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SEC Filing Excerpt For complete filing click here |
[Whole Foods Market LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
| Date: | Monday, March 5, 2007 |
| Time: | 9 a.m., Eastern Standard Time |
| Place: | Hotel Monaco Washington DC: 700 F Street NW, Washington DC 20002 |
| Proposals: |
| 1. |
To elect eight directors to the Board of Directors of Whole Foods Market, Inc. to serve one-year terms expiring at the later of the annual meeting of shareholders in 2008 or upon a successor being elected and qualified. |
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| 2. |
To ratify the appointment of Ernst & Young LLP as independent auditor for the Company for the fiscal year ending September 30, 2007. |
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| 3. |
To consider a Company proposal to approve the Whole Foods Market 2007 Stock Incentive Plan, which is a consolidation, amendment and restatement of the Whole Foods Market, Inc. Incentive Stock Option Plan for Team Members and the Whole Foods Market, Inc. Amended and Restated Stock Option Plan for Outside Directors. Awards available under the 2007 Stock Incentive Plan will be nonqualified and incentive stock options, restricted stock and stock appreciation rights. The Company is not asking to increase the number of shares authorized for issuance under the existing plans. |
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| 4. |
To consider a Company proposal to approve the amendment and restatement of the Whole Foods Market, Inc. Team Member Stock Purchase Plan, including a name change to the Whole Foods Market 2007 Team Member Stock Purchase Plan. |
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| 5. | To consider a shareholder proposal regarding the Companys energy use. | ||
| 6. | To consider a shareholder proposal regarding separating the roles of our Company CEO and Chairman of the Board. | ||
| 7. | To transact such other business as may properly come before the meeting or any adjournments or postponements thereof. | ||
Record Date: January 8, 2007
| By Order of the Board of Directors | |
| /s | |
|
Executive Vice President And Chief Financial Officer |
January 22, 2007
YOUR VOTE IS IMPORTANT!
Whether or not you plan to attend the meeting, please complete, date, sign and return the accompanying proxy card promptly so that we can be assured of having a quorum present at the meeting and so that your shares may be voted in accordance with your wishes. As an alternative to using the paper proxy card to vote, beneficial owners of shares held in street name by a stockbroker may vote by telephone or via the Internet.
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SEC Filing Excerpt For complete filing click here |
PROPOSAL 1 ELECTION OF DIRECTORS
Size of Board of Directors
Our Board of Directors currently consists of eight members.
Current Nominees
Each of the members of the Board of Directors current term is up for reelection and each has been nominated for election at the annual meeting to hold office until the later of the next annual meeting or the election of their respective successors. The director nominees are David W. Dupree, Dr. John B. Elstrott, Gabrielle E. Greene, Hass Hassan, John P. Mackey, Linda A. Mason, Morris J. Siegel and Dr. Ralph Z. Sorenson. Using Rule 4200 of the NASDAQ Marketplace Rules as a guide, the Board of Directors, upon the advice of the Nominating and Governance Committee, has determined that all of the director nominees other than Mr. Hassan and Mr. Mackey are independent directors because (i) he/she is not an executive officer or employee of the Company; and (ii) in the opinion of the Board of Directors he/she is not an individual having a relationship which will interfere with the exercise of independent judgment in carrying out the responsibilities of such director.a This independence question is analyzed annually in both fact and appearance to promote arms-length oversight.
Mr. Mackey is a current Company officer, and Mr. Hassan has served as a Company consultant within the last three years and served as the President of Fresh & Wild, Ltd., an organic food retailer that the Company acquired in 2004. Therefore, the Board of Directors has concluded that neither person is currently an independent director. Discussion concerning director independence, including the reference Rule 4200 of the NASDAQ Marketplace Rules, is available on the Company website at: http://www.wholefoodsmarket.com//investor/corporategovernance/principles.pdf.
The information provided below is biographical information about each of the nominees. Age and other information in each nominees biography are as of December 15, 2006.
David W. Dupree,
53, has served as a director of the Company since August 1996. Since 1999, Mr.
Dupree has been a Managing Director of The Halifax Group, a limited partnership
founded to pursue small and mid-cap investment opportunities. Mr. Dupree also
serves on the board of InSight Health Services Corp., Universal Hospital
Services, Inc. and PolyPipe, Inc.
____________________
a
Rule 4200 of the NASDAQ Marketplace Rules specifically excludes the following
persons from the definition of Independent Director: (A) a director who is, or
at any time during the past three years was, employed by the company or by any
parent or subsidiary of the company; (B) a director who accepted or who has a
family member who accepted any compensation from the company in excess of
$60,000 during any period of twelve consecutive months within the three years
preceding the determination of independence, other than the following: (i)
compensation for board or board committee service; (ii) compensation paid to a
family member who is an employee (other than an an executive officer) of the
company; or (iii) benefits under a tax-qualified retirement plan, or
non-discretionary compensation; provided, however, that in addition to the
requirements contained in this paragraph (B), audit committee members are also
subject to the additional, more stringent requirements of NASDAQ Market Place
Rules Rule 4350(d); (C) a director who is a family member of an individual who
is, or at any time during the past three years was, employed by the company as
an executive officer; (D) a director who is, or has a family member who is a
partner in, or a controlling shareholder or an executive officer of, any
organization to which the company made, or from which the company received,
payments for property or services in the current or any of the past three fiscal
years that exceed 5% of the recipients consolidated gross revenues for that
year, or $200,000, whichever is more, other than the following: (i) payments
arising solely from investments in the companys securities; or (ii) payments
under non-discretionary charitable contribution matching programs; (E) a
director of the issuer who is, or has a Family Member who is, employed as an
executive officer of another entity where at any time during the past three
years any of the executive officers of the issuer serve on the compensation
committee of such other entity; or (F) a director who is, or has a Family Member
who is a current partner of the companys outside auditor, or was a partner or
employee of the companys outside auditor who worked on the companys audit at
any time during any of the past three years.
5
Dr. John B. Elstrott, 58, has served as a director of the Company since February 1995. Dr. Elstrott is a Clinical Professor of Entrepreneurship and the founding director of the Levy-Rosenblum Institute for Entrepreneurship at Tulane Universitys Freeman School of Business, which was started in 1991. He has been on the faculty at Tulane since 1982.
Gabrielle E. Greene, 46, has served as a director of the Company since September 2003. Ms. Greene has served as a principal of a diversified investment fund, Rustic Canyon/Fontis Partners, LP, since its inception in October 2005. In addition, Ms Greene previously served as Chief Financial Officer of the Villanueva Companies, a private holding company with diverse investment interests and as CFO of Crown Services, a construction services company. Since September 2006, Ms. Greene has been a member of the board of Bright Horizons Family Solutions.
Hass Hassan, 59, has served as a director of the Company since June 2005. Mr. Hassan is a General Partner of Greenmont Capital, an investment firm. Mr. Hassan founded Fresh & Wild, Ltd., an organic food retailer in the United Kingdom. Mr. Hassan served as President and Executive Chairman of Fresh & Wild from 1999 until 2004 when the company was acquired by Whole Foods Market.
John P. Mackey, 53, co-founder of the Company, has served as Chairman of the Board and Chief Executive Officer since 1980. Mr. Mackey also served as President from June 2001 to October 2004.
Linda A. Mason, 52, has served as a director of the Company since March 2002. Ms. Mason is co-founder and Chairman of the Board of Bright Horizons Family Solutions, the worlds leading provider of employer sponsored child care, early education and work/life solutions. Ms. Mason served as President of Bright Horizons Family Solutions from 1986 until becoming Chairman in July 1998. Ms. Mason previously served as a director of Whole Foods Market, Inc. from July 1992 until January 2000 when she resigned due to other business commitments.
Morris J. Siegel, 57, has served as a director of the Company since September 2003. Mr. Siegel is currently self-employed, operating Capitol Peaks, an investment firm. Mr. Siegel was the co-founder of Celestial Seasonings, Inc. serving as Chairman and CEO from 1970 until 2002. Celestial Seasonings merged with The Hain Food Group forming The Hain Celestial Group of which Mr. Siegel served as Vice Chairman from 2000 until retiring in 2002. Mr. Siegel also serves on the board of Camelback, Inc.
Dr. Ralph Z. Sorenson, 73, has served as a director of the Company since December 1994. Dr. Sorenson is Managing Partner of the Sorenson Limited Partnership, a venture investment partnership. Dr. Sorenson is President Emeritus of Babson College and Professor Emeritus and former Dean of the University of Colorado College of Business Administration. Dr. Sorenson also serves as a director of Boulder Securities, Gold Systems, Inc., Global Cooling-Japan and Xyleme, Inc.
The Nominating and Governance Committee, consisting solely of independent directors as defined in Rule 4200 of the NASDAQ Marketplace Rules, recommended the eight directors set forth in Proposal 1 for nomination by our full Board of Directors. Based on this recommendation, our Board of Directors nominated such directors for election at the Annual Meeting. All nominees are currently directors, and each nominee has agreed to be named in this proxy statement and to serve if elected. Although we know of no reason why any of the nominees would not be able to serve, if any nominee is unavailable for election, the proxy holders may vote for another nominee proposed by the Board of Directors. The Board of Directors may also choose to reduce the number of directors to be elected, as permitted by our Bylaws.
6
Current Directors
Assuming election of all nominees above, the following is a list of persons who will constitute the Companys Board of Directors following the meeting including their ages, and current committee assignments.
| Name | Age | Committees |
| David W. Dupree | 53 | Audit, Nominating and Governance (Chair) |
| Dr. John B. Elstrott** | 58 | Audit, Compensation, Nominating and Governance |
| Gabrielle E. Greene | 46 | Audit (Chair), Compensation |
| Hass Hassan*** | 59 | None |
| John P. Mackey* | 53 | None |
| Linda A. Mason | 52 | Nominating and Governance |
| Morris J. Siegel | 57 | Audit, Compensation |
| Dr. Ralph Z. Sorenson | 73 | Nominating and Governance, Compensation (Chair) |
| * | Chair | |
| ** | Lead Director | |
| *** | International Business Advisor |
On March 31, 2003, the Board of Directors imposed a 12-year term limit on directors effective as of that years annual shareholder meeting. The limit for each then-existing director began as of the shareholder meeting date regardless of the date each such director was first elected to the Board of Directors. A director who serves 12 years may sit out two years and is then eligible to serve another 12 years.
Committees and Meetings
The Board of Directors maintains the following three standing committees. The members of the various committees are identified in the preceding table.
- Audit Committee. The duties of the Audit Committee are set forth in its charter which is attached to this proxy statement as Appendix A. Please also see the Audit Committee Report found under Proposal 2 in this Proxy Statement.
- Compensation Committee. The purpose of the Compensation Committee is to assist the Board of Directors in carrying out its responsibilities with respect to: (i) overseeing the Companys compensation policies and practices; (ii) reviewing and approving annual compensation and compensation procedures for the Companys executive officers; and (iii) overseeing and recommending director compensation to the Board of Directors. More specifically, the Compensation Committees responsibilities include: overseeing the Companys general compensation structure, policies and programs, and assessing whether the Companys compensation structure establishes appropriate incentives for management and employees; making recommendations to the Board of Directors with respect to, and administering, the Companys incentive compensation and equity-based compensation plans, including the Companys stock option plans and Team Member stock purchase plan; reviewing and approving compensation procedures for the Companys executive officers; recommending to the independent directors for approval the compensation of the CEO based on relevant corporate goals and objectives and the Board of Directors performance evaluation of the CEO; reviewing and recommending to the Board of Directors for approval the compensation of executive officers other than the CEO; reviewing and recommending to the Board of Directors employment and retention agreements and severance arrangements for executive officers, including change-in-control provisions, plans or agreements; reviewing the compensation of directors for service on the Board of Directors and its committees and recommending changes in compensation to the Board of Directors; and monitoring directors compliance with the Companys stock ownership guidelines. The Compensation Committee Charter does not provide for any delegation of these Compensation Committees duties.
7
-
Regarding most compensation matters,
including executive and director compensation and the Companys salary
cap, Company management provides recommendations to the Compensation
Committee. The Company does not currently engage any consultant related
to executive and/or director compensation matters.
- Nominating and Governance Committee. The Nominating and Governance Committees purpose is to periodically report to the Board of Directors regarding corporate governance matters, including making recommendations of qualified nominees for election to the Board of Directors. The Nominating and Governance Committee identifies director candidates through recommendations made by members of the Board of Directors, management, shareholders and others, including the possibility of a search firm. At a minimum, a Board of Director nominee should have significant management or leadership experience which is relevant to the Companys business, as well as personal and professional integrity. Recommendations are developed based on the nominees own knowledge and experience in a variety of fields, and research conducted by the Companys staff at the Nominating and Governance Committees direction. Any shareholder recommendation should be directed to the Secretary of the Company and should include the candidates name, home and business contact information, detailed biographical data, relevant qualifications for Board of Director membership, information regarding any relationships between the candidate and the Company within the last three years and a written indication by the recommended candidate of her/his willingness to serve. Shareholder recommendations must also comply with the notice provisions contained in the Companys Bylaws in order to be considered (current copies of the Companys Bylaws are available at no charge in the Companys public filings with the SEC, on the Corporate Governance page of the Companys website, or from the Secretary of the Company). In determining whether to nominate a candidate, whether from an internally generated or shareholder recommendation, the Nominating and Governance Committee will consider the current composition and capabilities of serving board members, as well as additional capabilities considered necessary or desirable in light of existing and future Company needs. The Nominating and Governance Committee also exercises its independent business judgment and discretion in evaluating the suitability of any recommended candidate for nomination. The duties of the Nominating and Governance Committee are set forth in its charter which can be found at: www.wholefoodsmarket.com//investor/ corporategovernance/nominatinggoverancecommitteecharter.pdf
During fiscal year 2006, the Board of Directors and the various committees held the following number of meetings: Board of Directors, 4; Audit Committee, 8; Compensation Committee, 4; and Nominating and Governance Committee, 3. No director attended fewer than 75% of the meetings of the Board of Directors (and any committees thereof), which they were required to attend. It is a policy of the Board of Directors to encourage directors to attend each annual meeting of shareholders. Such attendance allows for direct interaction between shareholders and members of the Board of Directors. All of the then current members of the Board of Directors attended the Companys 2006 annual meeting of shareholders.
The Board of Directors has determined that all Audit Committee members are Audit Committee financial experts under the regulations promulgated by the SEC.
8
The following table provides compensation information for the one year period ended September 24, 2006 for each member of our Board of Directors.
|
Name |
Fees Earned |
Stock |
Option |
Non-Equity |
Pension Value |
All Other |
Total |
|
David W. Dupree |
$43,421 |
|
$3,512 |
|
|
$46,933 |
|
|
Dr. John B. Elstrott |
$76,807 |
|
$3,512 |
|
|
$5,000 |
$85,319 |
|
Gabrielle E. Greene |
$52,290 |
|
$3,512 |
|
|
$3,667 |
$59,469 |
|
Hass Hassan |
$41,234 |
|
$3,512 |
|
|
|
$44,746 |
|
John P. Mackey (4) |
|
|
|
|
|
|
|
|
Linda A. Mason |
$40,838 |
|
$3,512 |
|
|
$1,075 |
$45,425 |
|
Morris J. Siegel |
$45,310 |
|
$3,512 |
|
|
$1,513 |
$50,335 |
|
Dr. Ralph Z. Sorenson |
$50,860 |
|
$3,512 |
|
|
|
$54,372 |
(1) For 2006, each of our non-employee directors received the following: $2,756 quarterly retainer; $4,978 for each Board of Directors meeting attended in person; $912 for each Committee meeting attended in person in conjunction with a Board of Directors meeting; $3,647 for each Committee meeting attended in person apart from a Board of Directors meeting; $1,216 for each Board of Directors/Committee meeting greater than two hours in length attended by telephone in which a majority of directors/committee members participated; $912 for each Board of Directors/ Committee meeting between one and two hours in length attended by telephone in which a majority of directors/ committee members participated; $456 for each Board of Directors/Committee meeting between fifteen minutes and one hour in length attended by telephone in which a majority of directors/committee members participated. In addition, the following quarterly retainers were paid: $7,738 to the Lead Director; $1,447 to the M&A Director in the first quarter of 2006 only after which this position was eliminated, and; $2,250 to the International Business Advisor Director. Finally, each Board of Directors Committee Chair received the following quarterly retainer: $2897 to the Audit Committee Chair; $1,519 to the Compensation Committee Chair, and; $1,519 to the Nominating & Governance Committee Chair.
(2) Amounts calculated utilizing the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-based Payments. See Note 13 of the consolidated financial statements in the Companys Annual Report for the year ended September 24, 2006 regarding assumptions underlying valuation of equity awards. The full grant date fair value of the awards to each director, computed in accordance with FAS 123R is $38,011. At fiscal year end the aggregate number of option awards outstanding for each director was as follows: David W. Dupree 69,594; Dr. John B. Elstrott 38,250; Gabrielle E. Greene 33,050; Hass Hassan 28,250; Linda A. Mason 39,250; Morris J. Siegel 37,250; Dr. Ralph Z. Sorenson 46,250.(3) Relates to reimbursement payments for continuing board education.
(4) See Summary Compensation Table for disclosure related to John P. Mackey who is also an Executive Officer of the Company.9
Compensation Committee Interlocks and Insider Participation
No member of our Boards Compensation Committee has served as one of our officers or employees at any time. None of our executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of our Board of Directors. None of our executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of our Boards Compensation Committee.
Board of Directors Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS SET FORTH IN THIS PROPOSAL 1.
Vote Required
Election of each director requires the affirmative vote of a plurality of the shares of common stock present or represented and entitled to vote at the meeting. This means each nominee will be elected if he or she receives more affirmative votes than votes withheld for such director.
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SEC Filing Excerpt For complete filing click here |
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The Companys Compensation Committee is empowered to review and approve, or in some cases recommend for the approval of the full Board of Directors, the annual compensation and compensation procedures for the six executive officers of the Company: the Chairman and Chief Executive Officer, the Co-Presidents and Chief Operating Officers, the Executive Vice President and Chief Financial Officer, the Executive Vice President of Growth and Business Development, and the Executive Vice President of Global Support.
Objectives of Compensation Program
The primary objective of our compensation program, including our executive compensation program, is to attract and retain qualified, energetic Team Members who are enthusiastic about the Companys mission and culture. A further objective of our compensation program is to provide incentives and reward each Team Member for their contribution to the Company. In addition, we strive to promote an ownership mentality among key leadership and the Board of Directors; our Corporate Governance Principles provide that it is the policy of the Board of Directors to encourage all directors to maintain an outright investment in the Company equal to the total estimated cash compensation received for serving on the Board of Directors over three years. Finally, we endeavor to ensure that our compensation program is perceived as fundamentally fair to all stakeholders.
What Our Compensation Program is Designed to Reward
Our compensation program is designed to reward teamwork and each Team Members contribution to the Company. In measuring the executive officers contribution to the Company, the Compensation Committee considers numerous factors including the Companys growth and financial performance through reference to the following metrics. All of our executive officers participate in an incentive compensation plan based primarily on improvement in Economic Value Added (EVATM). EVA is the primary basis for the Companys financial decision-making tools and incentive compensation systems. In its simplest definition, EVA is equivalent to net operating profits after taxes minus a charge for the cost of capital necessary to generate those profits. High EVA correlates with high returns on invested capital. The incentive compensation paid to the executive officers for fiscal year 2006 was based upon the incremental improvement in the Companys overall EVA, the number of new stores opened or acquired during the fiscal year, and the number of new stores opened with total development costs within the development budget minus a charge for the new stores opened with costs in excess of the development budget during the fiscal year. Fiscal year 2006 incentive compensation averaged approximately 49% of the total cash compensation earned by the executive officers.
Regarding most compensation matters, including executive and director compensation and the Companys salary cap, our management provides recommendations to the Compensation Committee; however, the Compensation Committee does not delegate any of its functions to others in setting compensation. We do not currently engage any consultant related to executive and/or director compensation matters.
Stock price performance has not been a factor in determining annual compensation because the price of the Companys common stock is subject to a variety of factors outside our control. The Company does not have an exact formula for allocating between cash and non-cash compensation. Other than EVA pool and Benefit Hours pool balances (see below), compensation is generally paid as earned.
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Elements of Companys Compensation Plan and Why We Chose Each (How It Relates to Objectives)
Annual executive officer compensation consists of a base salary component and the EVA incentive component discussed above. It is the Compensation Committees intention to set total executive cash compensation sufficiently high to attract and retain a strong motivated leadership team, but not so high that it creates a negative perception with our other stakeholders. The EVA bonus is included in compensation to align the financial incentives with the interests of our shareholders, which we believe is primarily the growth and return on invested capital.
Each of our executive officers receives stock option grants under the Companys stock option plan. All of our 40,000+ full-time and part-time Team Members are eligible for stock option grants through Annual Leadership Grants, which recognize and incentivize Team Member performance, or through Service Hour Grants once they have accumulated 6,000 total service hours (approximately three years of employment).b Approximately 94% of the stock options granted under the plan since its inception in 1992 have been granted to Team Members who are not executive officers or regional presidents. We believe that through our broad-based plan, the economic interests of our Team Members, including our executives, are more closely aligned to those of the shareholders. Other than Service Hour Grants, the number of stock options granted to each executive officer is made on a discretionary rather than formula basis by the Compensation Committee. Other than Service Hour Grants, each executive officer receives the same number of stock option grants.
We also have a policy that limits the total cash compensation paid to any Team Member in each calendar year. The compensation cap is calculated each year as an established multiple of the average cash compensation of all full-time Team Members employed during such year. For fiscal year 2006, the Company increased the cap from 14 to 19 times the above described average. Employee benefits, stock options and any other form of non-cash compensation, such as the 401(k) match, are not counted in determining and applying the salary cap. Payouts under any EVA Incentive Compensation Plan (EVA Plan) fall within the scope of the Companys salary cap policy. Per the EVA Plan, amounts are contributed annually to a pool for each Team Member based on EVA results. A portion of the annual EVA pool contribution may remain in the pool and a portion is paid out annually. Annual payouts are calculated as 100% of the pool up to certain job-specific dollar amounts plus a portion of the excess. If the EVA bonus to be paid out will cause the Team Members cash compensation to exceed the annual salary cap, the amount above the cap is forfeited; the full amount which would otherwise be paid out (including amounts not actually paid to the Team Member) is still subtracted from the pool balance. The accumulated balance in any Team Members pool account is limited to the amount of the salary cap. Team Members may take time off without pay in order to reduce their salary earned and increase the amount of bonus that can be paid within the cap. The salary cap does not apply in the Team Members year of termination or retirement.
The salary cap relates to the Companys commitment to stakeholder equity as a principle. The following is the salary cap calculation for the Companys past eight fiscal years:
| Average | |||||||||
| Year | Average Hourly Wage | Annual Wage | Average Multiple | Salary Cap | |||||
| 1999 | $12.36 | $ | 25,709 | 10 | $257,000 | ||||
| 2000 | $12.84 | $ | 26,707 | 14 | $373,900 | ||||
| 2001 | $13.46 | $ | 27,997 | 14 | $391,900 | ||||
| 2002 | $13.69 | $ | 28,479 | 14 | $398,700 | ||||
| 2003 | $14.07 | $ | 29,266 | 14 | $409,700 | ||||
| 2004 | $14.66 | $ | 30,493 | 14 | $426,900 | ||||
| 2005 | $15.00 | $ | 31,200 | 14 | $436,800 | ||||
| 2006 | $15.38 | $ | 31,990 | 19 | $607,800 | ||||
b Service hour grants are allocated to each eligible Team Member based on the proportion of their total accumulated service hours to the total accumulated services hours for all eligible Team Members.
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How the Company Chose Amounts and/or Formulas for Each Element
Each executives current and prior compensation is considered in setting future compensation. In addition, we review the compensation practices of other Companies. To some extent, our compensation plan is based on the market and the companies we compete against for Team Members. The elements of our plan (e.g., base salary, bonus and stock options) are clearly similar to the elements used by many companies; however, our additional emphasis on fair treatment of all stakeholders requires that we cap executive and other leadership salaries at a level that does not prohibit us from competing for quality Team Members. The exact base pay, stock grant, and salary cap amounts are chosen in an attempt to balance our competing objectives of fairness to all stakeholders and attracting/retaining Team Members. EVA improvement is an objective calculation and was chosen as the basis for determining incentive compensation because we believe it is the best financial framework our executives can use to help make decisions that create sustainable shareholder value.
It is important to note that we have never lost an executive due to compensation. In addition, leadership turnover in the Company is less than 2% annually. We believe this is a good indication that our leadership compensation package is reasonable.
Subject to certain exceptions set forth below, Whole Foods Market plans stock option grant dates well in advance of any actual grant. Regarding our usual grants, the timing of each grant is determined months in advance to coincide with a scheduled meeting of our Board of Directors and its Compensation Committee. Except in highly unusual circumstances, we will not allow option grants at other dates. The grant date is established when the Companys Compensation Committee approves the grant and all key terms have been determined. The exercise price of each of our stock options grants is the market closing price on the grant date. The Companys general policy is for the annual grant to occur within two weeks after the official announcement of our second quarter results so that the stock option exercise price reflects a fully-informed market price. This will usually be one week after the opening of the insider trading window. If at the time of any planned option grant date any member of our Board of Directors or Executive Team is aware of material non-public information, the Company would not generally make the planned stock option grant. In such event, as soon as practical after material information is made public, the Compensation Committee will have a specially called meeting and/or otherwise take all necessary steps to authorize the delayed stock option grant. Regarding the grant process, the Compensation Committee does not delegate any related function, and executives are not treated differently from other Team Members.
Accounting and Tax Considerations
Our stock option grant policies have been impacted by the implementation of SFAS No. 123R, which we adopted in the first quarter of fiscal year 2006. Under this accounting pronouncement, we are required to value unvested stock options granted prior to our adoption of SFAS 123 under the fair value method and expense those amounts in the income statement over the stock options remaining vesting period. On September 22, 2005 we accelerated the vesting of all outstanding stock options except stock options held by members of our executive team and certain stock options held by our Team Members located in the United Kingdom. We incurred a $17.4 million pre-tax non-cash share-based compensation charge in the fourth quarter of fiscal year 2005 related to the accelerated vesting. Based on historical Team Member turnover rates and the Companys best estimate of future turnover rates, we recorded an additional $3.0 million pre-tax non-cash share-based compensation charge in the fourth quarter of fiscal year 2006 to adjust this estimate for actual experience. Our current intent is to limit the number of shares granted in any one year so that annual earnings per share dilution from share-based compensation expense will ramp up but not exceed 10% over time. We believe this strategy is best aligned with our stakeholder philosophy because it is intended to limit future earnings dilution from options while at the same time retains the broad-based stock option plan, which we believe is important to Team Member morale, our unique corporate culture and our success.
We have structured our compensation program to comply with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m) of the Internal Revenue Code, a limitation was placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the Service Provider is subject to regular federal
15
income tax, interest and an additional federal income tax of 20% of the benefit includible in income. The Company has no individuals with non-performance based compensation paid in excess of the Internal Revenue Code Section 162(m) tax deduction limit.
John P. Mackeys Compensation
In November 2006, we announced that John P. Mackey, our Chief Executive Officer, would voluntarily reduce his salary to $1 beginning January 1, 2007 and forgo any future stock option awards. Mr. Mackey will continue to receive the same non-cash benefits that other Team Members receive, including the Team Member purchase discount card and health insurance.
The following table includes information concerning compensation for the one year period ended September 24, 2006 in reference to the six members of the Executive Team, which includes required disclosure related to our CEO and the four most highly compensated executive officers of the Company.
|
Name and Principal Position |
Year |
Salary |
Bonus (1), (2) |
Stock |
Option |
Non-Equity |
Change in |
All Other |
Total |
|
John P. Mackey |
2006 |
$287,600 |
$320,200 |
$427,000 |
$312,176 |
$1,346,976 |
|||
|
Chairman of the Board |
|
|
|
|
|
|
|
|
|
|
and Chief Executive |
|
|
|
|
|
|
|
|
|
|
Officer |
|
|
|
|
|
|
|
|
|
|
Glenda Chamberlain |
2006 |
$268,500 |
$339,300 |
$405,000 |
$449,532 |
$1,462,332 |
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Executive Vice President |
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and Chief Financial |
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Officer |
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|
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A. C. Gallo |
2006 |
$310,900 |
$296,900 |
$420,000 |
$369,861 |
$1,397,661 |
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Co-President and Chief |
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Operating Officer |
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Walter Robb |
2006 |
$371,600 |
$236,200 |
$426,000 |
$347,598 |
$1,381,398 |
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Co-President and Chief |
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Operating Officer |
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James P. Sud |
2006 |
$333,600 |
$274,200 |
$405,000 |
$437,761 |
$1,450,561 |
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Executive Vice President |
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of Growth and Business |
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Development |
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Lee Valkenaar |
2006 |
$303,100 |
$304,700 |
$489,000 |
$493,845 |
$1,590,645 |
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Executive Vice President |
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of Global Support |
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____________________
(1) All cash compensation received by each executive officer for fiscal year 2006 is found in either the Salary or Bonus Column of this Table and the total of these two columns is limited to the Companys salary cap. For fiscal year 2006 the salary cap was $607,800. In addition figures shown in the Salary Column of this Table reflect the amount actually
16
received by the named officers during the fiscal year; not such officers annual rate of pay for the indicated fiscal year; rates may be higher than amounts shown due to officers electing to take time-off without pay. In 2006 the annualized rate of pay for all executives was $374,000.
(2) Amounts found in the Bonus Column of this Table are equal to amounts found in the Aggregate Withdrawls/ Distributions Column of the Non-Qualified Deferred Compensation EVA Pool Plan Table immediately below. For 2006, such amounts were limited by the Companys salary cap so that total cash compensation did not exceed $607,800.
(3) Amounts calculated utilizing the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-based Payments. See Note 13 of the consolidated financial statements in the Companys Annual Report for the year ended September 24, 2006 regarding assumptions underlying valuation of equity awards.(4) Amounts, if any, found in the Non-Equity Incentive Plan Compensation Column of this Table equal to amounts earned but not yet received by each executive; this includes amounts contributed during any year to the executives EVA pool (See EVA Pool Plan Table: Registrant Contribution Column) in excess of Bonuses paid (See this Table: Bonus Column) during that year, and amounts contributed to executives benefit hours pool during any year (See benefit hours Table: Registrant Contribution Column). Amounts are calculated as follows: John P. Mackey $293,700 + $18,476 = $312,176; Glenda Chamberlain $367,400 + $82,132 = $449,532; A. C. Gallo $316,500 + $53,361 = $369,861; Walter Robb $284,900 + $62,698 = $347,598; James P. Sud $367,400 + $70,361 = $437,761; Lee Valkenaar $435,600 + $58,245 = $493,845.
Non-Qualified Deferred Compensation
EVA Pool Plan
The table below provides information concerning the EVA pool for each of our executive officers during the one year period ended September 24, 2006.
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Upon termination of employment, each executive listed below is entitled to receive as a lump sum payment for the Aggregate Balance in their EVA pool and in such year of termination of employment total cash compensation received may be in excess of the salary cap. If a termination of employment had occurred as of September 24, 2006, in addition to other benefits discussed herein, each executive would be entitled to receive the amount specified in the Aggregate Balance at Last Fiscal Year End Column of this Table.
|
Executive |
Registrant |
Aggregate |
Aggregate |
Aggregate |
|
$613,900 |
$320,200 |
$607,800 |
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$706,700 |
$339,300 |
$607,800 |
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$613,400 |
$296,900 |
$607,800 |
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$521,100 |
$236,200 |
$607,800 |
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$641,600 |
$274,200 |
$607,800 |
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$740,300 |
$304,700 |
$607,800 |
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(1) Amounts shown in the Registrant Contributions in Last Fiscal Year Column of this Table represent the sum of amounts earned according to the EVA Bonus Plan and the Store Development Bonus Plan, net of amounts forfeited due to the limits on cash payouts and on pool balances. See discussion related to the Companys salary cap. All six members of the executive team receive the same gross contribution in any year, but the amount forfeited may be different and therefore the net contribution may vary from person to person.
(2) The EVA pool plan is intended to limit wide variation in bonuses from year to year. In keeping with the Companys compensation philosophy, after yearly contributions are determined and such years bonuses are paid, the aggregate balance of each executives EVA pool cannot exceed the Companys salary cap. After deduction for bonus payouts, any amount which would cause an executives EVA pool balance to exceed the Companys salary cap is forfeited. For fiscal year 2006 the following amounts were forfeited: John P. Mackey $231,000; Glenda Chamberlain $182,000; A. C. Gallo $216,000; Walter Robb $237,000; James P. Sud $182,000; Lee Valkenaar $136,000.
The table below provides information concerning the benefit hours related to accrued paid vacation and other personal time for each of our executive officers during the one year period ended September 24, 2006.
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Upon termination of employment, all Team Members are entitled to receive a related lump sum payment for unused benefit hours and in such year of termination of employment, total cash compensation received may be in excess of the salary cap. If a termination of employment had occurred as of September 24, 2006, in addition to other benefits discussed herein, each executive would be entitled to receive the amount specified in the Aggregate Balance at Last FYE Column of this Table.
|
Name and Principal Position |
Executive |
Registrant |
Aggregate |
Aggregate |
Aggregate |
|
John P. Mackey |
$18,476 |
$114,770 |
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Chairman of the Board and |
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Chief Executive Officer |
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Glenda Chamberlain |
$82,132 |
$323,011 |
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Executive Vice President and |
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Chief Financial Officer |
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A. C. Gallo |
$53,361 |
$107,131 |
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Co-President and Chief |
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Operating Officer |
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Walter Robb |
$62,698 |
$233,675 |
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Co-President and Chief |
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Operating Officer |
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James P. Sud |
$70,361 |
$203,082 |
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Executive Vice President of Growth |
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and Business Development |
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Lee Valkenaar |
$58,245 |
$153,776 |
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Executive Vice President of |
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Global Support |
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(1) Amounts relate to both: a) benefit hours earned this year, and; b) the increase in executives rate of pay in fiscal year 2006 applied to benefit hours earned but not yet used from prior years.
(2) Amounts relate to benefit hours used for time off from work.
(3) Amounts are calculated using benefit hours earned at the executives 2006 rate of pay as follows: John P. Mackey 638.50 benefit hours @ $179.75 per hour; Glenda Chamberlain 1,797.00 benefit hours @ $179.75 per hour; A. C. Gallo 596.00 benefit hours @ $179.75 per hour; Walter Robb 1,300.00 benefit hours @ $179.75 per hour; James P. Sud 1,129.80 benefit hours @ $179.75 per hour; Lee Valkenaar 855.50 benefit hours @ $179.75 per hour.
Retention Agreements
In 1991, we entered into Retention Agreements with John P. Mackey and Glenda Chamberlain. These agreements provide for certain benefits upon an involuntary termination of employment, other than for cause, after a Triggering Event. A Triggering Event includes a merger of the Company with and into an unaffiliated corporation if the Company is not the surviving corporation or the sale of all or substantially all of the Companys assets. The benefits to be received by the executive officer whose employment is terminated after a Triggering Event occurs include: receipt of a lump sum severance
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payment equal to the executives then current annual salary and prior years bonus; continuation of life, health and disability benefits for one year after the termination of employment, and; the immediate vesting of any outstanding stock options granted to such executive officer with up to six months to exercise.
If a Triggering Event and termination of employment had occurred as of September 24, 2006, we estimate that the value of the benefits under the Retention Agreements would have been as follows:
| Lump Sum Severance | Continuation of | Accelerated Vesting | ||||
| Name | Payment (1) | Insurance Benefit | of Stock Options (2) | |||
| John P. Mackey | $374,000 | $6,235 | $722,318 | |||
| Glenda Chamberlain | $374,000 | $9,266 | $657,032 |
(1) Payment based on fiscal year 2006 salary.
(2) Accelerated vesting of stock option amounts were determined by measuring the fair value of unvested stock options as of September 24, 2006, utilizing the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-based Payments.
STOCK OPTIONS
In 1992 we originally adopted the 1992 Incentive Stock Option Plan for Team Members. Our shareholders have also approved several plan amendments, most recently at our March 2005 annual meeting. As of September 24, 2006, options to purchase an aggregate of 51,090,414 shares of common stock (net of options canceled) had been granted pursuant to the plan, and options to purchase 33,115,830 shares had been exercised. Options to purchase 17,974,584 shares remained outstanding under the plan as of such date, and options to purchase 6,509,586 shares of common stock remained available under the plan for future grant.
20
Grants of Plan-Based Awards Table
The following table sets forth certain information with respect to the options granted during or for the fiscal year ended September 24, 2006 to each of our executive officers listed in the summary Compensation Table as shown under the caption Executive Compensation.
| Name and Principal Position | Grant Date | 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 or Units |
All
Other
Option Awards: Number of Securities Underlying Options |
Exercise or Base Price of Option Awards |
Grant Date Fair Value of Stock and Option Awards |
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| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||
| John P. Mackey | 05/12/06 | 4,729 | $68.96 | $89,000 | ||||||||||||||||||
| Chairman of the Board and | ||||||||||||||||||||||
| Chief Executive Officer | ||||||||||||||||||||||
| Glenda Chamberlain | 05/12/06 | 4,641 | $68.96 | $87,000 | ||||||||||||||||||
| Executive Vice President | ||||||||||||||||||||||
| and Chief Financial Officer | ||||||||||||||||||||||
| A. C. Gallo | 05/12/06 | 4,654 | $68.96 | $87,000 | ||||||||||||||||||
| Co-President and Chief | ||||||||||||||||||||||