay Foundation.

 

 

 

 

ITEM OF BUSINESS NO. 1.2

 

Nominee for Ratification as Class 2 Director— Term expires in 2009

 (age as of March 1, 2008)

GRAPHIC

 

George L. Mikan III, 36, has been a Class 2 director since April 2008. Since November 2006, he has been the executive vice president and chief financial officer of UnitedHealth Group Incorporated. Mr. Mikan joined UnitedHealth Group in 1998 and has held various executive positions of increasing responsibility from 1998 to the present. From 1994 to 1998, he was employed at Arthur Andersen LLP.

 

Nominees for Class 2 Directors— Terms expire in 2009

 (ages as of March 1, 2008)

 

Ronald James, 57, has been a director since May 2004. Since 2000, he has served as president and chief executive officer of the Center for Ethical Business Cultures in Minneapolis, Minnesota, which assists business leaders in building ethical and profitable business cultures at the enterprise, community and global levels. From 1996 to 1998, he was president and chief executive officer of the Human Resources Group, a division of Ceridian Corporation in Minneapolis. From 1971 to 1996, he was employed by U.S. West Communications, Inc. (now Qwest), most recently serving as Minnesota’s top executive officer. He serves on the boards of Tamarack Funds, an investment fund of RBC Dain Rauscher, Inc.; Bremer Financial Corporation; and Allina Hospitals and Clinics. Mr. James also serves on the boards of the Greater Twin Cities United Way, the Travelers Foundation, Speak the Word International and the Guthrie Theater.

 

 

 

 

Elliot S. Kaplan, 71, has been a director and Secretary since January 1971. Since 1961, he has been an attorney with the law firm of Robins, Kaplan, Miller & Ciresi L.L.P., Minneapolis, Minnesota, which serves as our primary external general counsel. He is also a director of infoUSA, Inc. and an owner and director of the Bank of Naples in Naples, Florida. In addition, he serves on the executive board of The Minnesota Historical Society and is chairman of the University of Minnesota Foundation.

 

 

 

 

 

Matthew H. Paull, 56, has been a director since September 2003. Mr. Paull is an executive professor in residence at the University of San Diego. He is the former corporate senior executive vice president and chief financial officer for McDonald’s Corporation, which develops, operates, franchises and services a worldwide system of McDonald’s restaurants, having retired from that position in January 2008. Prior to joining McDonald’s Corporation in 1993, he was a partner at Ernst & Young LLP, specializing in international tax.

 

 

 

 

Richard M. Schulze, 67, is a founder of Best Buy. He has been an officer and director from our inception in 1966 and currently is Chairman of the Board. Effective in June 2002, he relinquished the duties of Chief Executive Officer. He had been our principal executive officer for more than 30 years. He is on the board of the University of St. Thomas, chairman of its Executive and Institutional Advancement Committee, and a member of its Board Affairs Committee. Mr. Schulze is also chairman of the board of the University of St. Thomas Business School.

13



 

 

Mary A. Tolan, 47, has been a director since May 2004. She is the founder and chief executive officer of Accretive Health, a patient access and revenue cycle service company for health care providers located in Chicago, Illinois. Prior to founding Accretive Health in November 2003, she was a partner at Accenture Ltd, a global management consulting, technology services and outsourcing company, holding the positions of corporate development officer and group chief executive, among others. She serves on the council for the Graduate School of Business at the University of Chicago, the board of the Lyric Opera in Chicago and the board of Arise, Inc.

 

 

 

 

Hatim A. Tyabji, 63, has been a director since April 1998. Since July 2001, he has been executive chairman of Bytemobile, Inc., a wireless Internet infrastructure provider in Mountain View, California. From 1998 to 2000, he served as chairman and chief executive officer of Saraïde, Inc., a provider of Internet and wireless data services; and from 1986 to 1998, as president and chief executive officer (and as chairman from 1992 until 1998) of VeriFone, Inc., a global transaction automation enterprise. He is chairman of DataCard Group, and a director of Merchant e-Solutions and eFunds. He also serves as Ambassador at Large for Benchmark Capital.

 

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table provides information about the number of shares of Best Buy Common Stock beneficially owned at March 1, 2008, by our Chairman of the Board, our Chief Executive Officer, our Enterprise Chief Financial Officer (Interim) and each of our three other most highly compensated executive officers during the most recent fiscal year. The table provides similar information for each director including the director nominees, all directors and executive officers as a group, and each person we know who beneficially owns more than 5% of the outstanding shares of Best Buy Common Stock.

 

Name and Address1

 

Number of Shares
Beneficially Owned

 

Percent of Shares
Beneficially Owned

 

Richard M. Schulze

 

69,733,556

2

17.0

%

Founder and Chairman of the Board

 

 

 

 

 

Bradbury H. Anderson

 

3,991,284

3

1.0

%

Vice Chairman, Chief Executive Officer and Director

 

 

 

 

 

James L. Muehlbauer

 

102,001

4

*

 

Enterprise Chief Financial Officer (Interim)

 

 

 

 

 

Brian J. Dunn

 

367,280

5

*

 

President and Chief Operating Officer

 

 

 

 

 

Robert A. Willett

 

398,200

6

*

 

Chief Executive Officer — Best Buy International and Chief Information Officer

 

 

 

 

 

Kevin T. Layden

 

161,293

7

*

 

Chief Operating Officer — Best Buy International

 

 

 

 

 

Kathy J. Higgins Victor

 

43,230

8

*

 

Director

 

 

 

 

 

Ronald James

 

41,000

9

*

 

Director

 

 

 

 

 

Elliot S. Kaplan

 

168,211

10

*

 

Secretary and Director

 

 

 

 

 

Allen U. Lenzmeier

 

2,414,034

11

*

 

Vice Chairman and Director

 

 

 

 

 

George L. Mikan III

 

12

*

 

Director

 

 

 

 

 

Matthew H. Paull

 

42,169

13

*

 

Director

 

 

 

 

 

Rogelio M. Rebolledo

 

12,500

14

*

 

Director

 

 

 

 

 

Mary A. Tolan

 

43,000

15

*

 

Director

 

 

 

 

 

Frank D. Trestman

 

191,285

16

*

 

Director

 

 

 

 

 

Hatim A. Tyabji

 

119,250

17

*

 

Director

 

 

 

 

 

 

14



 

All directors and executive officers, as a group (28 individuals)

 

78,571,378

18

19.1

%

Capital Research Global Investors

 

29,338,450

19

7.1

%

333 South Hope Street

 

 

 

 

 

Los Angeles, CA 90071

 

 

 

 

 

Capital World Investors

 

54,069,200

20

13.2

%

333 South Hope Street

 

 

 

 

 

Los Angeles, CA 90071

 

 

 

 

 

The Goldman Sachs Group, Inc./ Goldman, Sachs & Co.

 

25,603,736

21

6.2

%

85 Broad Street

 

 

 

 

 

New York, NY 10004

 

 

 

 

 

 

*                            Less than 1%.

 

     1   The business address for all directors and executive officers is 7601 Penn Avenue South, Richfield, Minnesota 55423.

 

     2   The figure represents: (a) 62,497,776 outstanding shares registered in the name of Mr. Schulze and a co-trustee, and held by them as trustees of a trust for the benefit of Mr. Schulze, of which up to $150 million aggregate amount of shares have been pledged by the trust as collateral to secure a line of credit (b) 996,756 outstanding shares registered in the name of Mr. Schulze and co-trustees, and held by them as trustees of trusts for the benefit of Mr. Schulze and his family; (c) 1,326,769 outstanding shares registered in the name of Mr. Schulze and a co-trustee, and held by them as trustees of the Sandra Schulze Revocable Trust dated June 14, 2001; (d) 950,169 outstanding shares held by a limited partnership of which Mr. Schulze is the sole general partner (Mr. Schulze has disclaimed beneficial ownership of these shares except to the extent of his monetary interest therein); (e) 252,312 outstanding shares held by a limited partnership of which a limited liability company owned by Mr. Schulze is the sole general partner (Mr. Schulze has disclaimed beneficial ownership of these shares except to the extent of his monetary interest therein); (f) 31,672 outstanding shares held by a limited partnership of which a limited liability company owned by Mr. Schulze is the sole general partner (Mr. Schulze has disclaimed beneficial ownership of these shares except to the extent of his monetary interest therein); (g) 15,270 outstanding shares registered in the name of Mr. Schulze and held by him as trustee of trusts for the benefit of the children of Mr. Schulze’s spouse (Mr. Schulze has disclaimed beneficial ownership of these shares); (h) 1,728 outstanding shares held by Mr. Schulze’s spouse (Mr. Schulze has disclaimed beneficial ownership of these shares); (i) 2,061 outstanding shares held in Mr. Schulze’s individual retirement account; (j) 1,619,438 outstanding shares owned by The Richard M. Schulze Family Foundation, of which Mr. Schulze is the sole director; (k) 74,605 outstanding shares registered in the name of JPMorgan Chase Bank (the “Trustee”), and held by the Trustee in connection with Best Buy’s Retirement Savings Plan for the benefit of Mr. Schulze; and (l) options to purchase 1,965,000 shares, which he could exercise within 60 days of March 1, 2008.

 

     3   The figure represents: (a) 1,606,577 outstanding shares owned by Mr. Anderson; (b) 337,839 outstanding shares held by a limited partnership of which a limited liability company owned by Mr. Anderson and his spouse is the sole general partner and of which Mr. Anderson and his spouse are limited partners individually; (c) 151,877 outstanding shares registered in the name of Mr. Anderson and a co-trustee, and held by them as trustees of a trust for the benefit of Mr. Anderson; (d) 151,877 outstanding shares registered in the name of Mr. Anderson’s spouse and a co-trustee, and held by them as trustees of a trust for the benefit of Mr. Anderson’s spouse (Mr. Anderson has disclaimed beneficial ownership of these shares); (e) 1,800 outstanding shares registered in the name of Mr. Anderson and held by him as custodian for the benefit of his children (Mr. Anderson has disclaimed beneficial ownership of these shares); (f) 12,059 outstanding shares registered in the name of the Trustee, and held by the Trustee in connection with Best Buy’s Retirement Savings Plan for the benefit of Mr. Anderson; (g) 195,505 outstanding shares owned by the Anderson Family Foundation, of which Mr. Anderson is a director; and (h) options to purchase 1,533,750 shares, which he could exercise within 60 days of March 1, 2008.

 

     4   The figure represents: (a) 6,489 outstanding shares owned by Mr. Muehlbauer; (b) 1,514 outstanding shares held in Mr. Muehlbauer’s individual retirement account; (c) 907 outstanding shares registered in the name of the Trustee, and held by the Trustee in connection with Best Buy’s Retirement Savings Plan for the benefit of Mr. Muehlbauer; and (d) options to purchase 93,091 shares, which he could exercise within 60 days of March 1, 2008.

 

     5   The figure represents: (a) 8,555 outstanding shares owned by Mr. Dunn; (b) 13,839 outstanding shares registered in the name of the Trustee, and held by the Trustee in connection with Best Buy’s Retirement Savings Plan for the benefit of Mr. Dunn; and (c) options to purchase 344,886 shares, which he could exercise within 60 days of March 1, 2008.

 

     6   The figure represents: (a) 159,970 outstanding shares owned by Mr. Willett; (b) 603 outstanding shares registered in the name of the Trustee, and held by the Trustee in connection with Best Buy’s Retirement Savings Plan for the benefit of Mr. Willett; and (c) options to purchase 237,627 shares, which he could exercise within 60 days of March 1, 2008.

 

     7   The figure represents: (a) 400 outstanding shares owned by Mr. Layden; (b) 600 outstanding shares held in Mr. Layden’s individual retirement account; (c) 843 outstanding shares held by Mr. Layden’s spouse in her individual retirement account; and (d) options to purchase 159,450 shares, which he could exercise within 60 days of March 1, 2008.

 

     8   The figure represents: (a) 5,730 outstanding shares owned by Ms. Higgins Victor; and (b) options to purchase 37,500 shares, which she could exercise within 60 days of March 1, 2008.

 

     9   The figure represents: (a) 3,500 outstanding shares owned by Mr. James; and (b) options to purchase 37,500 shares, which he could exercise within 60 days of March 1, 2008.

 

     10   The figure represents: (a) 63,211 outstanding shares owned by Mr. Kaplan; and (b) options to purchase 105,000 shares, which he could exercise within 60 days of March 1, 2008.

 

     11   The figure represents: (a) 1,582,134 outstanding shares owned by Mr. Lenzmeier; (b) 51,900 outstanding shares held by a private family foundation of which Mr. Lenzmeier and his spouse are the sole directors and officers; and (c) options to purchase 780,000 shares, which he could exercise within 60 days of March 1, 2008.

 

     12   Mr. Mikan joined the Board in April 2008 and did not own any shares at March 1, 2008.

 

     13   The figure represents: (a) 4,669 outstanding shares owned by Mr. Paull; and (b) options to purchase 37,500 shares, which he could exercise within 60 days of March 1, 2008.

 

     14   The figure represents options to purchase 12,500 shares, which Mr. Rebolledo could exercise within 60 days of March 1, 2008.

 

15



 

     15   The figure represents: (a) 5,500 outstanding shares owned by Ms. Tolan; and (b) options to purchase 37,500 shares, which she could exercise within 60 days of March 1, 2008.

 

     16   The figure represents: (a) 60,535 outstanding shares owned by Mr. Trestman; (b) 25,000 outstanding shares registered in the name of Mr. Trestman’s spouse as trustee of an irrevocable family trust (Mr. Trestman has disclaimed beneficial ownership of these shares); and (c) options to purchase 105,750 shares, which Mr. Trestman could exercise within 60 days of March 1, 2008.

 

     17   The figure represents: (a) 25,500 outstanding shares owned by Mr. Tyabji; and (b) options to purchase 93,750 shares, which he could exercise within 60 days of March 1, 2008.

 

     18   The figure represents: (a) outstanding shares and options described in the preceding footnotes; (b) 137,299 outstanding shares owned by other executive officers; (c) options granted to other executive officers to purchase 564,187 shares, which they could exercise within 60 days of March 1, 2008; and (d) 41,599 outstanding shares registered in the name of the Trustee, and held by the Trustee in connection with Best Buy’s Retirement Savings Plan for the benefit of other executive officers.

 

     19   As reported on the owner’s most recent Schedule 13G that reported beneficial ownership as of December 31, 2007. Capital Research Global Investors has sole voting power over 14,498,600 shares and sole dispositive power over 29,338,450 shares.

 

     20   As reported on the owner’s most recent Schedule 13G that reported beneficial ownership as of December 31, 2007. Capital World Investors has sole voting power over 9,991,350 shares and sole dispositive power over 54,069,200 shares.

 

     21   As reported on the owner’s most recent Schedule 13G that reported beneficial ownership as of December 31, 2007. The Goldman Sachs Group, Inc. has shared voting power over 25,362,621 shares and shared dispositive power over 25,603,736 shares.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires that our directors, executive officers and shareholders who own more than 10% of our Common Stock file initial reports of ownership with the SEC and the NYSE. They must also file reports of changes in ownership with the SEC and the NYSE. In addition, they are required by SEC regulations to provide us copies of all Section 16(a) reports that they file with the SEC. Based solely on a review of such Section 16(a) reports, management and the Board believe our directors, officers and owners of more than 10% of our outstanding equity securities complied with the reporting requirements during the fiscal year ended March 1, 2008.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Our Compensation Discussion and Analysis describes the material elements of compensation for the following groups and individuals, collectively referred to as the “named executive officers”:

 

“Group 1 Officers,” who are:

 

·      Bradbury H. Anderson, Vice Chairman and Chief Executive Officer;

 

·      Darren R. Jackson, former Executive Vice President — Finance and Chief Financial Officer, and former Executive Vice President — Customer Operating Groups;

 

·      Brian J. Dunn, President and Chief Operating Officer; and

 

·      Robert A. Willett, Chief Executive Officer — Best Buy International and Chief Information Officer.

 

“Group 2 Officers,” who are:

 

·      James L. Muehlbauer, Enterprise Chief Financial Officer (Interim); and

 

·      Kevin T. Layden, Chief Operating Officer — Best Buy International.

 

We divided the named executive officers into two groups because the compensation programs and the circumstances and decision-making processes that determined compensation for each group were materially different. We believe that separating the named executive officers into groups based on their participation in common programs, evaluation under similar standards and other commonalities enhances the clarity and readability of our Compensation Discussion and Analysis. For fiscal 2008, Messrs. Anderson, Jackson, Dunn and Willett were included in a group because they generally participated in the same compensation programs and were evaluated under similar standards. We included Messrs. Muehlbauer and Layden in a separate group because their status as named executive officers was the result of special circumstances, they were generally subject to different evaluation standards, and they participated in compensation programs that were more narrowly tailored based on their respective positions.

 

16



 

For ease of use, the Compensation Discussion and Analysis is divided into four sections:

 

 

 

 

 

Page

·

 

Compensation Philosophy, Objectives and Process

 

 

 

 

A discussion of our compensation philosophy, the objectives of our compensation programs and policies, and the process we use to determine executive compensation.

 

[   ]

 

 

 

 

 

·

 

Compensation for Group 1 Officers

 

 

 

 

A discussion and analysis of individual compensation elements and the process used to determine fiscal 2008 compensation for the Group 1 Officers, which include Messrs. Anderson, Jackson, Dunn and Willett.

 

[   ]

 

 

 

 

 

·

 

Compensation for Group 2 Officers

 

 

 

 

A discussion and analysis of individual compensation elements and the process used to determine fiscal 2008 compensation for the Group 2 Officers, which include Messrs. Muehlbauer and Layden.

 

[   ]

 

 

 

 

 

·

 

Other Compensation Matters

 

 

 

 

A discussion of programs and policies which are generally applicable to the named executive officers.

 

[   ]

 

Compensation Philosophy, Objectives and Process

 

“Total Rewards” Philosophy.  We believe our success depends on employees at all levels using their unique strengths, experiences and ideas to foster innovation and build strong customer relationships. While our compensation and benefit programs are important tools in attracting and retaining talented employees, we also believe that non-monetary factors such as work environment, learning and development opportunities, and relationships between employees and managers are critical to provide a rewarding employee experience. Collectively, these elements comprise our “Total Rewards” philosophy. We believe this company-wide approach to attracting, motivating and retaining talent is a competitive advantage.

 

Our Total Rewards philosophy seeks to:

 

·      Provide employees with a greater choice of rewards that are most valued by them;

 

·      Differentiate rewards to individuals, based on their contributions;

 

·      Encourage and recognize experimentation, entrepreneurship and innovation; and

 

·      Reward employee contributions for achieving strong financial and non-financial results.

 

We implement the Total Rewards philosophy by employing broad-based programs that are designed to align employee interests and create a common vision of success.

 

Compensation Objectives.   Our compensation program and policies serve the following objectives:

 

·      Reward employees for creating shareholder value and for comparative performance against external benchmarks;

 

·      Align long-term employee and shareholder interests;

 

·      Motivate employees to achieve short-term financial, operational, customer and employee outcomes that materially contribute to the sustainable, long-term health of Best Buy;

 

·      Attract talent necessary to develop new capabilities and enhance existing competencies; and

 

·      Maintain a flexible compensation structure that provides for potential wealth accumulation for superior growth or achieving key strategic objectives.

 

How We Determine Compensation.   The Compensation Committee is responsible for determining and approving executive compensation. In addition, the Compensation Committee oversees the development, evaluation and approval of incentive compensation, equity-based and other employee benefit plans for all employees, including our executive officers. The Compensation Committee is authorized to delegate to management certain responsibilities regarding our employee compensation and benefit plans, as specified in the Compensation Committee’s charter, which is posted on our Web site at www.BestBuy.com — select the “For Our Investors” link and then the “Corporate Governance” link.

 

The Compensation Committee established and annually reviews our Total Rewards philosophy and our compensation objectives, and oversees the design, competitiveness and effectiveness of compensation programs for our executive officers. At the beginning of each fiscal year, our Human Resources leadership team (“HR”) provides the Compensation Committee with compensation recommendations for the executive officers. The HR presentation includes an analysis prepared in support of the recommendations. The analysis includes a summary of the results of our application of our “Executive Compensation Framework” to each of our executive officers. Our “Executive Compensation Framework” includes a variety of internal and external factors, and is described in greater detail below. The internal factors are generally applied and analyzed by HR. HR has engaged a third-party compensation consultant, Towers Perrin, a global professional services firm, to assist in the development of compensation data that is used to facilitate the application and analysis of the external factors. The Compensation Committee reviews the recommendations with The Delves Group, an independent compensation consulting firm retained by the Compensation Committee, and discusses them with HR. The Compensation Committee’s review is comprehensive and includes consideration of many factors, including: (i) the alignment of the proposed compensation with our Total Rewards philosophy; (ii) the alignment of the proposed

 

17



 

compensation with our compensation objectives; (iii) the overall value of the compensation package, relative to internal factors and external benchmarks; and (iv) our decision not to offer supplemental compensation, benefits, perquisites and protections commonly extended to executive officers of other large companies. The process for evaluating the named executive officers’ compensation packages based on internal factors, external benchmarks and the lack of supplemental compensation is described in greater detail below.

 

Executive Compensation Framework.  For fiscal 2008, the total direct compensation of our Group 1 Officers and Mr. Muehlbauer was determined by applying our Executive Compensation Framework to each individual. The determination of Mr. Layden’s fiscal 2008 compensation was not based on our Executive Compensation Framework and is discussed in Compensation for Group 2 Officers — Kevin T. Layden beginning on page [__]. Our Executive Compensation Framework consists of a set of internal and external factors that allow for a comprehensive, multi-faceted evaluation of total compensation based on each individual’s personal attributes and talents, and objective external market data. The factors are not required to carry equal weight, but are all considered in determining the compensation recommendation for each individual. We believe that the diversity of the factors included in our Executive Compensation Framework and our flexibility in their application allows us to attribute appropriate value to each individual and enhances our ability to develop compensation packages that (i) further our compensation objectives, (ii) further one or more of our strategic initiatives, (iii) maximize each individual’s perceived value of his or her total compensation, and (iv) produce the highest return on our compensation investment.

 

For fiscal 2008, the internal and external factors that comprised our Executive Compensation Framework were as follows:

 

 

 

Factor

 

Description

Internal

 

Job Value

 

The internal value of the position relative to other executive officer positions, based on the primary job responsibilities, expected scope and nature of the job’s impact - relative rank within the organization depends upon the extent to which the executive will be accountable for specific enterprise strategic and operational challenges.

 

 

 

 

 

 

 

Personal Attributes

 

The executive’s industry and functional knowledge, intuition and insight, diversity of experience, entrepreneurial disposition and personal networks - in order to be considered for compensation purposes, these factors must be highly related to the success of the business strategies to be led by the executive.

 

 

 

 

 

 

 

Leadership/Values

 

The executive’s demonstration of our values, and ability to inspire and influence others.

 

 

 

 

 

 

 

Talent Development

 

The executive’s ability to cultivate talent that enhances business results, including succession planning.

 

 

 

 

 

 

 

Existing Compensation Arrangements

 

The executive’s outstanding equity awards, performance-based incentives and compensation history.

 

 

 

 

 

External

 

Peer Group Observations

 

Includes publicly-available information regarding actions taken by peer companies to attract and retain senior leadership talent.

 

 

 

 

 

 

 

Market Data

 

Includes compensation data for our peer group of companies (as determined by the Compensation Committee), the Fortune 100 companies and other national salary surveys.

 

We assessed the internal factors contained in the Executive Compensation Framework for Messrs. Muehlbauer, Jackson, Dunn and Willett, based on the results of our annual talent assessment process and a review of executive profiles developed for succession planning purposes. The talent assessment process included an evaluation of each individual’s performance and demonstration of Best Buy’s values relative to their peers. The individual profiles were developed through a comprehensive process, which included discussions with the Chief Executive Officer, the individuals’ peers, third-party executive coaches and each individual personally. The profiles contain analyses and information regarding factors similar to the internal factors contained in the Executive Compensation Framework. The internal factors were applied to Mr. Anderson based on an evaluation of his performance conducted by the Board.

 

We applied the external factors to each Group 1 Officer and Mr. Muehlbauer based on a review of publicly-available compensation data for our peer group of companies and the Fortune 100. We also considered actions taken by companies with which we compete for executive talent. We use available information and monitor actions taken by our peers to evaluate market trends and to assess the overall competitiveness of our executive compensation levels. We do not, however, seek to establish total direct compensation that falls within a prescribed range relative to our peer group of companies or the Fortune 100. In addition, the Compensation Committee may use our peer group of companies to evaluate:

 

·           The cost of the total direct compensation paid to our named executive officers;

 

·           The relationship between our financial performance and compensation paid to our named executive officers; and

 

·           The relative difficulty of our incentive performance targets.

 

The Compensation Committee annually evaluates the composition of our peer group of companies using revenue, financial, industry and other selection criteria. For fiscal 2008, the criteria used to determine the peer group of companies included:

 

·          Revenue of $5 billion or more;

 

·          Five-year growth rate of 10% or more based on economic profit, total shareholder return, revenue, net earnings and/or earnings per share measures;

 

18



 

·          Industry representation primarily weighted in the wholesale and retail sectors; and

 

·          Companies that are leaders in one or more of the following areas:

 

·      Employer of choice;

 

·      Customer service excellence;

 

·      Admiration within their industry;

 

·      Preferred brand(s);

 

·      Track record of innovation; and

 

·      One-third of revenues outside of the United States.

 

The selection criteria were intended to establish guidelines to assist in determining the composition of our peer group. As such, the Compensation Committee, in some cases, used its discretion to select companies that did not meet each of the criteria. Generally, these companies included those that compete directly with us or otherwise possessed traits that we considered imperative for success. We used lists published by Business Week and Fortune magazines to identify companies recognized as top employers, innovators, customer service providers, and other qualitative factors, for purposes of applying our selection criteria. Based on our comprehensive review, our peer group for fiscal 2008 and at the time compensation was determined for our named executive officers was comprised of the following companies:

 

·          Amazon.com, Inc.

 

·          Apple Inc.

 

·          Circuit City Stores, Inc.

 

·          Costco Wholesale Corporation

 

·          Dell Inc.

 

·          eBay Inc.

 

·          FedEx Corporation

 

·          Harley-Davidson, Inc.

 

·          Lowe’s Companies, Inc.

 

·          Nordstrom, Inc.

 

·          Staples, Inc.

 

·          Starbucks Corporation

 

·          Target Corporation

 

·          The TJX Companies, Inc.

 

·          Toyota Motor Corporation

 

·          Wal-Mart Stores, Inc.

 

·          Walgreen Co.

 

·          The Walt Disney Company

 

·          Whole Foods Market, Inc.

 

·          Yahoo! Inc.

 

Certain Benefits and Perquisites.  In addition to our evaluation of total compensation under the Executive Compensation Framework, we also considered that many companies offer the following supplemental compensation, benefits, perquisites and protections to their executive officers:

 

19



 

·           Employment agreements;

 

·           Severance or change-in-control agreements;

 

·           Pension plan benefits;

 

·           Supplemental retirement plan benefits;

 

·           Executive life insurance benefits; and

 

·           Country club memberships.

 

During fiscal 2008, we did not provide these types of compensation, benefits and perquisites to our named executive officers because they are contrary to our culture and are not consistent with our compensation objectives. Because many of the items listed above are linked to base salary and short-term incentive pay, our decision not to provide them generally reduces the amount of total compensation received by our named executive officers relative to other large companies. Additional information regarding the benefits and perquisites available to the named executive officers is included in Perquisites and other Benefits on page [__].

 

Role of Independent Compensation Consultant in Determining Compensation.  The Compensation Committee reviews HR’s executive compensation recommendations with The Delves Group, an independent compensation consulting firm retained by the Compensation Committee. The Compensation Committee believes that this review helps ensure that HR’s compensation recommendations are in line with our stated objectives and reasonable when compared to the market for executive talent. In addition, the engagement of an independent consultant enhances the overall independence of the Compensation Committee’s decision-making. The Delves Group reports directly to the Compensation Committee and does not provide any consulting or other services to Best Buy.

 

Role of Management Compensation Consultant in Determining Compensation.  HR has engaged a third-party compensation consultant, Towers Perrin, a global professional services firm, to assist in the development and analysis of external compensation data that is used to facilitate HR’s executive compensation recommendations to the Compensation Committee. At the request of HR and with the consent of the Compensation Committee, a representative of Towers Perrin regularly attends meetings of the Compensation Committee to address matters directly related to the engagement, including questions regarding external market data and related analyses. Towers Perrin reports directly to HR and does not engage with the Compensation Committee, except at the request and under the direction of HR.

 

Role of Executive Officers in Determining Compensation.  With the exception of rating the individual performance and assessing the talent of his direct reports, which may impact their cash compensation or annual long-term incentive awards, our Chief Executive Officer does not participate in or otherwise influence HR’s compensation recommendations for either himself or our executive officers.  Our Chief Executive Officer is, however, generally present when HR presents compensation recommendations (except for recommendations regarding his compensation) for our executive officers to the Compensation Committee and provides his perspective regarding the recommendations.  Our other executive officers do not participate in the development of compensation recommendations or the approval process.

 

Summary of Compensation and Benefit Programs.  We maintain a variety of compensation and benefit programs in which our executive officers and other selected employees participate. These programs include, but are not limited to, our 2004 Omnibus Stock and Incentive Plan, as amended (“Omnibus Plan”); our Executive Officer Short-Term Incentive Program (“Executive Officer STIP”); our Long-Term Incentive Program (“LTIP”); our Deferred Compensation Plan; our Retirement Savings Plan; and our 2003 Employee Stock Purchase Plan (“ESPP”).

 

Compensation for Group 1 Officers

 

Elements of Compensation.   The fiscal 2008 compensation for our Group 1 Officers included the following elements:

 

Element

 

Form(s) of Compensation

 

Purpose

 

Performance Metric(s)

Base Salary

 

Cash

 

Provide competitive, fixed compensation to attract and retain exceptional executive talent

 

Not performance-based

Short-Term Incentive

 

Cash

 

Create a strong financial incentive for achieving or exceeding a combination of company and executive management team goals

 

EVA®; operating income rate; revenue growth rate; SG&A rate

Long-Term Incentive

 

Stock options, restricted stock, and performance-based awards settled in stock or cash

 

Create a strong financial incentive for achieving or exceeding long-term performance goals and encourage a significant equity stake in our company

 

Best Buy Common Stock price, TSR, EVA®

Special Long-Term Incentive1

 

Restricted stock

 

Reward superior performance and retain exceptional executive talent

 

Not based on future performance

 

20



 

Health, Retirement and Other Benefits

 

Eligibility to participate in benefit plans generally available to our employees, including retirement, stock purchase, health, life insurance and disability plans

 

Plans are part of our broad-based employee benefits program

 

Not performance-based

Executive Benefits and Perquisites

 

Annual executive physical exam, supplemental long-term disability insurance, four weeks of paid vacation, expanded employee discount, stock ownership target planning and tax planning or preparation services

 

Provide competitive benefits to promote the health, well-being and financial security of our executive officers

 

Not performance-based

 

1 Special long-term incentive awards were granted only to Messrs. Jackson and Willett during fiscal 2008.

 

Analysis of Compensation Elements for Group 1 Officers

 

Base Salary.   The Compensation Committee generally determines base salary levels for the Group 1 Officers and other executive officers early in the fiscal year, with changes becoming effective during the first quarter of each fiscal year. The base salaries for the Group 1 Officers that became effective in the first quarter of fiscal 2008 were established based on an assessment of each Group 1 Officer under our Executive Compensation Framework. For fiscal 2008, the changes in base salaries for the Group 1 Officers and the key factors considered were as follows:

 

Name

 

Fiscal 2008
Base Salary

 

Fiscal 2007
Base Salary

 

Percent
Change

 

Key Factors

Mr. Anderson

 

$1,172,995

 

$1,172,995

 

 

Internal Factors:

·      Highest ranking role in the company

·      Ability and passion to foster innovation and change

·      High ethical conduct and exemplary values

·      Demonstrated progress in identifying and developing future leaders

 

External Factors:

·      Total cash compensation below median of Fortune 100 and at high end of the peer group range

·      Fortune 100 determined to be better comparison than peer group for purposes of evaluating CEO pay due to the size and complexity of our business

 

Mr. Jackson

 

650,000

 

600,000

 

8.3%

 

Internal Factors:

·      Expanded job responsibilities, including oversight of growth business units

·      Strong financial acumen and ability to connect company strategies with expected financial outcomes

·      Advocate for strong corporate governance and effective internal controls

 

External Factors:

·      Total cash compensation below median of Fortune 100 and at middle-to-high end of the peer group range

·      Market data comparison for CFO role does not account for expansion of Mr. Jackson’s job duties beyond traditional CFO role

 

Mr. Dunn

 

780,000

 

750,000

 

4.0%

 

Internal Factors:

·      Second highest ranking role in the company

·      Highly complex position responsible for management of dramatic organizational changes

·      Strong motivator and powerful brand representative

·      Well-respected leader with established record of successful entry into new markets

 

External Factors:

·      Total cash compensation slightly below median of Fortune 100 and peer group

·      Compensation generally in-line with market

 

 

21



Mr. Willett

 

700,000

 

625,000

 

12.0%

 

Internal Factors:

·      Leader of key international operations that are highly important to company growth

·      Demonstrated strategic ability to create multiple growth options facilitated by expansive and diverse business network

·      Ability to attract exceptional talent to the company and create leading-edge information technology, supply chain and merchandising platforms that produce a competitive advantage

 

External Factors:

·      Total cash compensation near median of Fortune 100 and at high end of the peer group range

·      Compensation at high end of the peer group range due to the high strategic importance of the position, the aggressiveness of our international growth strategy relative to our peer group, and Mr. Willett’s dual role as chief international executive and chief information officer for the company

 

 

Short-Term Incentive.   For fiscal 2008, the Group 1 Officers received performance-based, short-term incentive awards pursuant to our Executive Officer STIP. The Executive Officer STIP awards, payable in cash, were expressed as a percentage ranging from 125% to 200% of each Group 1 Officer’s base salary, called the “Incentive Target Percentage.” The Incentive Target Percentage for each Group 1 Officer was determined based on application of our Executive Compensation Framework, with particular emphasis placed on the internal job ranking of each position. We emphasized internal job ranking because we believe that it is important that a higher percentage of cash compensation be linked to our performance for higher ranking positions. In addition, we considered the value of total cash compensation in light of the external factors described in Base Salary, above, to ensure that we remain competitive in the market for executive talent. Based on actual performance compared with specific goals, the Group 1 Officers could earn zero to two times their Incentive Target Percentage. We call this factor the “Incentive Multiplier.” The purpose of the Incentive Multiplier is to modify the incentive payout based on actual performance compared with targets approved by the Compensation Committee. The performance results are translated to company and team performance scores, which are then multiplied to determine the Incentive Multiplier. The formula below shows how the short-term incentive payments were determined for fiscal 2008:

 

Base Salary x Incentive Target Percentage x Incentive Multiplier1 = Incentive Payout

 

1    Incentive Multiplier = Company Performance score x Team Performance score

 

The “Company Performance” score was determined based on our company’s Economic Value Added, or EVA® (“EVA”) performance for fiscal 2008 compared with a target approved by the Compensation Committee. We believe the use of EVA as a primary incentive factor demonstrates our commitment to linking executive compensation with increasing shareholder value. EVA measures the amount by which our after-tax profits, after certain adjustments, exceed our cost of capital. Certain unplanned events, such as acquisitions and the effect of accounting changes, are excluded for purposes of determining EVA. In fiscal 2008, the favorable impact of our accelerated share repurchase activity, under a program approved by the Board in June 2007, was excluded from the calculation of fiscal 2008 EVA to the extent that the purchase volume under the program exceeded the amount previously authorized by the Board. The EVA target for fiscal 2008 was established based on historical company performance and target-setting practices, as well as investor and market expectations. Based on an analysis of those factors, our fiscal 2008 EVA target was $465 million, equivalent to approximately 15% growth in our earnings per share. For the Group 1 Officers to earn any portion of the short-term incentive awards, the company had to achieve a minimum of $326 million of EVA, or 70% of the target amount. To earn an above-target Company Performance score, the company had to achieve at least $472 million of EVA, or 101% of the target amount. The potential EVA ranges and corresponding Company Performance score values for fiscal 2008 were as follows:

 

EVA
($ in millions)

 

Percentage of Target

 

Company Performance
Score

$551 or greater

 

118% or greater

 

1.6

472 – 550

 

101% - 118%

 

1.1 – 1.4

432 - 471

 

93% - 101%

 

1.0

326 – 431

 

70% - 93%

 

0.5 – 0.9

Less than 326

 

Less than 70%

 

0.0

 

For fiscal 2008, our actual EVA performance was $438 million, which resulted in a Company Performance score of 1.0.

 

The “Team Performance” score was determined based on the average of the following company metrics: (i) operating income rate; (ii) revenue growth rate; and (iii) selling, general and administrative expenses (“SG&A”) rate, all measured in accordance with generally accepted accounting principles (“GAAP”). Our fiscal 2008 performance against each of these metrics was compared with targets approved by the Compensation Committee. The Team Performance targets were derived from the overall EVA objective described above. For fiscal 2008, the potential operating income rate, revenue growth rate and SG&A rate ranges, and corresponding Team Performance scores were as follows:

 

Operating Income Rate

 

Revenue Growth Rate

 

SG&A Rate

 

Team Performance
Score

6.3% or greater

 

10.1% or greater

 

17.9% or lower

 

1.25

6.1% - 6.2%

 

9.6% - 10.0%

 

18.0% - 18.1%

 

1.12

5.9% - 6.0%

 

9.1% - 9.5%

 

18.2% - 18.3%

 

1.0

5.4% - 5.8%

 

8.0% - 9.0%

 

18.4% – 18.8%

 

0.4 – 0.9

Less than 5.4%

 

Less than 8.0%

 

18.9% or greater

 

0.4

 

22



For fiscal 2008, our operating income rate was 5.4%, our revenue growth rate was 11.4% and our SG&A rate was 18.5%. Based on these results, the Team Performance score was computed as follows:

 

Performance Metric

 

Result

 

Score

Operating Income Rate

 

5.4%

 

0.4

Revenue Growth Rate

 

11.4%

 

1.25

SG&A Rate

 

18.5%

 

0.9

 

 

 

 

 

Team Performance Score1

 

 

 

0.85

 

1 The Team Performance score was computed as the average of the scores for all three metrics.

 

To determine the Incentive Multiplier, the Company Performance and Team Performance scores are multiplied. Based on the actual Company Performance and Team Performance scores, the Incentive Multiplier for fiscal 2008 was 0.85.

 

The fiscal 2008 short-term incentive payments to our Group 1 Officers, as determined based on the formulas described above, were as follows:

 

 

 

Base
Salary

X

Incentive
Target
Percentage

=

Incentive
Target

X

Incentive
Multiplier

=

Incentive
Payout

 

Mr. Anderson

 

$

 1,172,995

 

200%

 

$

 2,345,990

 

0.85

 

$

1,994,092

 

Mr. Jackson

 

650,000

 

125

 

812,500

 

0.85

 

1

Mr. Dunn

 

775,000

 

150

 

1,162,500

 

0.85

 

988,125

 

Mr. Willett

 

687,500

 

125

 

859,375

 

0.85

 

730,469

 

 

1  Mr. Jackson did not receive an Incentive Payout because he terminated employment with us prior to the end of fiscal 2008.

 

Long-Term Incentive.   Pursuant to our LTIP, established under the Omnibus Plan, we make annual long-term incentive awards to our Group 1 Officers and other eligible employees. For fiscal 2008, our Group 1 Officers, except for Mr. Anderson (who requested that he not be granted a long-term incentive award and that the options to purchase shares that he would have received be contributed to a discretionary award pool to be distributed to employees who are not otherwise eligible to receive LTIP awards) were able to select from among four long-term incentive mix choices, which included combinations of stock options, restricted stock and performance-based awards that are settled in stock or cash. We call this our “LTIP Choice” feature. Each of the incentive mix choices were of substantially similar economic value, but had different risk and reward profiles due to varying performance metrics and award characteristics. The award choices are described in greater detail below.

 

We decided to offer LTIP Choice to our Group 1 Officers because it aligns with our Total Rewards philosophy to provide a greater choice of rewards that are most valued by them. We believe that this approach maximizes the perceived value of the award by the recipient, promotes retention and increases motivation to achieve company objectives. Under LTIP Choice, an initial award value, denominated in stock options, was determined for each participating Group 1 Officer. For fiscal 2008, the value of LTIP awards for the Group 1 Officers was lower compared with awards approved in the prior fiscal year, and was below the median value compared with our peer group of companies and the Fortune 100. The decrease was the result of our decision to direct a greater percentage of overall long-term incentive awards to our store managers in recognition of their significant role in developing relationships with our customers. The initial LTIP award values for the Group 1 Officers were reviewed and approved by the Compensation Committee. The value of each award was convertible, at pre-established exchange rates, by the Group 1 Officers into the following long-term incentive mix choices:

 

 

 

Incentive Mix

Choice #1

 

100% Stock Options

Choice #2

 

50% Stock Options

 

50% Performance Shares

Choice #3

 

50% Stock Options

 

50% Restricted Stock

Choice #4

 

50% Restricted Stock

 

50% Performance Units

 

“Stock Options” are non-qualified stock option awards that have a term of 10 years and become exercisable over a four-year period at the rate of 25% per year, beginning one year from the date of grant. The stock option exercise price is equal to the closing price of our Common Stock on the grant date, as quoted on the NYSE.

 

“Performance Shares” are a type of performance-based restricted stock award that will be earned if our Common Stock achieves a certain total shareholder return (“TSR”) as compared to the TSR of companies that comprise the Standard & Poor’s 500 Index during a three-year incentive period which started on March 2, 2008 (the beginning of fiscal 2009), and ends on February 26, 2011 (the end of fiscal 2011), at which time the earned performance shares are scheduled to vest. TSR is the compound annual growth rate that shareholders receive on their investment, including both paid dividends and stock price appreciation. The following is a summary of performance share awards that may be earned based on varying levels of our TSR performance in relation to the TSR performance of the Standard & Poor’s 500 Index:

 

Best Buy TSR vs. TSR of the Standard &
Poor’s 500 Index Over
Three-Year Incentive Period

 

Percent of
Performance
Share Award
That Will Vest

75 th  Percentile and Above

 

150%

 

23



 

50 th Percentile and Above, but Less Than 75 th  Percentile

 

100%-149%

40 th  Percentile and Above, but Less Than 50 th Percentile

 

50%-99%

25 th  Percentile and Above, but Less Than 40 th Percentile

 

0%-49%

Below the 25 th  Percentile

 

0%

 

“Restricted Stock” is another type of performance-based restricted stock award that will be earned if our fiscal 2009 EVA achieves a certain level compared with our fiscal 2009 EVA target as determined by the Compensation Committee.  The fiscal 2009 EVA target of $476 million, equivalent to approximately 7% earnings per share growth, was generally determined in the same manner as the fiscal 2008 EVA target. After the number of shares of restricted stock is determined and credited to the Group 1 Officer, the shares will be scheduled to vest on February 26, 2011 (the end of fiscal 2011), provided the Group 1 Officer remains employed with us through that date. The following is a summary of restricted stock awards that may be earned based on varying levels of our fiscal 2009 EVA performance as a percentage of our fiscal 2009 EVA target:

 

EVA as a Percentage
of  EVA Target

 

Percent of Restricted
Stock Award
That Will be Earned

111% and Above

 

125%

At least 91% but Less Than 111%

 

100%

At least 75% but Less Than 91%

 

75%

Below 75%

 

0%

 

“Performance Units” are denominated in U.S. dollars and paid in cash upon vesting. These awards will be earned if our fiscal 2009 EVA achieves a certain level compared with our fiscal 2009 EVA target as determined by the Compensation Committee. The fiscal 2009 EVA target of $476 million, equivalent to approximately 7% earnings per share growth, was generally determined in the same manner as the fiscal 2008 EVA target. After the number of Performance Units is determined and credited to the Group 1 Officer, the Performance Units will be scheduled to vest on February 26, 2011 (the end of fiscal 2011), provided the Group 1 Officer remains employed with us through that date. The following is a summary of Performance Unit awards that may be earned based on varying levels of our fiscal 2009 EVA performance as a percentage of our fiscal 2009 EVA target:

 

EVA as a Percentage
of  EVA Target

 

Dollar Value of
Performance
Unit Award
That Will be Earned

111% and Above

 

$1.25

At least 91% but Less Than 111%

 

1.00

At least 75% but Less Than 91%

 

0.75

Below 75%

 

0.00

 

For fiscal 2008, the Group 1 Officers, except for Mr. Anderson who did not receive an LTIP award, selected the following incentive mix choices:

 

Name

 

Incentive Mix Choice

Mr. Jackson

 

Choice #3 – 50% Stock Options, 50% Restricted Stock

Mr. Dunn

 

Choice #1 – 100% Stock Options

Mr. Willett

 

Choice #2 – 50% Stock Options, 50% Performance Shares

 

Additional information regarding the LTIP awards granted to the Group 1 Officers in fiscal 2008 is included in Grants of Plan-Based Awards on page [__].

 

Special Long-Term Incentives.  From time to time, we grant special long-term incentives for a variety of reasons, including (i) to recognize superior performance, (ii) to provide additional incentive for the achievement of critical business objectives, and (iii) to retain exceptional executive talent. Special long-term incentives can be awarded in various forms, including time and performance-based restricted stock, and discretionary cash awards. In fiscal 2008, we granted special long-term incentive awards to Messrs. Jackson and Willett in the form of time-based restricted stock. The purpose of the award for Mr. Jackson was primarily to promote retention. For Mr. Willett, the purpose of the award was to recognize him for producing substantial business benefits through leadership of our information systems and supply chain restructuring and outsourcing strategy, as well as to promote retention. The Compensation Committee considered the impact of the special awards’ values on Messrs. Jackson’s and Willett’s total compensation, relative to comparable positions within our peer group of companies and the Fortune 100. Including the value of the special long-term incentive award, the total direct compensation for Messrs. Jackson and Willett was between the middle and high end of the range compared with our peer group of companies and the Fortune 100. The Compensation Committee determined that total direct compensation in that range was reasonable because of the important contributions both individuals were expected to make in executing our key business strategies. The shares underlying Mr. Jackson’s award were scheduled to vest on April 26, 2010, but were irrevocably forfeited when he terminated employment with us on December 7, 2007.  All the shares subject to Mr. Willett’s award are also scheduled to vest on April 26, 2010, provided he has been continually employed with us through that date.  Additional information regarding the special long-term incentive awards granted to Messrs. Jackson and Willett in fiscal 2008 is included in Grants of Plan-Based Awards on page [__].

 

Compensation for Group 2 Officers

 

James L. Muehlbauer

 

On September 20, 2007, Mr. Muehlbauer was appointed as our interim chief financial officer, pending completion of our search for a permanent chief financial officer. Mr. Muehlbauer, who had previously served as our Senior Vice President and Chief Financial Officer - Best Buy U.S., was appointed as our Executive Vice President - Finance and Chief Financial Officer, effective April 18, 2008. At the time of his appointment as interim Chief Financial Officer, the Compensation Committee approved

 

24



 

additional compensation for Mr. Muehlbauer in recognition of his increased company-wide responsibilities. Mr. Muehlbauer’s compensation was determined through application of our Executive Compensation Framework, with emphasis on balancing his experience with external market data for comparable positions. For fiscal 2008, Mr. Muehlbauer generally received the same elements of compensation as the Group 1 Officers described in Elements of Compensation beginning on page [__]. The individual elements of Mr. Muehlbauer’s fiscal 2008 total compensation are discussed below.

 

Base Salary.  Mr. Muehlbauer’s base salary for fiscal 2008 of $349,763 had been set during the first fiscal quarter of the year when the base salaries of all of our executive officers were determined.  A base salary adjustment for Mr. Muehlbauer was not made at the time of his appointment as interim chief financial officer. In lieu of a base salary increase and due to the temporary nature of the position, the Compensation Committee approved a $15,000 cash bonus payment for each month Mr. Muehlbauer served in the interim position. The amount of the monthly cash bonus payment was determined based on a review of external market data for comparable positions and in consideration of Mr. Muehlbauer’s increased job responsibilities.

 

Short-Term Incentive.  For fiscal 2008, Mr. Muehlbauer received a performance-based, short-term incentive award pursuant to our Corporate Short-Term Incentive Program (“Corporate STIP”). The Corporate STIP award, payable in cash, was expressed as 55% of Mr. Muehlbauer’s base salary, or Mr. Muehlbauer’s “Incentive Target Percentage.” In connection with his appointment as interim chief financial officer, Mr. Muehlbauer’s Incentive Target Percentage was increased to 100% of his base salary, based on his level of responsibility compared with similar positions in our peer group of companies and the Fortune 100, and relative to other Best Buy executive officer roles. The Corporate STIP is similar to the Executive Officer STIP, described in Short-Term Incentive on page [__], except that (i) the “Team Performance” metrics are by department and for the Finance department were based on our revenue growth and SG&A rates, and (ii) it included a third “Individual Performance” factor to compute the Incentive Multiplier. The formula below shows how Mr. Muehlbauer’s short-term incentive payment was determined for fiscal 2008:

 

Base Salary x Incentive Target Percentage x Incentive Multiplier1 = Incentive Payout

 

1  Incentive Multiplier = Company Performance score x Team Performance score x Individual Performance score

 

The “Company Performance” score was based on our company’s fiscal 2008 EVA compared with a target approved by the Compensation Committee. The EVA target and the basis for its establishment were the same as for the Executive Officer STIP described in Short-Term Incentive on page [__]. For Mr. Muehlbauer, the potential EVA ranges and corresponding Company Performance score values for fiscal 2008 were as follows:

 

EVA
($ in millions)

 

Percentage of Target

 

Company Performance
Score

$551 or greater

 

118% or greater

 

1.4

472 – 550

 

101% - 118%

 

1.1 – 1.3

432 - 471

 

93% - 101%

 

1.0

326 – 431

 

70% - 93%

 

0.5 – 0.9

Less than 326

 

Less than 70%

 

0.0

 

For fiscal 2008, our actual EVA performance was $438 million, which resulted in a Company Performance score of 1.0.

 

The “Team Performance” score for the Finance department was determined based on the average of two metrics, our company’s revenue growth and SG&A rates, measured in accordance with GAAP. Our fiscal 2008 performance against both metrics was compared with targets approved by the Compensation Committee. The Team Performance targets were derived from the overall EVA objective described above. For fiscal 2008, the potential revenue growth rate and SG&A rate ranges, and corresponding Team Performance scores for Mr. Muehlbauer, were as follows:

 

Revenue Growth Rate

 

SG&A Rate

 

Team Performance
Score

10.1% or greater

 

17.9% or lower

 

1.2

9.6% - 10.0%

 

18.0% - 18.1%

 

1.1

9.1% - 9.5%

 

18.2% - 18.3%

 

1.0

8.0% - 9.0%

 

18.4% – 18.8%

 

0.4 – 0.9

Less than 8.0%

 

18.9% or greater

 

0.4

 

For fiscal 2008, our revenue growth rate was 11.4% and our SG&A rate was 18.5%. Based on these results, the Team Performance score for Mr. Muehlbauer was computed as follows:

 

Performance Metric

 

Result

 

Score

Revenue Growth Rate

 

11.4%

 

1.2

SG&A Rate

 

18.5%

 

0.9

 

 

 

 

 

Team Performance Score1

 

 

 

1.05

 

1   The Team Performance score was computed as the average of the scores for both metrics.

 

The “Individual Performance” score was determined based on our annual performance appraisal which included an assessment of Mr. Muehlbauer’s achievement of individual goals and his demonstration of Best Buy’s values. Depending on his performance, the corresponding score could range from 0.0 to 1.2. For fiscal 2008, Mr. Muehlbauer received an Individual Performance score of 1.1.

 

To determine the Incentive Multiplier, the Company Performance, Team Performance and Individual Performance scores are multiplied. Based on  

 

25



the actual Company Performance and Team Performance scores, and Mr. Muehlbauer’s Individual Performance score, his Incentive Multiplier for fiscal 2008 was 1.16.

 

The fiscal 2008, short-term incentive payment to Mr. Muehlbauer, as determined based on the formulas described above, was as follows:

 

 

 

Base
Salary

X

Incentive
Target
Percentage

=

Incentive
Target

X

Incentive
Multiplier

=

Incentive
Payout

Mr. Muehlbauer

 

$

345,646

1

55%/100%2

 

$

255,686

 

1.16

 

$

296,596

 

1 Does not include a $15,000 monthly cash bonus Mr. Muehlbauer received for each month he serves as our interim chief financial officer.

 

2 The Incentive Target Percentage for Mr. Muehlbauer was increased from 55% to 100% in connection with his appointment as our interim chief financial officer in September 2007. For fiscal 2008, the short-term incentive payment for Mr. Muehlbauer was computed proportionately based on the number of months he served in each position.

 

Long-Term Incentive. For fiscal 2008, Mr. Muehlbauer participated in our LTIP.  Pursuant to the “LTIP Choice” feature, Mr. Muehlbauer was able to select from among four long-term incentive mix choices, which included combinations of stock options, restricted stock and performance-based awards that are settled in stock or cash. Our LTIP Choice feature is described in greater detail in Long-Term Incentive beginning on page [__]. Mr. Muehlbauer selected Choice #1, 100% Stock Options. At the time the award was approved, Mr. Muehlbauer had not yet been appointed as interim chief financial officer. As such, the number of Stock Options subject to the award was determined in the same manner as LTIP awards granted to our other senior vice presidents. The initial award values for senior vice presidents were determined based on a review of retail and general industry market data for comparable positions and were subject to adjustment based on the results of our talent assessment process. Additional information regarding the LTIP award granted to Mr. Muehlbauer in fiscal 2008 is included in Grants of Plan-Based Awards on page [__].

 

Special Long-Term Incentive In fiscal 2008, we granted Mr. Muehlbauer a special long-term incentive award in the form of additional Stock Options. We granted the award to compensate Mr. Muehlbauer for the increased responsibility he assumed as interim chief financial officer and to strengthen the alignment of his interests with our long-term success. The amount of the award was determined based on retail and general industry market data for comparable positions.  Additional information regarding the special long-term incentive award granted to Mr. Muehlbauer in fiscal 2008 is included in Grants of Plan-Based Awards on page [__].

 

Kevin T. Layden

 

Effective as of January 4, 2008, Mr. Layden was appointed as our Chief Operating Officer - Best Buy International. Prior to that, he served as President and Chief Operating Officer – Best Buy Canada.

 

Base Salary. Mr. Layden’s base salary at the beginning of fiscal 2008 was $773,647 and was determined during the first quarter of fiscal 2007. During the second quarter of fiscal 2008, the Compensation Committee approved a 3.5% increase in Mr. Layden’s base salary to $800,724. The increase was determined based on consideration of comparative market data for similar executive positions in Canada, the compensation levels for our other executive officers of similar rank and the strong performance of our Canada business. However, the increase in Mr. Layden’s base salary was limited because his compensation was in the upper range of similarly ranked executive officers within the company.

 

Short-Term Incentive. For fiscal 2008, Mr. Layden received a performance-based, short-term incentive award pursuant to our International Short-Term Incentive Program (“International STIP”). He received an award under the International STIP because he was serving as President and Chief Operating Officer - Best Buy Canada during the first fiscal quarter of the year when short-term incentives were awarded. Key leaders in our international segment participated in the International STIP to promote the alignment of their interests in executing our international strategy. The International STIP award, payable in cash, was expressed as 75% of Mr. Layden’s base salary, or Mr. Layden’s “Incentive Target Percentage.” The Incentive Target Percentage was determined based on Mr. Layden’s level of responsibility compared with other executive positions in the Canada market and relative to other Best Buy executive officer roles. The International STIP is similar to the Executive Officer STIP, described in Short-Term Incentive on page [__], except that (i) the “Company Performance” metric was replaced by an “International Performance” metric based on the operating profit generated by our international segment, (ii) the “Team Performance” metric was replaced by a “Canada Team Performance” metric based on operating profit and revenue for our Canada business, and (iii) it included a third “Individual Performance” factor to compute the Incentive Multiplier. The formula below shows how Mr. Layden’s short-term incentive payment was determined for fiscal 2008:

 

Base Salary x Incentive Target Percentage x Incentive Multiplier1 = Incentive Payout

 

1  Incentive Multiplier = International Performance score x Canada Team Performance score x Individual Performance score

 

The “International Performance” score was determined based on the fiscal 2008 operating profit generated by our international segment compared with a target set by management and measured in accordance with GAAP subject to adjustment for accounting changes and corporate allocations. To eliminate the impact of foreign currency fluctuations for incentive compensation purposes, international operating profit results and performance targets were determined based on budget exchange rates established for each country in which we conduct business operations. For fiscal 2008, the international operating profit target was $123 million. For Mr. Layden to earn any portion of his short-term incentive award, our international segment had to achieve a minimum of $85 million of operating profit, or 70% of the target amount. To earn an above-target International Performance score, our international segment had to achieve at least $124 million of operating profit, or 101% of the target amount. The potential operating profit ranges and corresponding International Performance score values for fiscal 2008 were as follows:

 

International
Operating Profit
($ in millions)

 

Percentage of Target

 

International
Performance
Score

$145 or greater

 

118% or greater

 

1.4

 

26



 

124 – 145

 

101% – 118%

 

1.1 – 1.3

114 – 123

 

93% – 101%

 

1.0

  85 – 113

 

70% – 93%

 

0.5 – 0.9

Less than 85

 

Less than 70%

 

0.0

 

For fiscal 2008, the operating profit for our international segment was $133 million, which resulted in an International Performance score of 1.2.

 

The “Canada Team Performance” score was determined based on equally weighted operating profit and revenue metrics for our Canada business. The fiscal 2008 performance of our Canada business for each of these metrics was compared with targets set by management and measured in accordance with GAAP, subject to adjustment for accounting changes and the financial impact of unplanned store openings. For presentation purposes, Canada operating profit and revenue results and performance targets are reported based on the same budget exchange rate used for determining the Canada component of international operating profit. The potential Canada operating profit ranges, and corresponding score values for fiscal 2008 were as follows:

 

Canada
Operating Profit
($ in millions)

 

Canada Team
Performance

Score (50% weight)

$164 or greater

 

1.2

156 – 163

 

1.1

149 – 155

 

1.0

112 – 148

 

0.5 – 0.9

Less than 112

 

0.4

 

The potential Canada revenue ranges and corresponding score values for fiscal 2008 were as follows:

 

Canada
Revenue
($ in millions)

 

Canada Team
Performance

Score (50% weight)

$4,723 or greater

 

1.2

4,614 – 4,722

 

1.1

4,499 – 4,613

 

1.0

4,498 or less

 

0.8 – 0.9

 

For fiscal 2008, our Canada business had operating profit of $184 million and revenue of $4,746 million. Based on these results, the Canada Team Performance score was computed as follows:

 

Performance Metric

 

Result ($ in millions)

 

Score

Canada Operating Profit

 

$184

 

1.2

Canada Revenue

 

$4,746

 

1.2

 

 

 

 

 

Canada Team Performance Score1

 

 

 

1.2

 

1 The Canada Team Performance score was computed as the average of the scores for both metrics.

 

The “Individual Performance” score was determined based on our annual performance appraisal which included an assessment of Mr. Layden’s achievement of individual goals and his demonstration of our company values. Depending on individual performance, the corresponding score could range from 0.0 to 1.2. For fiscal 2008, Mr. Layden received an Individual Performance score of 1.1.

 

To determine the Incentive Multiplier, the International Performance, Canada Team Performance and Individual Performance scores are multiplied. Based on the actual International Performance and Canada Team Performance scores, and Mr. Layden’s Individual Performance score, his Incentive Multiplier for fiscal 2008 was 1.584.

 

The fiscal 2008, short-term incentive payment to Mr. Layden, as determined based on the formulas described above, was as follows:

 

 

 

Base
Salary

X

Incentive
Target
Percentage

=

Incentive
Target

X

Incentive
Multiplier

=

Incentive
Payout

Mr. Layden1

 

$

796,212

2

75 %

 

$

597,159

 

1.584

 

$

945,900

 

1

Cash compensation for Mr. Layden is paid in Canadian dollars. The amounts expressed are denominated in U.S. dollars based on the average exchange rate of 1.0438 Canadian dollars to 1.00 U.S. dollar during fiscal 2008.

 

 

2

Weighted average base salary during fiscal 2008.

 

 

Long-Term Incentive.  For fiscal 2008, Mr. Layden participated in our Canada long-term incentive program (“Canada LTIP”) because he was a resident of Canada and was serving as President and Chief Operating Officer - Best Buy Canada at the time annual long-term incentive awards were approved. The Canada LTIP does not include an “LTIP Choice” feature and awards are generally made in the form of stock options.  All awards under the Canada LTIP are subject to approval by the Compensation Committee. For fiscal 2008, Mr. Layden received a long-term incentive award comprised of Stock Options. The number of Stock Options subject to the award was comparable to the long-term incentive awards granted to our other similarly ranked executive officers in the United States and was determined based on a review of retail and general industry market data for comparable positions.  Additional information regarding the Canada LTIP award granted to Mr. Layden in fiscal 2008 is included in Grants of Plan-Based Awards on page [__].

 

27



Special Cash Bonus Award. Mr. Layden received a special cash bonus award during fiscal 2008, which was reviewed and approved by the Compensation Committee. The purpose of the cash bonus award was to recognize Mr. Layden for his contributions to the strong fiscal 2007 financial performance of our Canada business. In fiscal 2007, under Mr. Layden’s leadership, our Canada business doubled its operating income compared with the prior fiscal year, posted a low double-digit comparable store sales gain and increased its market share.  Additional information regarding the special cash bonus awarded to Mr. Layden in fiscal 2008 is included in the Summary Compensation Table on page [__].

 

Other Compensation Matters

 

The programs and policies described below are generally applicable to all our named executive officers, unless otherwise noted.

 

Benefits and Perquisites.  Our named executive officers are generally offered the same employee benefits and perquisites offered to all U.S.-based employees, as summarized in the table below:

 

Benefit or Perquisite

 

All
Full-Time
U.S.-Based
Employees

 

Named
Executive
Officers

 

Automobile Allowance

 

 

 

ü

1

Deferred Compensation Plan

 

ü

2

ü

 

Employee Discount

 

ü

 

ü

 

— Expanded Employee Discount3

 

 

 

ü

4

Employee Stock Purchase Plan

 

ü

 

ü

 

Health Insurance

 

ü

 

ü

 

— Executive Physical Exam

 

 

 

ü

 

Life Insurance

 

ü

 

ü

 

Long-Term Disability

 

ü

 

ü

 

— Executive Long-Term Disability

 

 

 

ü

4

Paid Time Off

 

ü

 

ü

 

Retirement Savings Plan

 

ü

 

ü

4

Short-Term Disability

 

ü

 

ü

 

Stock Ownership Target Planning

 

 

 

ü

4

Tax Planning and Preparation

 

 

 

ü

4

 

1      Only Mr. Layden received an automobile allowance in fiscal 2008. Mr. Layden will no longer receive an automobile allowance beginning in fiscal 2009.

 

2      Only highly compensated employees and directors are eligible to participate in the Deferred Compensation Plan.

 

3      Our named executive officers are eligible to receive the same employee discount at Best Buy stores as all employees. However, they are also eligible to receive a discount at stores operated by certain of our subsidiaries that is not generally available to all employees.

 

4      Mr. Layden is not eligible to receive the benefit or perquisite.

 

We provide the executive benefits and perquisites denoted above to compete for executive talent and to promote the health, well-being and financial security of our named executive officers. A description of executive benefits and perquisites, and the costs associated with providing them for the named executive officers, are reflected in the “All Other Compensation” column of the Summary Compensation Table on page [__].

 

Retirement Savings Plan.   Our Retirement Savings Plan is intended to meet the requirements of Section 401(k) of the Internal Revenue Code of 1986 (the “Code”). All of our named executive officers, except Mr. Layden who is a Canada-based employee, are eligible to participate in the plan. The plan provides a safe harbor that allows U.S.-based employees to contribute pre-tax income and immediately vest in company matching contributions. The plan is expected to provide an improved opportunity for such employees, including our U.S.-based named executive officers, to achieve retirement income security. However, the plan is not expected to provide sufficient income replacement relative to our named executive officers’ anticipated retirement needs. The potential retirement income gap for our U.S.-based named executive officers may be filled by other reward elements, including long-term incentives, or by the deferral of a portion of base salary or short-term incentive awards under our Deferred Compensation Plan. Under the Retirement Savings Plan, we match employee contributions, including those made by our U.S.-based named executive officers, at rates approved by the Compensation Committee. For fiscal 2008, we matched 100% of the first 3% and 50% of the next 2% of eligible pre-tax earnings (up to IRS limits) contributed by plan participants.

 

Although we currently intend to continue the Retirement Savings Plan, as well as to make matching contributions, the Compensation Committee may terminate the plan or discontinue the matching contributions at its sole discretion. If the Retirement Savings Plan were to be terminated, all company-matching funds would immediately vest. JPMorgan Chase has served as the trustee for the Retirement Savings Plan since April 1, 2004. We do not sponsor any other retirement plans in which our named executive officers participate.

 

Deferred Compensation Plan.   We sponsor an unfunded, unsecured Deferred Compensation Plan. We believe the plan provides a tax-deferred retirement savings vehicle that plays an important role in attracting and retaining executive talent. Additional information about our Deferred Compensation Plan is included in Non-Qualified Deferred Compensation Plan on page [__].

 

28



 

Equity Award Grant Practices

 

All equity-based incentive awards, including awards to our named executive officers and directors, must be approved by the Compensation Committee.

 

Timing of Awards.   Annual long-term incentive awards are granted in October of each year. Discretionary long-term incentive awards are granted in April and October of each year. Special long-term incentive awards may be granted at any time, as deemed necessary for new hires, promotions, recognition or retention purposes. In April of each year, the Compensation Committee considers a stock option grant for directors. The Compensation Committee also considers stock option grants for new directors upon their appointment to the Board. We do not coordinate or time the release of material information around our grant dates in order to affect the value of the compensation. Our named executive officers do not play a role in the selection of grant dates.

 

Determination of Grant Date.   The grant date is the date that the Compensation Committee approves the equity award.

 

Determination of Exercise Price.   The exercise price for stock option awards is equal to the last reported sale price of our Common Stock, as quoted on the NYSE, on the grant date. Under the terms of the Omnibus Plan, we may not grant stock options at a discount to fair market value. Unless otherwise determined by the Compensation Committee, “fair market value” as of a given date is the closing sale price of our Common Stock as quoted on the NYSE on such date or, if the shares were not traded on that date, the most recent preceding date when the shares were traded.

 

Repricing of Stock Options.   Under the terms of our Omnibus Plan, a stock option may not, without the approval of our shareholders, be: (i) amended to reduce its initial exercise price, except in the case of a stock split or similar event; or (ii) canceled and replaced by a stock option having a lower exercise price.

 

Stock Ownership Guidelines

 

The Compensation Committee has established stock ownership guidelines to promote the alignment of officer and shareholder interests and to encourage behaviors that have a positive influence on stock price appreciation and total shareholder return. The guidelines apply to all officers, including the named executive officers, and are part of an effort to encourage employee stock ownership. Under the guidelines, our officers, including the named executive officers, are expected to acquire ownership of a fixed number of shares, based on their position, within five fiscal years of assuming their current position. The stock ownership expectation generally remains effective for as long as the officer holds the position. The guidelines provide for stock ownership levels for our named executive officers as follows:

 

Name

 

Ownership Target

1

Mr. Anderson

 

140,000 shares

 

Mr. Jackson

 

55,000 shares

 

Mr. Dunn

 

70,000 shares

 

Mr. Willett

 

55,000 shares

 

Mr. Muehlbauer

 

15,000 shares

2

Mr. Layden

 

35,000 shares

 

 

1    Ownership targets will be adjusted for stock splits, stock dividends or similar events.

 

2    Mr. Muehlbauer’s ownership target was not increased in connection with his appointment as interim chief financial officer and is consistent with the ownership target level for company senior vice presidents.

 

The Compensation Committee reviews progress toward achievement of the ownership target at least annually. In addition to shares personally owned by each officer, the following forms of stock ownership count toward the ownership target:

 

·      Equivalent shares owned in the Best Buy Stock Fund within our Retirement Savings Plan; and

 

·      50% of non-vested performance shares (based on TSR) granted under our LTIP.

 

Until the ownership target is met, officers are expected to retain: (i) 25% of net proceeds received from the exercise of a stock option in the form of Best Buy Common Stock; and (ii) 100% of shares net of taxes issued in connection with the lapse of restrictions on restricted stock or performance share awards.

 

Tax and Other Considerations

 

Tax Deductibility of Compensation.   Section 162(m) of the Code limits the deductibility of compensation in excess of $1 million paid to the Chief Executive Officer or any of the three other most highly compensated executive officers, unless the compensation qualifies as “performance-based compensation.” Among other things, in order to be deemed performance-based compensation, the compensation must be based on the achievement of pre-established, objective performance criteria and must be pursuant to a plan that has been approved by our shareholders. It is intended that all performance-based compensation paid in fiscal 2008 to our named executive officers under the plans and programs described above will qualify for deductibility, either because the compensation is below the threshold for non-deductibility provided in Section 162(m), or because the payment of amounts in excess of $1 million qualify as performance-based compensation under the provisions of Section 162(m).

 

We believe that it is important to continue to be able to take available company tax deductions with respect to the compensation paid to our named executive officers. Therefore, we strive to take all actions that may be necessary under Section 162(m) to qualify for available tax deductions related

 

29


 


 

to executive compensation.  We do not, however, make compensation decisions based solely on the availability of a deduction under Section 162(m).

 

Accounting Treatment.   We account for stock-based awards based on their grant date fair value, as determined under SFAS No. 123(R), Share-Based Payment. Compensation expense for these awards is recognized on a straight-line basis over the requisite service period of the award (or to an employee’s eligible retirement date, if earlier). If the award is subject to a performance condition, however, the cost will vary based on our estimate of the number of shares that will ultimately vest.

 

Compensation and Human Resources Committee Report on Executive Compensation

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, above, with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008, and in this Proxy Statement.

 

COMPENSATION AND HUMAN RESOURCES COMMITTEE

 

Frank D. Trestman, Chairman

Kathy J. Higgins Victor

Ronald James

Hatim A. Tyabji

 

Compensation of Executive Officers

 

Summary Compensation Table

 

The table below summarizes the total compensation earned by each of our named executive officers during fiscal 2008:

 

 

 

Fiscal

 

Base

 

 

 

Stock

 

Option

 

Non-Equity
Incentive Plan

 

Change in
Pension Value
and Non-
Qualified
Deferred
Compensation

 

All Other

 

 

 

Name and Title

  

Year

  

Salary

1

Bonus

2

Awards

3  

Awards

4

Compensation

5

Earnings

6

Compensation

7

Total

 

Bradbury H. Anderson

 

2008

 

$

1,172,995

 

$

 

$

413,635

 

$

 

$

1,994,092

 

$

 

$

16,151

 

$

3,596,873

 

Vice Chairman and
Chief Executive Officer

 

2007

 

1,172,995

 

 

1,289,219

 

453,605

 

2,650,969

 

 

30,116

 

5,596,904

 

James L. Muehlbauer

 

2008

 

345,013

 

75,000

8

111,169

 

449,362

 

296,596

 

 

10,099

 

1,287,239

 

Enterprise Chief
Financial Officer
(Interim)

 

2007

 

320,251

 

 

109,037

 

431,348

 

176,491

 

 

12,481

 

1,049,608

 

Darren R. Jackson

 

2008

 

546,452

 

 

(868,745)

10

854,862

 

 

 

12,364

 

544,933

 

former Executive
Vice President —
Finance and Chief
Financial Officer
9

 

2007

 

597,643

 

 

1,130,530

 

1,038,195

 

847,500

 

 

9,093

 

3,622,961

 

Brian J. Dunn

 

2008

 

774,231

 

 

405,841

 

1,692,097

 

988,125

 

 

11,980

 

3,872,274

 

President and Chief
Operating Officer

 

2007

 

746,309

 

 

1,293,525

 

1,213,084

 

1,271,250

 

 

19,506

 

4,543,674

 

Robert A. Willett

 

2008

 

685,577

 

 

1,481,914

11

1,749,882

11

730,469

 

 

29,893

 

4,677,735

 

Chief Executive
Officer — Best Buy
International and
Chief Information
Officer

 

2007

 

622,962

 

 

3,580,226

11

3,492,471

11

882,813

 

 

14,358

 

8,592,830

 

Kevin T. Layden

 

2008

 

792,393

 

862,234

13

 

1,024,078

 

945,900

 

 

22,993

 

3,647,598

 

Chief Operating
Officer —

 

2007

 

772,910

 

 

 

996,239

 

1,113,094

 

 

27,837

 

2,910,080

 

Best Buy International 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1       These amounts are before any deferrals under the Deferred Compensation Plan. Additional information about deferred amounts can be found in the Non-Qualified Deferred Compensation table on page [__].

 

2       The Group 1 Officers were not entitled to receive any payment that would be categorized as a “Bonus” payment for fiscal 2008.

 

3       These amounts reflect the expense recognized for financial statement reporting purposes for fiscal 2008, in accordance with SFAS No. 123(R), for stock-based incentive awards granted under our long-term incentive programs. The amounts reported have been adjusted to eliminate service-based forfeiture assumptions used for financial reporting purposes. The other assumptions used in calculating these amounts are set forth in Note 5, Shareholders’ Equity, to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008. We recognize compensation expense on a straight-line basis over the requisite service period of the award (or to an employee’s eligible retirement date, if earlier) and, for performance-based awards, we adjust the expense based on an assessment of the likelihood that the performance targets will be achieved.

 

30



 

4       These amounts reflect the expense recognized for financial statement reporting purposes for fiscal 2008, in accordance with SFAS No. 123(R), for stock options granted under our long-term incentive programs. The assumptions used in calculating these amounts are set forth in Note 5, Shareholders’ Equity, to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 1, 2008.

 

5       These amounts reflect short-term incentive payments made under our Executive Officer STIP, Corporate STIP and International STIP, as applicable. The respective short-term incentive programs are described in Short-Term Incentive for Messrs. Anderson, Jackson, Dunn and Willett on page [__]; for Mr. Muehlbauer on page [__]; and for Mr. Layden on page [__].

 

6       We do not provide guaranteed, above-market or preferential earnings on compensation deferred under our Deferred Compensation Plan. The investment options available for notional investment of deferred compensation are similar to those available under our Retirement Savings Plan and are described in Non-Qualified Deferred Compensation on page [__].

 

7       For fiscal 2008, these amounts include all other compensation as described in the following table:

 

 

 

Retirement Plan

 

Life and Long-Term
Disability Insurance

 

Tax Services

 

Executive

 

 

 

 

 

 

 

Contribution

a

Premiums

b

Reimbursement

c

Physical

d

Other

 

Total

 

Bradbury H. Anderson

 

$     7,875

 

$    5,262

 

$     2,014

 

$     —

 

$   1,000

e

$   16,151

 

James L. Muehlbauer

 

8,757

 

1,342

 

 

 

 

10,099

 

Darren R. Jackson

 

8,077

 

1,212

 

 

3,075

 

 

12,364

 

Brian J. Dunn

 

8,037

 

2,070

 

1,873

 

 

 

11,980

 

Robert A. Willett

 

7,096

 

5,968

 

 

 

16,829

f

29,893

 

Kevin T. Layden

 

 

 

 

 

22,993

g

22,993

 

 

a     These amounts reflect our matching contributions to the named executive officer’s Retirement Savings Plan account.

b     These amounts reflect the portions of premiums paid by us for: (i) life insurance coverage exceeding $50,000, and (ii) supplemental executive long-term disability insurance.

c     These amounts reflect reimbursement for tax planning and preparation expenses.

d     The amount in this column reflects payment for a physical exam.

e     The amount reflects an automobile allowance which was terminated effective May 1, 2007.

f      The amount reflects immigration-related payments and payments for personal car storage and parking.

g     The amount reflects an automobile allowance which was terminated effective March 1, 2008.

 

8

 

The amount reflects monthly cash bonus payments made in connection with Mr. Muehlbauer’s service as our interim chief financial officer.

 

 

 

9

 

Mr. Jackson terminated his employment with us on December 7, 2007. Fiscal 2008 amounts reflect compensation earned by Mr. Jackson through his date of termination.

 

 

 

10

 

The amount of expense recognized for financial statement reporting purposes for fiscal 2008 reflects the reversal of expense previously recognized with respect to stock awards that were forfeited by Mr. Jackson when he terminated employment with us in accordance with SFAS No. 123(R).

 

 

 

11

 

The amount of expense recognized for financial statement reporting purposes for fiscal 2008 and 2007 was accelerated with respect to certain awards depending on their retirement provisions to reflect Mr. Willett’s retirement eligibility in accordance with SFAS No. 123(R).

 

 

 

12

 

Cash compensation for Mr. Layden is paid in Canadian dollars. Amounts expressed are denominated in U.S. dollars based on the average exchange rate of 1.0438 Canadian dollars to 1.00 U.S. dollar during fiscal 2008.

 

 

 

13

 

The amount reflects a discretionary cash bonus paid to Mr. Layden in recognition of the strong fiscal 2007 performance of our Canada business, as more fully described in Special Cash Bonus Award on page [__].

 

Grants of Plan-Based Awards

 

The table below summarizes grants under our long-term incentive programs to each of our named executive officers during fiscal 2008:

 

 

 

 

 

 

 

Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards

 

Estimated Future Payouts
Under Equity
Incentive Plan Awards

 

All Other
Stock
Awards:
Number
of Shares
of Stock

 

All Other
Option
Awards:
Number of
Securities
Underlying

 

Exercise
or Base
Price of
Option

 

 

 

Grant

 

Grant Date

 

Threshold

 

Target

 

Maximum

 

Threshold

 

Target

 

Maximum

 

or Units

 

Options

2

Awards

2

 

 

Date

 

Fair Value

1

($)

 

($)

 

($)

 

(#)

 

(#)

 

(#)

 

(#)

 

(#)

 

($/Sh)

 

Bradbury H. Anderson 3

 

 

$

 

 

 

 

 

 

 

 

 

$

 

James L. Muehlbauer

 

10/18/2007

 

650,194

 

 

 

 

 

 

 

 

40,970

 

47.84

 

Darren R. Jackson 4

 

4/26/2007

5

2,999,983

 

 

 

 

 

 

 

62,292

 

 

 

 

 

10/18/2007

 

876,818

 

 

 

 

 

 

 

 

55,250

 

47.84

 

 

 

10/18/2007

6

881,069

 

 

 

 

13,812

 

18,417

 

23,021

 

 

 

 

 

31



 

Brian J. Dunn

 

10/18/2007

 

2,190,060

 

 

 

 

 

 

 

 

138,000

 

47.84

 

Robert A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Willett

 

4/26/2007

5

4,999,971

 

 

 

 

 

 

 

103,820

 

 

 

 

 

10/18/2007

 

876,818

 

 

 

 

 

 

 

 

55,250

 

47.84

 

 

 

10/18/2007

7

961,158

 

 

 

 

184

 

18,417

 

27,625

 

 

 

 

Kevin T.Layden

 

10/18/2007

 

634,800

 

 

 

 

 

 

 

 

40,000

 

47.84

 

 

1       These amounts reflect the aggregate value of the award on the grant date determined in accordance with SFAS No. 123(R).

 

2       Non-qualified stock options that have a term of 10 years and become exercisable over a four-year period at the rate of 25% per year, beginning one year from the grant date. The option exercise price is equal to the closing price of our Common Stock on the grant date, as quoted on the NYSE. The Stock Option awards are described in greater detail in Long-Term Incentive on page [__].

 

3       At his request, Mr. Anderson did not receive any LTIP awards during fiscal 2008.

 

4      All plan-based awards granted to Mr. Jackson during fiscal 2008 were irrevocably forfeited when he terminated employment with us on December 7, 2007.

 

5      Time-based restricted stock award, scheduled to vest 100% on April 26, 2010, provided that the executive has been continually employed with us through that date.

 

6      Performance-based restricted stock award, scheduled to vest in a range from 0% to 100% on February 26, 2011 (end of fiscal 2011) depending on our fiscal 2009 EVA performance compared with our fiscal 2009 EVA target, as determined by the Compensation Committee. The award and related performance targets are described in greater detail in Long-Term Incentive on page [__].

 

7      Performance-based restricted stock award, scheduled to vest in a range from 0% to 100% on February 26, 2011 (end of fiscal 2011), depending on the level of TSR achieved by our Common Stock compared to the TSR of companies that comprise the S&P 500 during a three-year incentive period. The award and related performance targets are described in greater detail in Long-Term Incentive on page [__].

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides a summary of equity awards outstanding for each of the named executive officers as of the end of fiscal 2008:

 

 

 

Option Awards

 

Stock Awards

 

 

 

Option
Grant

 

Number of
Securities
Underlying
Unexercised
Options
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options
Unexercisable

 

Option
Exercise

 

Option
Expiration

 

Stock
Award
Grant

 

Number of
Shares or
Units of
Stock That
Have Not
Vested

 

Market
Value of
Shares or
Units of
Stock That
Have Not

 

Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other Right
That Have
Not Vested

 

Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested

 

 

 

Date

1 2

(#)

 

(#)

 

Price

 

Date

 

Date

1

(#)

 

Vested

 

(#)

 

($)

3

Bradbury H.

 

 

 

 

 

 

 

 

 

 

 

5/18/2006

4

 

 

 

 

94,966

 

$

4,084,488

 

Anderson

 

4/14/2003

 

11,250

 

 

 

$

20.65