<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
DAYTON HUDSON CORPORATION
- --------------------------------------------------------------------------------
(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.
/ / 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:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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:
-----------------------------------------------------------------------
<PAGE>
DAYTON HUDSON CORPORATION
[LOGO] 777 Nicollet Mall
Minneapolis, Minnesota 55402
612/370-6948
April 14, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dayton Hudson Corporation to be held in Minneapolis at The Children's Theatre on
Wednesday, May 21, 1997, beginning at 9:30 a.m. I encourage you to attend.
Whether or not you plan to attend the meeting, I urge you to vote your proxy.
On behalf of your Board of Directors and employees, thank you for your
continued support of Dayton Hudson.
Sincerely,
[SIGNATURE]
Robert J. Ulrich
CHAIRMAN OF THE BOARD
<PAGE>
DAYTON HUDSON CORPORATION
[LOGO] 777 Nicollet Mall
Minneapolis, Minnesota 55402
Telephone: (612) 370-6948
Notice of Annual Meeting
of Shareholders
May 21, 1997
- --------------------------------------------------------------------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Dayton Hudson Corporation will be held
at The Children's Theatre, Minneapolis Institute of Arts, 2400 3rd Avenue South,
Minneapolis, Minnesota, on Wednesday, May 21, 1997, at 9:30 a.m., Central
Daylight Time, for the following purposes:
(1) To elect four directors for three-year terms.
(2) To approve the appointment of Ernst & Young LLP as independent auditors.
(3) To approve amendments to the Corporation's Long-Term Incentive Plan of
1981 for purposes of federal tax law.
(4) To approve amendments to the Corporation's Executive Incentive Plan for
purposes of federal tax law.
(5) To act upon any other business that may properly come before the
meeting.
Holders of record of Common Stock and Series B ESOP Convertible Preferred
Stock at the close of business on March 28, 1997 will be entitled to vote at the
meeting and any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE
REPLY ENVELOPE PROVIDED AS SOON AS POSSIBLE. YOUR COOPERATION IN SIGNING AND
RETURNING YOUR PROXY PROMPTLY WILL HELP AVOID FURTHER SOLICITATION EXPENSE TO
YOUR CORPORATION.
[SIGNATURE]
JAMES T. HALE
SECRETARY
Approximate Date of Mailing of Proxy Material:
April 14, 1997
<PAGE>
DAYTON HUDSON CORPORATION
777 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55402
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1997
------------------------
The Board of Directors of Dayton Hudson Corporation (the "Corporation")
solicits the enclosed proxy for the Annual Meeting of Shareholders to be held at
The Children's Theatre, Minneapolis Institute of Arts, 2400 3rd Avenue South,
Minneapolis, Minnesota, on Wednesday, May 21, 1997, at 9:30 a.m., Central
Daylight Time, and for any adjournment thereof. Shares represented by proxies in
the form solicited will be voted. Proxies may be revoked at any time before
being exercised by filing with the Secretary of the Corporation a proxy dated at
a later time or a written revocation dated after the date of the proxy. All
share information contained herein reflects a three-for-one split of the
Corporation's Common Stock effected July 17, 1996 by the distribution of two
additional shares to all shareholders for each share owned.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Proxies solicited by the Board of Directors will, unless otherwise directed,
be voted for the election of four nominees to serve as Class III directors for
three-year terms expiring in 2000 and until their successors are elected. The
four nominees are Betty Ruth Hollander, Richard M. Kovacevich, Solomon D.
Trujillo and Robert J. Ulrich.
The Corporation's Restated Articles of Incorporation, as amended, provide
that the business and affairs of the Corporation shall be managed by, or under
the direction of, a Board of Directors consisting of not less than five nor more
than 21 persons. Directors are divided into three classes. Directors of one
class are elected each year for a term of three years. The Board of Directors
currently consists of 12 members, four of whom are Class I directors whose terms
expire at the 1998 Annual Meeting, four of whom are Class II directors whose
terms expire at the 1999 Annual Meeting and four of whom are Class III directors
whose terms expire at this Annual Meeting.
The Board of Directors has no reason to believe that any of the nominees is
not available or will not serve if elected. If for any reason any nominee
becomes unavailable for election, the Board of Directors may designate
substitute nominees, in which event the shares represented by the proxy cards
returned to the Corporation will be voted for such substitute nominees, unless
an instruction to the contrary is indicated on the proxy card.
All of the nominees are now directors. All of the present directors were
elected to the Board of Directors by the shareholders, except for Mr. Trujillo,
Mr. Sanger and Mr. Kovacevich who were elected by the Board of Directors. The
Board of Directors held six meetings during the last fiscal year.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock and Series B ESOP Convertible Preferred Stock of the Corporation
present and entitled to vote on the election of directors is required for
election to the Board of Directors of each of the four director nominees. For
this purpose, a shareholder who abstains with respect to the election of
directors is considered to be present and entitled to vote on the election of
directors at the meeting, and is in effect casting a negative vote, but a
shareholder (including a broker) who does not give authority to a proxy to vote,
or withholds authority to vote, on the election of directors shall not be
considered present and entitled to vote on the election of directors.
1
<PAGE>
Following is information regarding the nominees and directors, including
information furnished by them as to their principal occupations and the number
of shares of Common Stock of the Corporation beneficially owned by them as of
April 1, 1997. See page 31 for stock ownership table.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- -------------------------- ---------------------------------------------------------------------- --- ---------
<C> <S> <C> <C>
Livio D. DeSimone is Chairman of the Board and Chief Executive Officer 60 1987
[PHOTO] of 3M, a diversified manufacturer. He joined 3M in 1957 and held
various international and domestic positions. He was elected Area Vice
LIVIO D. DESIMONE President, Latin America in 1975, Vice President in 1979 and Executive
Class II Vice President in 1981. He was elected Chairman and Chief Executive
Term expires in 1999 Officer in 1991. He is a director of Cargill, Incorporated, General
Mills, Inc., 3M and Vulcan Materials Company. (1)(2)(5)(6)
Roger A. Enrico is Chairman of the Board and Chief Executive Officer 52 1990
[PHOTO] of PepsiCo, Inc., a domestic and international beverage and food
business. He joined PepsiCo in 1971. He was elected President and
ROGER A. ENRICO Chief Executive Officer of Pepsi-Cola USA from 1983 to 1986 when he
Class II became President and Chief Executive Officer of PepsiCo Worldwide
Term expires in 1999 Beverages. He was Chairman and Chief Executive Officer of Frito-Lay
from 1990 to 1992. In 1992, he was elected Chairman and Chief
Executive Officer of PepsiCo Worldwide Foods. In 1993, he was elected
Vice Chairman of PepsiCo, Inc. and in 1994, Chairman and Chief
Executive Officer of PepsiCo Worldwide Restaurants. In 1996, he was
elected Chairman of the Board and Chief Executive Officer of PepsiCo,
Inc. He is a director of A.H. Belo Corp., PepsiCo, Inc. and The
Prudential Insurance Company of America. (1)(3)(5)
William W. George is Chairman of the Board and Chief Executive Officer 54 1993
[PHOTO] of Medtronic, Inc., a therapeutic medical device company. He served in
the United States Department of Defense from 1966 to 1968 and worked
WILLIAM W. GEORGE in the United States Department of the Navy from 1968 to 1969. From
Class II 1969 to 1978, he worked for Litton Industries, Inc., serving as
Term expires in 1999 President of Litton Microwave Cooking Products from 1973 to 1978. He
was elected to various officer positions at Honeywell Inc. from 1978
to 1989, including President, Europe from 1980 to 1983, President,
Industrial Automation & Controls from 1987 to 1988 and President,
Space & Aviation Controls from 1988 to 1989. He was elected President
and Chief Operating Officer of Medtronic in 1989, President and Chief
Executive Officer in 1991 and was elected Chairman of the Board and
Chief Executive Officer in 1996. He is a director of Imation Corp.,
Medtronic, Inc. and The Valspar Corporation. (1)(2)(3)(4)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- -------------------------- ---------------------------------------------------------------------- --- ---------
Roger L. Hale is President and Chief Executive Officer of TENNANT 62 1982
[PHOTO] Company, an industrial equipment manufacturer. He is also Vice
Chairman of the Executive Committee of the Board of Directors of the
ROGER L. HALE Corporation. He joined TENNANT in 1961. He was appointed Assistant to
Class I the President in 1963 and was elected Vice President and Director,
Term expires in 1998 Systems and Corporate Development in 1968. In 1972, he was elected
Vice President, International and in 1975, he was elected President
and Chief Operating Officer. He was elected Chief Executive Officer in
1976. He is a director of First Bank System, Inc. and TENNANT Company.
(1)(3)(5)(6)
<C> <S> <C> <C>
Betty Ruth Hollander is Chairman of the Board and Chief Executive 67 1986
[PHOTO] Officer of Omega Technologies, Inc., a manufacturer of scientific
measurement and control devices and systems, technical publishing and
BETTY RUTH HOLLANDER industrial and commercial real estate development. She founded Omega
Class III Engineering, Inc. and was elected President in 1962. She was elected
Nominee for term expiring Chairman and Chief Executive Officer of The Omega Group, Inc. in 1978.
in 2000 She is a director of People's Bank. (1)(3)(4)
Michele J. Hooper is Corporate Vice President and President, 45 1990
[PHOTO] International Businesses, Caremark International, Inc., a health care
company. She joined Baxter Healthcare Corporation in 1976 and served
MICHELE J. HOOPER in various management positions before being named Vice President,
Class I Corporate Planning for Baxter International in 1984. In 1988, she was
Term expires in 1998 elected President of Baxter Healthcare Corporation, Canada. From 1991
to 1992 she was President, Alternate Site International, a unit of
Baxter Corporation. In 1992, she became President, International
Business Group, Caremark International, Inc. and in 1993, she became
Corporate Vice President, International Businesses, Caremark
International, Inc. She is a director of PPG Industries, Inc. and the
Seagrams Company Ltd. (1)(2)(5)
James A. Johnson is Chairman of the Board and Chief Executive Officer 53 1996
[PHOTO] of Fannie Mae, a Congressionally chartered financial services company.
From 1977 to 1981 he was Executive Assistant to Vice President Walter
JAMES A. JOHNSON F. Mondale. From 1981 to 1985 he was President of Public Strategies, a
Class II strategic consulting firm, and from 1985 to 1989 he was a managing
Term expires in 1999 director of Lehman Bros. In 1990, he was elected Vice Chairman of
Fannie Mae. In 1991, he was elected Chairman and Chief Executive
Officer of Fannie Mae. He is a director of Fannie Mae, Kaufman and
Broad Home Corp. and United HealthCare Corporation. (1)(4)(5)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- -------------------------- ---------------------------------------------------------------------- --- ---------
Richard M. Kovacevich is Chairman of the Board and Chief Executive 53 1996
[PHOTO] Officer of Norwest Corporation, a banking and financial services
company. He was elected President and Chief Operating Officer in 1989,
RICHARD M. KOVACEVICH President and Chief Executive Officer in 1993 and was elected to his
Class III current positions at Norwest Corporation in 1995. He is a director of
Nominee for term expiring Northern States Power Company, Norwest Corporation, PETsMART, Inc. and
in 2000 ReliaStar Financial Corp. (1)
<C> <S> <C> <C>
Stephen W. Sanger is Chairman of the Board and Chief Executive Officer 50 1996
[PHOTO] of General Mills, Inc., a consumer food products company. He joined
General Mills in 1974 and held a series of positions in marketing and
STEPHEN W. SANGER management across the company's consumer food businesses. He served as
Class I President of the Big G Division, President of Yoplait USA and General
Term expires in 1998 Manager of the New Business Development Division. In 1991, he was
elected Executive Vice President. In 1992, he was elected Vice
Chairman. In 1993, he was elected President. In 1995, he was elected
Chairman of the Board and Chief Executive Officer. He is a director of
Donaldson Company, Inc. and General Mills, Inc. (1)(3)(5)(6)
Solomon D. Trujillo is President and Chief Executive Officer of U S 45 1994
[PHOTO] WEST Communications Group, Inc., a business of U S West that provides
telecommunication services to customers in 14 Western and Midwestern
SOLOMON D. TRUJILLO states. He joined Mountain Bell in 1974 and held various management
Class III positions before being named Vice President and Chief Executive
Nominee for term expiring Officer of Mountain Bell New Mexico in 1984. He served as Vice
in 2000 President and General Manager of the Small Business Services Market
Unit of U S WEST from 1987 until he was elected President and Chief
Executive Officer of U S WEST Marketing Resources Group in 1992. He
was elected President and Chief Executive Officer of U S WEST
Communications in 1995. He is a director of Bank of America. (1)(3)(4)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- -------------------------- ---------------------------------------------------------------------- --- ---------
Robert J. Ulrich is Chairman of the Board, Chief Executive Officer and 53 1993
[PHOTO] Chairman of the Executive Committee of the Corporation and Chairman
and Chief Executive Officer of Target, a division of the Corporation.
ROBERT J. ULRICH Mr. Ulrich began his retailing career as a merchandising trainee at
Class III Dayton's in 1967 and advanced through various management positions. In
Nominee for term expiring 1981, Mr. Ulrich was named Executive Vice President of Dayton's and
in 2000 later that year was named President and Chief Executive Officer of
Diamond's, a former operating company of the Corporation. In 1984, Mr.
Ulrich was named President of the Department Store Division. Later
that year he was named President of Target. He became Chairman and
Chief Executive Officer of Target in 1987. He was elected Chief
Executive Officer and Chairman of the Corporation in 1994. (1)
<C> <S> <C> <C>
John R. Walter is President and Chief Operating Officer of AT&T 50 1991
[PHOTO] Corporation, a communications and information services company. He
joined AT&T Corporation in 1996. Prior to joining AT&T Corporation,
JOHN R. WALTER Mr. Walter was employed by R.R. Donnelley & Sons Company, a provider
Class I of printing and printing related services. Mr. Walter joined R.R.
Term expires in 1998 Donnelley in 1969 and was elected Executive Vice President--Operations
in 1986, President in 1987 and Chairman and Chief Executive Officer in
1989. He is a director of Abbott Laboratories, AT&T Corporation and
Deere & Company. (1)(2)(4)(6)
</TABLE>
- ------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Corporate Responsibility Committee.
(5) Member of the Finance Committee.
(6) Member of the Nominating Committee.
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors is elected by the
directors. It consists of the Chairman of the Board of the Corporation and all
the independent directors. The members of the Executive Committee are identified
above. During the last fiscal year, the Executive Committee held two meetings.
The Executive Committee reviews the Compensation Committee's recommendations on
performance and compensation of all senior corporate officers and certain other
senior executives within the Corporation. As part of their responsibilities, the
independent director members of the Executive Committee conduct the annual
evaluation of the Chief Executive Officer of the Corporation. The Executive
Committee also reviews the compensation policies and practices of the
Corporation and it monitors the Corporation's managerial capabilities and
requirements.
5
<PAGE>
NOMINATING COMMITTEE
The Board of Directors has a Nominating Committee, consisting of the
independent directors identified above. The Nominating Committee held one
meeting during the last fiscal year. The Nominating Committee considers the
qualifications of and recommends each candidate and incumbent for election as a
director of the Corporation and nominates candidates to fill Board vacancies.
The Board of Directors created the Nominating Committee so that the selection of
directors would be made solely by independent directors.
The Nominating Committee will consider nomination by a shareholder of a
candidate for election as a director of the Corporation. Any shareholder who
wishes the Nominating Committee to consider a candidate should submit a written
request and related information to the Secretary of the Corporation on behalf of
the Nominating Committee no later than December 31 of the calendar year
preceding the next Annual Meeting of Shareholders (currently held in May). Under
the Corporation's Restated Articles of Incorporation, as amended, if a
shareholder plans to nominate a person as a director at a meeting, the
shareholder is required to place a proposed director's name in nomination by
written request received by the Secretary of the Corporation at least 60 days
prior to an annual or special meeting, together with the written consent of such
person to serve as a director.
COMPENSATION COMMITTEE
The Board of Directors has a Compensation Committee, consisting of the
independent directors identified above. The Compensation Committee held four
meetings during the last fiscal year. The Compensation Committee reviews
management proposals regarding compensation programs, plans and guidelines,
focusing on a "pay-for-performance" compensation philosophy. The Compensation
Committee reviews the performance of all senior corporate officers and certain
other senior executives within the Corporation and recommends their compensation
based on their performance. The Compensation Committee also determines awards
and payouts under the Corporation's long-term incentive plan and makes certain
determinations regarding short-term incentive compensation.
AUDIT COMMITTEE
The Board of Directors has an Audit Committee, consisting of the independent
directors identified above. The Audit Committee held three meetings during the
last fiscal year. In designating the members of the Audit Committee, the Board
specifically evaluates their independence of judgment according to guidelines
published by the New York Stock Exchange. The Audit Committee, among other
duties, reviews the overall audit scope, plans for internal and independent
audits, the Corporation's internal controls, emerging accounting issues, officer
and director expenses, audit fees and retirement plans. The Audit Committee met
individually with the internal auditors and independent auditors, without
management present, to discuss the results of their audits. The Audit Committee
encourages the internal and independent auditors to communicate closely with the
Audit Committee.
FINANCE COMMITTEE
The Board of Directors has a Finance Committee, consisting of the
independent directors identified above. The Finance Committee met three times
during the last fiscal year. The duties of the Finance Committee include
reviewing the financial policies, performance objectives and financing
requirements of the Corporation.
CORPORATE RESPONSIBILITY COMMITTEE
The Board of Directors has a Corporate Responsibility Committee, consisting
of the independent directors identified above. The Corporate Responsibility
Committee held two meetings during the last fiscal year. The duties of the
Corporate Responsibility Committee include review and evaluation of the public
affairs and community development programs of the Corporation. The Corporate
Responsibility Committee also reviews and evaluates the community giving
programs of the Corporation and the Dayton Hudson Foundation and annually
recommends the charitable gift of the Corporation to the Foundation.
DIRECTOR ATTENDANCE
The Securities and Exchange Commission ("SEC") rules require disclosure of
those directors who attended fewer than 75% of the aggregate of the total number
of meetings of the Board and Board Committees on which the director served
during the last fiscal year. No director attended fewer than 75% of the
aggregate of the total number of such meetings.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------------- --------
------------------------- RESTRICTED SECURITIES LTIP ALL OTHER
BONUS STOCK UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) ($)(1)(2) AWARDS($)(3) OPTIONS(#)(4) ($)(5) ($)(6)(7)
- ------------------------------ ----- ------------- ---------- ------------- ------------ -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Ulrich.............. 1996 1,027,874 3,169,685 0 160,536 453,234 355,023(8)
Chairman and Chief 1995 1,009,125 423,365 251,918 495,198 0 199,278
Executive Officer; Chairman 1994 981,525 754,510 247,124 119,013 0 178,590
and Chief Executive Officer
of Target
Kenneth B. Woodrow............ 1996 579,600 1,723,072 0 143,563 113,369 155,459(9)
President of Target 1995 568,929 137,284 124,838 21,507 0 91,069
1994 498,375 350,972 43,280 37,815 0 79,035
Gregg W. Steinhafel........... 1996 528,712 1,431,026 0 143,563 90,688 120,766(10)
Executive Vice President, 1995 476,426 92,793 93,464 16,131 0 62,999
Merchandising of Target 1994 395,080 232,685 30,947 20,394 0 50,418
John E. Pellegrene............ 1996 474,141 1,086,012 0 83,464 90,688 81,298(11)
Executive Vice President, 1995 433,070 100,354 121,983 21,012 0 52,230
Marketing of Target 1994 364,022 211,064 24,742 3,969 0 41,480
Larry V. Gilpin............... 1996 465,400 1,075,457 0 83,464 90,688 176,288(12)(13)
Executive Vice President, 1995 424,370 140,000 121,983 21,012 0 56,836
Team, Guest and Community 1994 348,700 201,854 24,742 3,969 0 41,502
Relations of Target
</TABLE>
- ------------------------
(1) Significant amounts of both salary and bonus for the five named executive
officers were not actually received. Receipt of such amounts was deferred
through December 31, 1996 in the Corporation's Deferred Compensation Plan.
Under this plan, participants elected to defer a minimum per year of $5,000
of their compensation and a maximum per year of 25% of base salary and 100%
of incentive bonuses up to an aggregate total of $250,000, plus the amount
of any previous deferral automatically paid out in the eighth year following
its deferral. Payout from the plan cannot be made until retirement, death or
termination, except that each deferral is automatically paid out in the
eighth year following its deferral. Amounts deferred are subject to the same
bankruptcy rules as are the Corporation's general debt obligations. Deferred
amounts earn a return, a portion of which is categorized as reportable by
the SEC proxy rules. Effective December 31, 1996, deferrals under the
Corporation's Deferred Compensation Plan have been terminated except for
deferrals in an amount equal to amounts paid out eight years after their
deferral. Beginning January 1, 1997, amounts may be deferred through the
Dayton Hudson Corporation SMG Executive Deferred Compensation Plan ("New
Plan"). Under the New Plan, participants may elect to defer up to 80% of
annual base salary and bonus. There is no automatic eighth year payout of
deferred amounts. The New Plan is otherwise substantially similar to the
other plan. Further information regarding reportable earnings under both
plans is provided in the footnotes below.
(2) For fiscal 1994, executive officers of the Corporation and certain other
members of management of the Corporation and its operating companies were
eligible for incentive bonuses under the Corporation's Personal Score Plan
and under its Executive Incentive Plan ("EIP") which included pre-tax
operating contribution ("PTOC") and return on investment ("ROI") components.
In addition,
7
<PAGE>
Messrs. Ulrich, Woodrow, Steinhafel, Pellegrene and Gilpin received bonuses
for fiscal 1994 performance in September 1995 after final 1994 financial
results for applicable benchmark companies were available.
For fiscal 1995 and 1996, executive officers of the Corporation and certain
other members of management of the Corporation and its operating companies
were eligible for incentive bonuses under the Personal Score Plan and the
PTOC and Economic Value Added-Registered Trademark-
("EVA-Registered Trademark-") components of the EIP. However, the
Corporation did not achieve the minimum performance criteria in fiscal 1995
and no bonuses were paid under the PTOC or EVA components of the EIP for
that year. Messrs. Ulrich, Woodrow and Steinhafel also received
discretionary bonuses for their contributions to the Corporation's results
in fiscal 1996. Information regarding the bonus plans is found in the Report
of the Compensation Committee on Executive Compensation.
(3) Restricted Stock Awards column reflects rights to receive restricted stock
of the Corporation under the Dayton Hudson Corporation Executive Long-Term
Incentive Plan of 1981, as amended ("1981 Option Plan"). The restricted
shares are not issued unless the executive remains employed by the
Corporation for four years from the date of award. Upon expiration of the
four-year period, the shares are issued and put into escrow and generally
restricted until retirement. The holders of rights to receive restricted
stock do not hold voting or dividend rights until after the shares are
issued. Further information regarding restricted stock is included in the
Report of the Compensation Committee on Executive Compensation. The
Corporation did not make any restricted stock awards in fiscal 1996. The
number and value of restricted stock rights holdings at the end of the 1996
fiscal year (based on the closing price at the end of the fiscal year) are
as follows:
<TABLE>
<CAPTION>
NUMBER VALUE
------------ ------------
<S> <C> <C>
Robert J. Ulrich.......................................... 30,837 $ 1,160,242
Kenneth B. Woodrow........................................ 9,522 358,265
Gregg W. Steinhafel....................................... 6,840 257,355
John E. Pellegrene........................................ 7,692 289,412
Larry V. Gilpin........................................... 7,692 289,412
</TABLE>
(4) These options to purchase shares of the Corporation's Common Stock were
awarded under the 1981 Option Plan. The Report of the Compensation Committee
on Executive Compensation includes further information regarding stock
options.
(5) Amounts reflect earnouts of performance shares under the 1981 Option Plan.
Based on Target's competitive performance, 79% of the performance shares
granted to Target executives in 1992 and to be paid in 1996 were earned.
None of the performance shares granted to other executives in 1992 and to be
paid in 1996 were earned. The Report of the Compensation Committee on
Executive Compensation includes further information regarding performance
shares.
(6) The Corporation has an Excess Long-Term Disability Program for certain key
executives, including those executive officers individually listed above.
The program is integrated with the employee-paid broad-based group
disability plan (non-taxable benefit of $82,000 maximum per individual per
year). Taxable excess disability benefits are paid according to a schedule
based on compensation with the objective of replacing total after-tax income
of approximately 80% at a compensation level of $50,000 per year, decreasing
to approximately 40% at a compensation level of $2,000,000 per year. In
order to receive excess benefits, the executive must be participating under
the broad-based group disability plan. In the event of a qualifying
disability, the actual cost to the Corporation would be the taxable
disability payments. No claims for benefits have ever been filed under the
Excess Long-Term Disability Program. No compensation is assumed for this
program since the incremental cost to the Corporation of this benefit cannot
be determined actuarily.
- ------------------------
- -Registered Trademark-Economic Value Added and EVA are registered trademarks.
8
<PAGE>
(7) The amounts reported include the following:
- Matching contributions to the Dayton Hudson Corporation Supplemental
Retirement, Savings, and Employee Stock Ownership Plan ("SRSP") which all
participating employees receive.
- Amounts credited to the Dayton Hudson Corporation Deferred Compensation
Plans for matching contributions that could not be made to the SRSP because
of limitations imposed by the Internal Revenue Code.
- Amounts categorized by the SEC as reportable earnings on compensation
deferred in current and previous years.
(8) Includes
<TABLE>
<C> <S>
$ 6,813 SRSP matching contribution
$ 64,856 deferred compensation credit for matching contributions which could not
be made to SRSP
$ 283,354 reportable earnings on deferred compensation
</TABLE>
(9) Includes
<TABLE>
<C> <S>
$ 6,000 SRSP matching contribution
$ 28,864 deferred compensation credit for matching contributions which could not
be made to SRSP
$ 120,595 reportable earnings on deferred compensation
</TABLE>
(10) Includes
<TABLE>
<C> <S>
$ 5,531 SRSP matching contribution
$ 23,952 deferred compensation credit for matching contributions which could not
be made to SRSP
$ 91,283 reportable earnings on deferred compensation
</TABLE>
(11) Includes
<TABLE>
<C> <S>
$ 6,000 SRSP matching contribution
$ 21,950 deferred compensation credit for matching contributions which could not
be made to SRSP
$ 53,348 reportable earnings on deferred compensation
</TABLE>
(12) Includes
<TABLE>
<C> <S>
$ 5,970 SRSP matching contribution
$ 23,500 deferred compensation credit for matching contributions which could not
be made to SRSP
$ 82,418 reportable earnings on deferred compensation
</TABLE>
(13) Also includes a deferred payment of $64,400.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------ AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- ------------------------- --------------- ------------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Ulrich......... 160,536(2) 4.94% 37.38 1/8/07 0 3,773,388 9,562,507
Kenneth B. Woodrow....... 49,917(3) 1.53% 25.04 2/26/06 0 786,122 1,992,188
93,646(2) 2.88% 37.38 1/8/07 0 2,201,143 5,578,129
Gregg W. Steinhafel...... 49,917(3) 1.53% 25.04 2/26/06 0 786,122 1,992,188
93,646(2) 2.88% 37.38 1/8/07 0 2,201,143 5,578,129
John E. Pellegrene....... 29,952(3) 0.92% 25.04 2/26/06 0 471,702 1,195,385
53,512(2) 1.64% 37.38 1/8/07 0 1,257,796 3,187,502
Larry V. Gilpin.......... 29,952(3) 0.92% 25.04 2/26/06 0 471,702 1,195,385
53,512(2) 1.64% 37.38 1/8/07 0 1,257,796 3,187,502
</TABLE>
- ------------------------
(1) Two option grants are being reported in fiscal 1996 because the 1997 grant
date was shifted into January of 1997. Thus, the second reported grant is an
indication of a schedule shift and not of an intention to increase the
frequency of option grants. Under the 1981 Option Plan each option was
granted at the market value of the underlying Common Stock on the date of
grant and has a ten-year term. The options are exercisable 25% on the
anniversary of the date of grant, with an additional 25% becoming
exercisable on each of the next three anniversaries of the date of grant.
The Report of the Compensation Committee on Executive Compensation includes
additional information regarding the 1981 Option Plan.
(2) Granted January 8, 1997.
(3) Granted February 26, 1996.
(4) SEC rules require the information set forth in the 5% and 10% columns. The
actual gains, if any, on stock option exercises depend on the future stock
price of the Corporation's Common Stock. Since there is no means of
accurately predicting the future price of the Corporation's Common Stock, no
determination can be made as to the value of a stock option at the time of
the grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED -------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- --------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Ulrich.................. 31,302 587,506 199,230 753,228 2,895,716 8,087,319
Kenneth B. Woodrow................ 4,797 79,350 68,726 196,442 1,344,261 1,340,487
Gregg W. Steinhafel............... 4,797 111,330 38,158 175,140 562,181 1,077,028
John E. Pellegrene................ 13,680 267,486 28,494 102,652 412,941 662,421
Larry V. Gilpin................... 20,325 287,755 8,877 102,652 110,041 662,421
</TABLE>
10
<PAGE>
INCOME CONTINUANCE POLICY
No officer of the Corporation is a party to an employment contract with the
Corporation. As an alternative to the use of such contracts, the Corporation has
adopted an Income Continuance Policy and a Senior Management Group ("SMG")
Income Continuance Policy for certain officers of the Corporation.
Mr. Ulrich, together with others, are participants in the Income Continuance
Policy. In 1988, the Income Continuance Policy was amended to exclude additional
participants. Messrs. Woodrow, Steinhafel, Pellegrene and Gilpin were not
participants under the Policy at the time it was amended. In the event a
participant's employment is terminated by management, the participant's
compensation (salary and bonus) continues for a period of 18 to 24 months,
depending on his or her length of service. If the participant's service with the
Corporation is less than three years, the continuation is for 18 months; over
eight years, the continuation is for 24 months; and between three and eight
years, an amount determined by a schedule (more than 18 months but less than 24
months).
Participants under the SMG Income Continuance Policy are members of the
Corporation's Senior Management Group who are not participants under the Income
Continuance Policy. The policy is similar to the Income Continuance Policy,
except its time parameters are based on the participant's salary grade.
Compensation may extend from 12 months to 24 months, based on a schedule which
provides longer income continuation to those participants with higher grade
levels. Messrs. Woodrow, Steinhafel, Pellegrene and Gilpin participate in the
SMG Income Continuance Policy.
All executive officers who are members of the Corporation's Senior
Management Group are covered by one of these policies. Both policies include
offset provisions for certain other compensation from the Corporation and
non-disparagement and non-competition requirements. Both policies provide that
the policies cannot be terminated or amended to reduce future benefits unless
two years prior notice is given to the participants in the policies. Both
policies also provide that any executive who terminates employment or is
terminated within two years of a Change in Control (as defined in the 1981
Option Plan) will be paid the present value of payments owing under the policies
immediately after termination.
AMOUNTS PAID UPON TERMINATION
When an executive's employment with the Corporation terminates, the
executive receives payments under deferred compensation plan(s), the SRSP and
pension plans. The executive may also be entitled to exercise previously granted
but still outstanding stock options and, in certain circumstances, receive
previously granted but still outstanding performance shares and restricted stock
under the 1981 Option Plan. Further information regarding stock options,
performance shares and restricted stock is provided in the Report of the
Compensation Committee on Executive Compensation.
11
<PAGE>
PENSION
All executive officers and other employees of the Corporation and its
subsidiaries who have worked over 1,000 hours in a year and are at least 21
years of age are initially covered by the Corporation's pension plans. The
following table shows the annual benefits under the Corporation's pension plans
at age 65, on a life only basis, given the years of service and compensation
levels set forth below:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 16,275 $ 21,700 $ 27,125 $ 28,375 $ 29,625
200,000 35,775 47,700 59,625 62,125 64,625
300,000 55,275 73,700 92,125 95,875 99,625
400,000 74,775 99,700 124,625 129,625 134,625
500,000 94,275 125,700 157,125 163,375 169,625
1,000,000 191,775 255,700 319,625 332,125 344,625
2,000,000 386,775 515,700 644,625 669,625 694,625
3,000,000 581,775 775,700 969,625 1,007,125 1,044,625
4,000,000 776,775 1,035,700 1,294,625 1,344,625 1,394,625
5,000,000 971,775 1,295,700 1,619,625 1,682,125 1,744,625
</TABLE>
Currently under ERISA, as amended, the maximum annual amount that can be
paid under the Qualified Pension Plans to any individual is $120,000, unless
grandfathered under prior limits. Amounts in excess of that maximum are paid
under separate plans. In addition, the Corporation has supplemental plans that
use the same formula the Qualified Pension Plans use to pay benefits on
compensation that is excluded from the Qualified Pension Plans formula by ERISA.
The years of present credited service for benefit purposes of the Corporation's
executive officers named in the Summary Compensation Table are as follows:
Messrs. Ulrich, 29 years; Woodrow, 27 years; Steinhafel, 17 years; Pellegrene,
27 years; and Gilpin, 19 years. Average Compensation is the average cash
remuneration, including deferred compensation, for the highest five calendar
years of credited service in the last ten years. The compensation reflected in
the Summary Compensation Table is cash compensation, including deferred
compensation, for the fiscal year. If the employment of a participant is
terminated prior to age 55, his or her pension will be less than the amount
shown in the table, even if commencement of benefit payments is deferred until
age 65. The actual amounts payable from the qualified pension trust are not
subject to any deductions for Social Security benefits or other offset amounts.
All executive officers, who are members of the Senior Management Group,
participate in a program whereby such person's surviving spouse will receive the
equivalent of a joint and 100% surviving spouse option with no reduction from
the life only pension amount, payable to the officer's spouse for as long as he
or she lives. Normally the life only amount would be reduced by approximately
20% for this option. The percentage reduction depends on age differentials. The
Corporation also has a supplemental plan that treats certain of its Senior
Management Group as being five years older, but not older than 65, for purposes
of the actuarial reduction of pension benefits at early retirement. All excess
and supplemental plans pay the lump sum present value of their respective
benefits in the year following retirement. The pension table reflects amounts
payable under all pension plans, whether qualified or non-qualified.
12
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Corporation has a pay-for-performance compensation philosophy for its
management employees, including its executive officers. The total compensation
plan for executive officers of the Corporation includes base salary and the
opportunity for an annual incentive bonus, long-term incentive compensation and
benefits.
The Compensation Committee is responsible for developing and administering
the total compensation plan for executive officers of the Corporation. In
addition, the Compensation Committee reviews compensation levels of executive
officers who are members of the Corporate Operating Committee (the "COC
Officers") and evaluates the performance of top management, including the five
highest paid executive officers. Individual written performance appraisals are
given annually to each executive officer, including the Chief Executive Officer
("CEO").
Under the Corporation's pay-for-performance philosophy, the compensation
policies established by the Compensation Committee provide that a portion of the
annual compensation of each executive officer is contingent upon the financial
performance of the Corporation or relevant operating company, as well as the
individual performance of the executive officer.
PERFORMANCE EVALUATIONS
The Compensation Committee, together with all other independent directors,
established the performance criteria used to evaluate Mr. Ulrich's fiscal 1996
performance as Chairman of the Board and as CEO. That group prepared an annual
written evaluation of Mr. Ulrich's fiscal 1996 performance and determined his
performance score. In addition to evaluating Mr. Ulrich in his role as CEO, the
independent directors also specifically evaluated his performance as Chairman of
the Board. The factors used to evaluate Mr. Ulrich's performance as CEO included
operating company performance, control of the business, management succession
planning, strategic planning, business development, organizational development
and formulation and delivery of major corporate policies. In his role as
Chairman of the Board, Mr. Ulrich was evaluated on his ability to chair
effective meetings of the Board of Directors and the Executive Committee, keep
the Board fully informed of the condition of the Corporation, develop sound
corporate governance policies and work with the directors to effectively use
their talents to the best strategic advantage of the Corporation.
The written evaluation was reviewed with Mr. Ulrich and constituted 50% of
the weighting for his fiscal 1996 non-discretionary incentive bonus
compensation. The remaining 50% of Mr. Ulrich's non-discretionary incentive
bonus compensation was based on the Corporation's financial performance as
further described under Short-Term Incentive Compensation. In addition, Mr.
Ulrich's performance was discussed with him in a meeting with all of the
independent directors. As part of the performance evaluation process, each
executive is assigned a Personal Score which is applied to the Corporation's
Personal Score Plan for purposes of determining a bonus amount. For purposes of
the Personal Score Plan, the Compensation Committee adopts a "Bonus Matrix"
which assigns varying bonus percentages based on the participant's job grade and
Personal Score. The bonus amount for each participant under the Personal Score
Plan is calculated by multiplying the participant's bonus percentage from the
Bonus Matrix by the midpoint of the salary range of the participant's job grade
level (except for Mr. Ulrich, whose base salary is used), and then multiplying
that result by the participant's percentage of participation in the Personal
Score Plan.
All other executive officers of the Corporation received performance
appraisals based on prescribed objectives such as succession planning and
strategy execution, key job responsibilities and financial performance. The
fiscal 1996 Personal Scores and Personal Score Plan bonuses of the executive
officers were approved by the Compensation Committee.
13
<PAGE>
BASE SALARY
The Compensation Committee approved Mr. Ulrich's current base salary in
April 1994. When the Compensation Committee considered Mr. Ulrich's base salary,
it reviewed two established annual third-party retail compensation surveys
covering approximately 90 retailers throughout the United States (the
"Competitive Surveys"). Many, but not all, of the companies included in the Peer
Group Index in the stock performance graph are included in the Competitive
Surveys. The Compensation Committee has since received regularly updated
information on CEO base salaries and other compensation from third party
compensation studies. The Compensation Committee has maintained Mr. Ulrich's
base salary rate at the April 1994 level (with minor adjustments) and put
greater emphasis on performance based pay in the form of short-term and
long-term incentive plans.
Base salaries of the other executive officers of the Corporation are based
on competitive practices, and are at approximately the 60th percentile of base
salary when compared with domestic, non-food retailers, adjusted for the size of
the companies. The Competitive Surveys are used to determine base salaries.
Executive officers receive a higher base salary than the industry median because
the threshold for payout of short-term incentive compensation by the Corporation
is set at a higher level than it is for a majority of competitive retailers.
Increases in base salary result from promotional increases reflecting job scope
changes and from merit increases determined by the executive's Personal Score,
the executive's position in the salary range and the Corporation's performance.
Merit increase guidelines are established each year based on the performance of
the relevant operating company or the Corporation and current economic and
market conditions. Once overall guidelines are established and an individual
performance score is assigned, the actual percentage increase is affected by the
executive's position in the salary range for his or her grade; that is, the
lower the placement in the range the greater the guideline percentage increase.
Very few executive officers and other senior managers received merit increases
for fiscal 1996 due to the Corporation's poor performance in fiscal 1995.
SHORT-TERM INCENTIVE COMPENSATION
In addition to the Personal Score Plan, for fiscal 1996 the Corporation had
a financial performance based short-term incentive plan (EIP--Executive
Incentive Plan) that consisted of two parts: PTOC (pre-tax operating
contribution) and EVA (Economic Value Added). Under the EIP, executive officers
of the Corporation and certain other members of the senior management of the
Corporation and its operating companies were eligible for annual incentive
bonuses for fiscal 1996.
PTOC. PTOC measures an operating company's or the Corporation's performance
against an annually pre-determined PTOC goal to determine bonus amounts. The
outside directors set PTOC goals when establishing other financial performance
goals for the operating companies and the Corporation. The Compensation
Committee then uses the PTOC goals to establish the PTOC bonus range for use
with the PTOC part of EIP and determines what level of bonuses will be paid if
PTOC performance falls within the PTOC bonus range.
PTOC is operating income on a first-in, first-out inventory accounting
basis, with certain conforming adjustments for treating all leases as operating
leases and ignoring the effects of securitizing accounts receivable and large
non-recurring items.
The PTOC Score for the fiscal year is determined from a schedule, approved
by the Compensation Committee, that designates a score for each varying level of
PTOC performance achieved by an operating company or the Corporation. The
Compensation Committee also adopts a "Bonus Matrix" which assigns varying bonus
percentages based on the participant's job grade and PTOC Score.
The bonus amount for each participant is calculated by multiplying the
participant's bonus percentage from the Bonus Matrix by the midpoint of the
salary range of the participant's job grade level (except for Mr. Ulrich whose
base salary is used), and then multiplying that result by the participant's
percentage of
14
<PAGE>
participation in the PTOC part of EIP. In order to receive a bonus under the
PTOC part of EIP, a participant's score under the Personal Score Plan must equal
or exceed a minimum score set by the Compensation Committee.
EVA. The EVA part of EIP measures an operating company's or the
Corporation's performance against an annually pre-determined EVA goal to
determine bonus amounts. The outside directors set EVA goals in conjunction with
establishing other financial performance goals for the operating companies and
the Corporation. The Compensation Committee then uses the EVA goals to establish
the EVA bonus range for use in conjunction with the EVA part of the EIP and
determines what level of bonuses will be paid if EVA performance falls within
the EVA bonus range.
EVA is PTOC after taxes less a Capital Charge. The "Capital Charge" is the
cost of capital invested in the business operation, adjusted for the maturity of
the assets employed by that business operation.
The EVA Score for the fiscal year is determined from a schedule, approved by
the Compensation Committee, that designates a score for each varying level of
EVA performance achieved by an operating company and/or the Corporation. The
Compensation Committee also adopts a "Bonus Matrix" which assigns varying bonus
percentages based on the participant's job grade and EVA Score.
The bonus amount for each participant is calculated by multiplying the
participant's bonus percentage from the Bonus Matrix by the midpoint of the
salary range of a participant's job grade level (except for Mr. Ulrich whose
base salary is used), and then multiplying that result by the participant's
percentage of participation in the EVA part of EIP. In order to receive a bonus
under the EVA part of EIP a participant's score under the Personal Score Plan
must equal or exceed a minimum score set by the Compensation Committee.
The maximum bonus currently payable under the EIP (PTOC and EVA combined)
together with the Personal Score Plan is 250% of the salary of the CEO or named
executive officer set forth in the Proxy Statement for the year during which the
bonus was earned. If the CEO or named executive officer held a different office
or was not employed in his or her position for the full year covered by that
Proxy Statement, the maximum bonus is 250% of the highest salary reported in
such year. The aggregate of all such bonuses paid to any other executive not
listed above under any combination of the EIP and Personal Score Plan may not
exceed 250% of his or her base salary.
Mr. Ulrich's non-discretionary bonus for the fiscal 1996 was based on 50%
Personal Score Plan, 25% EIP-PTOC (Corporation) and 25% EIP-EVA (Corporation).
Messrs. Woodrow's, Steinhafel's, Pellegrene's and Gilpin's non-discretionary
bonuses were based on 33 1/3% Personal Score Plan, 33 1/3% EIP-PTOC (Target) and
33 1/3% EIP-EVA (Target). For fiscal 1996, financial performance thresholds were
exceeded at Target, Mervyn's and the Corporation and bonuses were paid to
employees of those units based on Personal Score, EIP-PTOC and EIP-EVA. The
Department Store Division did not achieve its financial goals in fiscal 1996 and
bonuses were paid to its employees only on the basis of the Personal Score Plan.
Messrs. Ulrich, Woodrow and Steinhafel also received discretionary bonuses
for their contributions to the Corporation's results in fiscal 1996.
LONG-TERM INCENTIVE COMPENSATION
The Compensation Committee determines the amount of options, performance
shares and restricted stock awarded annually under the Long-Term Incentive Plan
of 1981. The Compensation Committee reviews the Competitive Surveys and a proxy
survey and sets the grants at approximately the median of competitive companies
of similar size. The Compensation Committee, using judgment and data from the
Competitive Surveys and proxy survey, determines the grant size for the CEO and
other executive officers. The Compensation Committee then approves separate
long-term incentive pools for each operating company and corporate staff. The
size of the pool varies with the Corporation's or relevant operating company's
performance; that is, the better the performance, the larger the pool. However,
the precise size
15
<PAGE>
of each pool is based on the subjective judgment of the Compensation Committee.
The Compensation Committee determined in 1996 that all pools would consist
entirely of non-qualified stock options. Individual awards from the pool are
based on the individual's responsibilities, performance, future potential and
previous grants.
PERFORMANCE SHARES
The performance shares provide for the potential of earning awards of
Corporation Common Stock during a cycle of four fiscal years based upon the
Corporation's or relevant operating company's performance, measured by defined
criteria. For the presently outstanding grants, the criteria used were the same
as those used for the short-term incentive plan in the years that the grants
were made. As with short-term incentive compensation, a threshold level of
performance is required before any payout occurs. A matrix is used to determine
the actual payout amount. Target's financial performance during the performance
cycle of four fiscal years beginning in 1992 surpassed the performance share
threshold for its 1992 grant and a payout was made in 1996. All 1992 performance
share grants made to Mervyn's, Department Store Division and Corporation
executives were forfeited because those operating companies failed to achieve
their performance share goals.
In 1993, additional restrictions were added to the performance share grants.
As those performance share grants are earned the Common Stock to be issued is
put into escrow and restricted until retirement. Any participant who terminates
employment prior to early retirement (age 55 and five years of service) and
fails to meet certain requirements forfeits all the Common Stock held in escrow.
If the executive terminates employment after age 55, and provides the
Corporation with one year's notice of retirement, 100% of the Common Stock is
released to the executive. In such cases, if the executive fails to give one
year's notice, the shares are forfeited unless the Plan Committee approves the
release of all or part of the shares. If the executive is terminated, qualifies
for early retirement under the Corporation's pension plans and receives payments
under the Corporation's Income Continuance Policies ("ICP"), 100% of the Common
Stock is paid to the executive. If the executive terminates other than for early
retirement and receives an ICP (but is not part of a reduction in force), 50% of
the Common Stock is released to the executive. If the executive does not receive
an ICP the executive forfeits all the shares. If at any time the executive's
termination is a result of death, total and permanent disability, reduction in
force or change of control, 100% of the Common Stock is released to the
executive. Recipients hold voting and dividend rights for all shares held in
escrow during the restriction period; however, they may not sell or assign the
shares. The Corporation did not make any performance share grants in fiscal
1996.
RESTRICTED STOCK
The terms of the restricted stock require the executive to remain an
employee of the Corporation for four years from the date of grant. Upon
expiration of the four-year period, the shares are then issued, put into escrow
and restricted until retirement. The escrow release events are the same as
described above for performance shares. After the shares are issued and put into
escrow, holders of restricted stock hold voting and dividend rights during the
restriction period; however, they may not sell or assign the shares. The
Corporation did not make any restricted stock grants in fiscal 1996.
STOCK OPTIONS
During 1996, the Compensation Committee made stock option grants to the
executive officers of the Corporation. These grants were based on the
individual's responsibilities, performance, future potential and previous
grants. Each option was granted at the market value of the underlying Common
Stock on the date of grant and has a ten-year term. The options are exercisable
25% after the first year, with an additional 25% after each of the next three
years. The 1997 grant was moved up to January and fell within fiscal 1996
resulting in two grants in the same fiscal year. The typical frequency of stock
option grants is once each year.
16
<PAGE>
CORPORATE GOVERNANCE AND CERTAIN TAX CONSEQUENCES OF PLANS
As part of its corporate governance responsibilities, the Compensation
Committee, together with all the other outside directors, has established
certain measures of performance for COC Officers, including the CEO, that it
believes are critical to the overall performance of the Corporation. Certain
measures of performance, such as succession planning and strategic planning, are
vital to the long-term performance of the Corporation. Section 162(m) of the
Internal Revenue Code of 1986 (the "Code") prohibits the Corporation from
deducting as compensation expense amounts exceeding $1,000,000 a year for the
CEO and the other officers named in the Summary Compensation Table relating to
the period during which the compensation is earned (the "Covered Officers"),
unless the payment of such compensation is based on pre-established, objective
performance goals approved by the shareholders (the "Section 162(m) Cap"). A
significant part of the Corporation's executive compensation will meet the Code
requirements for deductibility under the Section 162(m) Cap rules, and Proposals
Three and Four have been added to this Proxy Statement for that purpose. A
portion of such compensation, however, will continue to be based on critical,
subjective measures that may cause certain compensation not to be deductible
under the Code. The Compensation Committee and the other outside directors
strongly believe that the benefit of their ability to evaluate the performance
of COC Officers, including the CEO, on vital subjective performance measures
outweighs the cost of the Code's limitation on such deductibility.
No member of the Compensation Committee is a current or former officer or
employee of the Corporation or any of its subsidiaries.
COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Betty Ruth
Roger A. Enrico, Chairman Hollander
William W. George Stephen W. Sanger
Roger L. Hale Solomon D. Trujillo
</TABLE>
17
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEARS ENDING DAYTON HUDSON CORPORATION RETAIL COMPOSITE INDEX S&P 500 INDEX PEER GROUP INDEX
<S> <C> <C> <C> <C>
1992 $100.00 $100.00 $100.00 $100.00
1993 122.00 119.36 110.58 115.33
1994 105.50 115.04 124.82 111.76
1995 112.47 106.53 125.48 96.04
1996 124.67 114.87 174.00 108.09
1997 193.15 137.12 219.83 128.98
</TABLE>
FISCAL YEARS ENDING JANUARY 31
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Dayton Hudson Corporation 100 122.00 105.50 112.47 124.67 193.15
Retail Composite Index 100 119.36 115.04 106.53 114.87 137.12
S&P 500 Index 100 110.58 124.82 125.48 174.00 219.83
Peer Group Index 100 115.33 111.76 96.04 108.09 128.98
</TABLE>
The graph above compares the cumulative total shareholder return on the
Common Stock of the Corporation for the last five fiscal years with cumulative
total return on the S&P 500 Index, the S&P Retail Composite Index and an index
composed of the Corporation's peer group companies (the "Peer Group Index") over
the same period. The Peer Group Index is new this year and consists of the
following companies: the Corporation, Dillard Department Stores, Federated
Department Stores, Gap Inc., Kmart Corp., Kohl's Corp., Limited Inc., May
Department Stores Co., Nordstrom Inc., J.C. Penney Co., Sears Roebuck & Co., TJX
Companies Inc. and Wal-Mart Stores. The graph assumes the investment of $100 in
the Corporation's Common Stock, the S&P 500 Index, the S&P Retail Composite
Index and the Peer Group Index on January 31, 1992, and reinvestment of all
dividends. Going forward, the Corporation intends to focus on the Peer Group
Index in lieu of the Retail Composite Index because the Peer Group Index
excludes food and drug retailers that are not believed to be as directly
comparable to the Corporation.
DIRECTOR COMPENSATION
Directors who are not employees of the Corporation are paid an annual fee of
$25,000, plus $1,000 for each directors' meeting or committee they attend.
Directors may defer receipt of their fees. If they do, their fees are credited
with interest at a fluctuating rate. Directors may also direct the Corporation
to forward their fees to their broker to purchase Common Stock of the
Corporation for their account at then
18
<PAGE>
current prices. The Corporation pays the brokerage fees for such purchases.
Non-employee directors also received $10,000 of restricted stock of the
Corporation per year. The Vice Chairman of the Executive Committee receives an
additional $10,000 of restricted stock of the Corporation each year.
Non-employee directors received options for $50,000 of the Corporation's Common
Stock on a set date in April. Non-employee directors also receive merchandise
discounts of varying amounts at the stores of each of the Corporation's
operating companies that are the same as the discount employees receive.
Employee directors are not compensated separately for services as a director or
committee member but receive their regular compensation as employees.
The Board has a policy requiring members to retire from the Board upon
reaching age 68 or after serving 15 years as a non-employee director. Upon a
substantial change in principal employment a director is required to offer his
or her resignation. As part of this overall program, the Corporation has a
policy of paying independent directors who resign as directors by reason of age,
serving 15 years, physical disability or substantial change in principal
employment an amount equal to the director's annual fee as a director at the
time of resignation for a period that is the lesser of the director's years of
service or 15 years. The present value of the amount is paid in a lump sum in
the year following resignation, except that in the case of a change in control
such amounts are payable immediately. In addition, if a non-employee director
dies while in office or before receiving payment, the director's beneficiary
will receive the payment. In the case of a director who dies while in office,
the beneficiary will receive the payment the director would have received had
the director resigned the day before his or her death. Consistent with the
Corporation's overall pay-for-performance philosophy, this program was
discontinued as of December 31, 1996 and all current directors' accrued service
was frozen as of that date. The non-employee directors will now receive options
to purchase $100,000 of the Corporation's Common Stock and $15,000 of restricted
stock each year.
CERTAIN TRANSACTIONS
The Corporation and operating companies have transactions in the ordinary
course of business with unaffiliated corporations of which certain of the
non-employee directors are officers. The Corporation does not consider the
amounts involved in such transactions material in relation to its business and
believes that any such amounts are not material in relation to the business of
such other unaffiliated corporations or the interests of the non-employee
directors involved.
SECTION 16(A) REPORTING COMPLIANCE
The SEC rules require disclosure of those directors, officers and beneficial
owners of more than 10% of the Corporation's Common Stock who fail to file on a
timely basis reports required by Section 16(a) of the Exchange Act of 1934, as
amended, during the most recent fiscal year. The Corporation is not aware of any
such person.
PROPOSAL NUMBER TWO
APPOINTMENT OF AUDITORS
Proxies solicited by the Board of Directors will, unless otherwise directed,
be voted to approve the appointment by the Board of Directors of Ernst & Young
LLP as independent auditors of the Corporation and its subsidiaries for the
fiscal year ending January 31, 1998. Ernst & Young LLP has been employed in this
capacity by the Corporation since 1931.
A representative from Ernst & Young LLP will be at the Annual Meeting and
will have the opportunity to make a statement if such representative so desires
and will be available to respond to questions during the meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT THE SHAREHOLDERS
OF THE CORPORATION VOTE TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS.
19
<PAGE>
PROPOSAL NUMBER THREE
APPROVAL OF AMENDED LONG-TERM INCENTIVE PLAN
INTRODUCTION
Subject to the shareholder approval sought hereby, the Board of Directors
amended the Corporation's Long-Term Incentive Plan of 1981 (the "LTIP") for the
purpose of permitting the Corporation to continue deducting for tax purposes
certain compensation under the LTIP. The material features of the LTIP and the
amendment are summarized below. The amendment will not become effective unless
approved by shareholders.
GENERAL
The purpose of the LTIP is to advance the interests of the Corporation and
its shareholders by providing long-term compensation incentives to key employees
of the Corporation and its subsidiaries. That purpose will be promoted by the
proposed amendment.
The Corporation is not seeking shares in addition to those presently
provided for under the LTIP. As of April 1, 1997, 4,288,810 shares of Common
Stock were available under the LTIP, excluding 14,252,204 shares reserved for
performance shares and stock options already outstanding.
Shares that are not transferred to an eligible employee prior to the
expiration or termination of a stock option and shares subject to a performance
share or restricted stock that are not earned or are forfeited or otherwise are
not transferred to the eligible employee, may thereafter be available under the
LTIP for the granting of stock options, performance shares or restricted stock
except as set forth above. Shares for which a cash equivalent payment is
received are treated as no longer available for grant.
Under the LTIP, the Board of Directors may, in its discretion, make
appropriate adjustments in the number of shares and in the option price to give
effect to adjustments made in the number of shares of Common Stock effected
through a merger, stock dividend, stock split or other relevant change.
ELIGIBLE EMPLOYEES. Under the LTIP, stock options, restricted stock and
performance shares may be granted to any key employee of the Corporation or any
subsidiary. It is not presently possible to specifically identify those key
employees, or the number thereof, to whom stock options, restricted stock or
performance shares may be granted under the LTIP since no such determination has
been made. Under the LTIP, stock options, restricted stock or performance shares
could be granted to a director of the Corporation provided that he or she is a
key employee. Incentive stock options may not be granted to any person who holds
more than 10% of the stock of the Corporation. Stock options, restricted stock
or performance shares may not be granted to a member of the Plan Committee.
RIGHTS AS A SHAREHOLDER AND ASSIGNABILITY. A participant has no rights as a
shareholder with respect to any shares covered by any stock options, performance
shares or restricted stock granted until the date of issuance of a stock
certificate. During the lifetime of the participant, the stock option,
performance share or restricted stock award is exercisable only by the
participant. A stock option or performance share is transferable only by will or
by reason of the laws of descent and distribution. Transfer of restricted stock
is not permitted during the restriction period.
ADMINISTRATION, DURATION AND AMENDMENT. The LTIP is administered by the
Plan Committee appointed by the Board of Directors. The present Plan Committee
is composed of members of the Compensation Committee of the Board of Directors
who are not officers or employees of the Corporation and are considered
"disinterested persons" under the applicable regulations of the Federal
Securities and Exchange Commission and "outside directors" under Section 162(m)
of the Code.
20
<PAGE>
The Plan Committee is vested with the power to select the key employees of
the Corporation and subsidiaries to whom stock options and/or performance shares
and/or restricted stock awards will be granted and to determine the performance
goals for the earn-out of the performance shares granted. The Plan Committee
determines the ultimate earn-out of such performance shares at the end of a
performance period. It also interprets, construes and implements the provisions
of the LTIP and may prospectively amend the deferral arrangements for
performance share earn-out. The LTIP remains in effect until all shares under
the LTIP are purchased pursuant to options granted under the plan or distributed
or paid out pursuant to performance shares and/or restricted stock awards
granted under the LTIP or unless sooner terminated or supplanted. The LTIP may
be suspended, terminated, modified or amended by the Board of Directors but the
Board of Directors may not, without shareholder approval, increase the maximum
number of shares of Common Stock which may be made subject to the LTIP, change
the option price or materially modify the class of employees eligible under the
LTIP.
STOCK OPTIONS
TERM AND PRICE. Any stock option granted under the LTIP (which may be
non-qualified or an incentive stock option) expires not later than ten years and
one day from the date of grant. The purchase price for the option stock is 100%
of the fair market value of the stock on the day the option is granted.
WAITING PERIOD AND EXERCISE. Under the LTIP, an individual entitled to
exercise a stock option may, subject to its terms and conditions and the terms
and conditions of the plan (which do not permit exercise for at least one year
after the date of grant except in the event of a change in control), exercise it
in whole at any time or in part at any time.
PAYMENT. Under the LTIP, stock purchased pursuant to a non-qualified option
agreement must be paid for in full together with any applicable withholding
taxes before stock may be issued. Payment may be made in cash, by the delivery
of owned Corporation Common Stock or by a combination of cash and Corporation
Common Stock.
TERMINATION OF EMPLOYMENT OR DEATH. A non-qualified option issued under the
LTIP is generally exercisable only while the optionee is an employee of the
Corporation or a subsidiary, or within 90 days of the date of termination of
employment of the participant (210 days in the case of a participant who is a
statutory insider under the Federal Securities Laws). However, in case of a
participant's termination at normal retirement or later, or, with approval of
the Plan Committee, by reason of early retirement under any Corporation
retirement plan, by reason of total and permanent disability without retirement,
or by reason of a spin-off with the consent of the Plan Committee, the option is
exercisable within five years after such termination event or the life of the
option, whichever is less, during which time installments would continue to
accrue. In the event of death of a participant while employed the option is
exercisable within five years after death or the life of the option, whichever
is less, but in no event less than one year after the participant's death,
during which time installments would continue to accrue. If a participant's
termination event occurs after 15 years of continuous service, the Plan
Committee may allow exercise within up to five years or the life of the option,
whichever is less, subject to any other conditions it may set. Termination of
employment by reason of dishonest or other illegal act immediately terminates
all rights under the option.
21
<PAGE>
CHANGE IN CONTROL. Under the LTIP, in the event of a change in control, all
outstanding options granted under the plan accelerate and are exercisable in
full for a period of 210 days after the change in control; provided that no
option can be exercised by a participant (i) within six months after the date of
grant of the option or (ii) after the termination date of the option. Under the
LTIP, a change in control includes a person or group becoming the beneficial
owner of 30% or more of the voting stock of the Corporation, certain changes of
a majority of the Board of Directors of the Corporation or approval by the
shareholders of the Corporation of certain agreements or plans of merger,
consolidation, stock exchange, disposition of substantially all assets,
liquidation or dissolution involving the Corporation.
RESTRICTED STOCK
RIGHTS DURING RESTICTED PERIOD. The LTIP gives the Plan Committee the
authority to award shares of Common Stock which are subject to certain
restrictions to eligible employees. Recipients are entitled to vote the
restricted stock and to exercise other shareholder rights, except that (i) the
Corporation may retain custody of the stock certificate during the restriction
period of not less than three years, (ii) the employee may not sell, transfer,
pledge, exchange or otherwise dispose of the stock during the restriction period
and (iii) any dividends that may be payable in cash or in shares of stock or
otherwise may be withheld by the Corporation until the restrictions lapse.
DELIVERY OF THE STOCK. If the employee has satisfied all of the conditions
established by the Plan Committee, the Corporation will deliver the stock
certificate representing the shares at the end of the restriction period, as
well as any accumulated dividends. At the discretion of the Plan Committee,
interest may be paid by the Corporation on any dividends withheld.
TERMINATION OF EMPLOYMENT OR DEATH. The Plan Committee may establish rules
regarding restricted stock awards in the event of termination of employment by
reason of death, total and permanent disability, retirement, spin-off or
termination of employment after 15 years of continuous employment with the
Corporation or a subsidiary or any combination.
CHANGE IN CONTROL. Under the LTIP, in the event of a change in control, all
outstanding restricted stock awards granted under the plan will be proratably
payable ten days after the change in control; provided that no restricted stock
award can be paid to a participant within six months after the date of grant.
The amount of Common Stock payable is determined by multiplying each restricted
stock award granted by a fraction, the numerator of which is the number of
months that have elapsed in the applicable restriction period and the
denominator of which is the number of months in the restriction period.
PERFORMANCE SHARES
PERFORMANCE SHARES. Under the LTIP, a performance share consists of the
opportunity to receive up to one and one-half shares of the Corporation's Common
Stock or a lesser number of shares and a cash payment equal to the fair market
value of the remaining shares as may be established by the Plan Committee. The
percentage paid in cash shall be uniform for all participants in a particular
performance period.
A performance share at the time of grant is not a fixed commitment of the
Corporation but becomes such only as earned by the participants at the end of a
performance period. The ultimate number of performance shares with respect to
which a recipient shall be entitled to payment depends upon the level of
achievement by the Corporation, operating company, test strategy or new venture,
of pre-established performance goals during applicable performance periods.
PERFORMANCE GOALS. In order for an earn-out of performance shares to be
achieved, the Corporation, or in certain instances, alternatively as to
specified participants, the related operating company, test strategy or new
venture must meet or exceed performance goals which have been and will be set by
the Plan Committee within a reasonable period of time after the beginning of a
performance period. These
22
<PAGE>
performance goals are set at the sole discretion of the Plan Committee and may
include, but are not limited to, criteria such as PTOC, EVA, amount or rate of
growth in consolidated profits of the Corporation expressed as a percent,
earnings per share, return on capital, return on investment or return on
shareholders' equity, and may be absolute in their terms or measured against or
in relationship to other companies comparably, similarly or otherwise situated
and may, as to certain participants, relate performance to a specific operating
company, test strategy or new venture of the Corporation. The Plan Committee, in
its sole discretion, may modify the performance goals if it determines that
circumstances have changed and modification is required to reflect the original
intent of the performance goals. The Plan committee, as soon as practicable
after the close of each performance period, makes a determination of the extent,
if any, to which the Corporation, operating company or test strategy or new
venture has met or exceeded performance goals and the percentage of the
performance shares earned by participants for such performance period.
PERFORMANCE PERIOD. A performance period under the LTIP consists of a
designated period of four consecutive fiscal years. Performance Shares are
earned only at the end of a performance period and require that the recipient be
from his or her date of hire in the continuous employment of the Corporation or
any subsidiary during the subject performance period, except for certain limited
exceptions set forth under the headings "Termination of Employment or Death" and
"Change in Control."
TERMINATION OF EMPLOYMENT OR DEATH. The LTIP requires that the participant
be from the date of his or her hire in the continous employment of the
Corporation or a subsidiary during the subject performance period for the
participant to have any earn-out rights under a subject performance share except
in case of termination of employment by reason of death, total and permanent
disability, or by reason of a spin-off with the consent of the Plan Committee,
normal or late retirement or early retirement with consent of the Plan
Committee, in which instance 100% of the performance shares ultimately earned
out would be paid, or if a participant's termination of employment occurs after
15 years of continuous service, the Plan Committee may set forth conditions that
would allow all or part of the performance shares to be earned.
CHANGE IN CONTROL. In the event of a change in control, all outstanding
performance shares will be proratably payable ten days after the change in
control; provided that no performance share will be payable to a participant
within six months after the date of grant. The number of performance shares
payable is determined by multiplying 100% of each performance share grant by a
fraction, the numerator of which is the number of months that have elapsed in
the applicable performance period and the denominator of which is 48.
THE PROPOSED AMENDMENT
SECTION 162(M) CAP. As described on page 17 of this Proxy Statement, the
Section 162(m) Cap limits the Corporation's tax deduction to $1,000,000 per year
for certain compensation paid to each of the Corporation's Covered Officers.
This limitation does not apply to "performance-based compensation." Stock
options may qualify as performance-based compensation if shareholders approve a
maximum limit on the number of shares underlying such awards that may be granted
to any participant over a specified period. Performance share awards may qualify
as performance-based compensation if payment under such awards is made (i) on
account of the achievement of one or more objective performance goals
established by a committee consisting exclusively of two or more outside
directors (such as the Plan Committee), (ii) pursuant to certain terms approved
by shareholders, including the maximum amount payable to any individual and
performance goals to be used and (iii) following certification by such a
committee that the performance goals and other material conditions precedent to
payment have been satisfied. Consistent with the Corporation's policy described
on page 17, from time to time the Plan Committee may grant awards under the LTIP
which do not qualify as performance-based compensation, in which case the
compensation paid under these awards is subject to the Section 162(m) Cap.
23
<PAGE>
Since the Section 162(m) Cap became effective, the Corporation has been
operating under transition rules that do not require shareholder approval of
maximum limits and performance standards for awards to be treated as
performance-based compensation. However, this transition period will end on May
21, 1997, the date of the Annual Meeting to which this Proxy Statement relates.
Accordingly, the Board of Directors is seeking shareholder approval of an
amendment to the LTIP to permit the Corporation to continue to deduct for tax
purposes compensation paid to Covered Officers under awards that qualify as
performance-based compensation.
The amendment provides that commencing with fiscal year 1997, awards made to
any Covered Officer in any fiscal year may not include more than 1,000,000
shares in the aggregate, subject to anti-dilution adjustments as provided in the
LTIP. This limitation is required for stock options and performance shares
issued under the LTIP to qualify as performance-based compensation.
The amendment would not have changed the awards made in fiscal 1996 under
the LTIP. Nor is it intended to provide any compensation to any participant
above the level that otherwise would be provided without the amendment. The
maximum level of award established by the amendment is designed to preserve
flexibility and to enable the Corporation to comply with the technical
provisions of the Section 162(m) Cap and preserve the deductibility of
performance-based compensation paid to the Covered Officers. The tax benefits
derived from such deductions preserve corporate assets and benefit the
Corporation and its shareholders.
The affirmative vote of a majority of the voting power of the shares present
and entitled to vote is required for the LTIP, as amended, to be approved by
shareholders. Abstentions are treated as present and entitled to vote and broker
non-votes are treated as not present and not entitled to vote.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT THE SHAREHOLDERS
OF THE CORPORATION VOTE TO APPROVE THE LONG-TERM INCENTIVE PLAN, AS AMENDED.
24
<PAGE>
PROPOSAL NUMBER FOUR
APPROVAL OF AMENDED EXECUTIVE INCENTIVE PLAN
INTRODUCTION
Subject to the shareholder approval sought hereby, the Board of Directors
amended the Corporation's Executive Incentive Plan (the "EIP") for the purpose
of permitting the Corporation to continue deducting for tax purposes certain
compensation under the EIP. The basic features of the EIP and the amendment are
summarized below. The amendment will not become effective unless approved by
shareholders.
BACKGROUND
The Corporation has two short-term incentive plans: the Personal Score Plan
and the EIP. Those plans combine subjective (Personal Score) and objective (EIP)
performance measures to evaluate participant performance and are described in
the Report of the Compensation Committee on Executive Compensation. The
Compensation Committee believes that the performance measures promote the
Corporation's pay-for-performance philosophy.
GENERAL
The EIP measures an operating company's or the Corporation's performance
against annually pre-determined goals based upon PTOC and EVA to determine bonus
amounts. The outside directors set annual PTOC and EVA goals in conjunction with
establishing other financial performance goals for the operating companies and
the Corporation. The Compensation Committee then uses the PTOC and EVA goals to
establish the PTOC and EVA bonus ranges for use in conjunction with the EIP and
determines what level of bonuses will be paid if PTOC and EVA performance falls
within the bonus ranges.
ELIGIBILITY. Participation in the EIP is limited to upper level executive
employees of the Corporation and the operating companies. The Compensation
Committee determines which executives participate in each of the plans and the
percentage of participation in each plan. Approximately 100 executive employees
are eligible to participate in the EIP.
DEFINITION OF PTOC. "PTOC" (pre-tax operating contribution) is operating
income on a first-in, first-out inventory accounting basis, with certain
conforming adjustments for treating all leases as operating leases and ignoring
the effects of securitizing accounts receivable and large non-recurring items.
DEFINITION OF EVA. "EVA" (economic value added) is PTOC after taxes less a
Capital Charge. The "Capital Charge" is the cost of capital invested in the
business operation, adjusted for the maturity of the assets employed by such
business operation.
DETERMINATION OF BONUS AMOUNTS. Bonuses may be determined and awarded on
the basis of PTOC or EVA. The "PTOC Score" and "EVA Score" for the fiscal year
are determined from performance schedules, approved by the Compensation
Committee, that designate a score for each varying level of PTOC and EVA
performance, respectively, achieved by an operating company and/or the
Corporation. The Compensation Committee also adopts a "PTOC Bonus Matrix" and an
"EVA Bonus Matrix" which assign varying bonus percentages based on the
participant's job grade and PTOC Score and EVA Score. Bonuses are then
determined under a non-pooled or pooled calculation at the discretion of the
Compensation Committee.
NON-POOLED BONUSES. The bonuses amount from each participant is calculated
by multiplying the participant's bonus percentage from the relevant Bonus Matrix
by the midpoint of the salary range of the
25
<PAGE>
participant's job grade level and then multiplying that result by the
participant's percentage of participation in the PTOC Plan. For example, if the
participant is participating in the PTOC Plan at 25% and the EVA Plan at 50%,
the PTOC result is multiplied by 1/4 and the EVA result is multiplied by 1/2.
In order to receive a bonus under the EIP a participant's score under the
Personal Score Plan must equal or exceed a minimum score set by the Compensation
Committee.
THE PROPOSED AMENDMENT. As described on page 17 of this Proxy Statement,
the Section 162(m) Cap limits the Corporation's tax deduction to $1,000,000 per
year for certain compensation paid to each of the Corporation's Covered
Officers. This limitation does not apply to "performance-based compensation."
Bonus awards paid under the EIP will qualify as performance-based compensation
if shareholders approve the proposed amendment which adjusts the maximum cash
bonus payable to any participant during a fiscal year.
The maximum bonus currently payable under the EIP (PTOC and EVA combined)
together with the Personal Score Plan is 250% of the salary of the CEO or other
Covered Officer set forth in the Proxy Statement for the year during which the
bonus was earned. If the CEO or other Covered Officer held a different office or
was not employed in his or her position for the full year covered by that Proxy
Statement, the maximum bonus is 250% of the highest salary reported in such
year. The aggregate of all such bonuses paid to any other executive who is not a
Covered Officer under any combination of the EIP and the Personal Score Plan may
not exceed 250% of his or her base salary.
As amended, the maximum bonus payable under the EIP (PTOC and EVA combined)
together with the Personal Score Plan will be 400% of the salary of the CEO or
other Covered Officer set forth in the Proxy Statement for the year during which
the bonus was earned. If the CEO or other Covered Officer held a different
office or was not employed in his or her position for the full year covered by
that Proxy Statement, the maximum bonus will be 400% of the highest salary
reported in such year. However, for purposes of calculating the maximum bonus
payable to the CEO or any other Covered Officer, the salary of the participant
may not exceed 200% of the fiscal 1996 salary of the CEO as reported in the
Summary Compensation Table in this Proxy Statement. The aggregate of all bonuses
payable to any other executive not listed above under any combination of the EIP
and the Personal Score Plan will not exceed 400% of his or her base salary.
The Board of Directors believes that the amendment is consistent with the
Corporation's pay-for-performance philosophy. The amendment will allow a greater
proportion of total compensation to be paid under performance-based formulas,
rather than as a base salary. It will also enable the Corporation to comply with
the technical provisions of the Section 162(m) Cap and preserve the
deductibility of performance-based compensation paid to the Covered Officers.
The tax benefits derived from such deductions preserve corporate assets and
benefit the Corporation and its shareholders.
If the proposed amendment to the EIP had been in effect during fiscal 1996,
it would not have changed the bonus amounts actually earned by the Covered
Officers for that year, which amounts are reflected in the "Annual
Compensation-Bonus" column of the Summary Compensation Table in this Proxy
Statement. Nor would the amendment have changed the aggregate bonuses actually
earned in fiscal 1996 by all executive officers as a group (14 people) and by
all employees as a group (84 people) which were $12,714,089 and $31,052,528,
respectively.
The affirmative vote of a majority of the voting power of the shares present
and entitled to vote is required for the EIP, as amended, to be approved by
shareholders. Abstentions are treated as present and entitled to vote and broker
non-votes are treated as not present and not entitled to vote.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT THE SHAREHOLDERS
OF THE CORPORATION VOTE TO APPROVE THE EXECUTIVE INCENTIVE PLAN, AS AMENDED.
26
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of Common Stock and Series B ESOP Convertible Preferred Stock
of record at the close of business on March 28, 1997 will be entitled to vote at
the meeting and any adjournment thereof. At the close of business on such record
date, the Corporation had outstanding 217,568,590 shares of Common Stock and
379,439 shares of Series B ESOP Convertible Preferred Stock. Each share of
Common Stock has one vote and each share of Series B ESOP Convertible Preferred
Stock is convertible into 30 shares of Common Stock and has 30 votes. Common
Stock and Series B ESOP Convertible Preferred Stock vote as a single class,
except as required by law.
Set forth below is information regarding equity securities of the
Corporation or any of its parents or subsidiaries owned beneficially (as defined
by the SEC for proxy purposes) on April 1, 1997 by all directors and nominees,
each of the named executive officers and all directors and executive officers of
the Corporation as a group:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT AND NATURE PERCENT
OR NUMBER OF TITLE OF OF BENEFICIAL OF
PERSONS IN GROUP CLASS OWNERSHIP(1)(2) CLASS
- --------------------------------------------------------------- ---------- --------------------------- ---------
<S> <C> <C> <C>
Livio D. DeSimone.............................................. Common 7,962(5) *
Roger A. Enrico................................................ Common 18,273 *
William W. George.............................................. Common 9,249 *
Roger L. Hale.................................................. Common 15,918 *
Betty Ruth Hollander........................................... Common 21,459 *
Michele J. Hooper.............................................. Common 7,074 *
James A. Johnson............................................... Common 6,090 *
Richard M. Kovacevich.......................................... Common 3,112 *
Stephen W. Sanger.............................................. Common 2,931 *
Solomon D. Trujillo............................................ Common 5,637 *
Robert J. Ulrich(3)............................................ Common 365,165(6) *
John R. Walter................................................. Common 6,726 *
Kenneth B. Woodrow(3)(4)....................................... Common 110,375(6) *
Gregg W. Steinhafel(3)(4)...................................... Common 69,642(6) *
John E. Pellegrene(3)(4)....................................... Common 47,740(6) *
Larry V. Gilpin(3)(4).......................................... Common 32,875(6) *
All directors and executive officers of the Corporation as a
group (25 persons)........................................... Common 961,906(6)(7) *
</TABLE>
- ------------------------
* Less than 1%
(1) The persons listed have sole voting and investment power with respect to the
shares listed except that Messrs. DeSimone and Johnson have (i) sole voting
and sole investment power over 750 shares and 344 shares, respectively, and
(ii) shared voting and investment power over 500 shares and 1,000 shares,
respectively. Restricted stock owned by directors is listed as sole voting
and investment power.
(2) Includes shares that the named individuals may acquire on or before June 13,
1997 pursuant to options held by them under the Corporation's LTIP or its
1995 Director Stock Option Plan as follows: Messrs. and Madams DeSimone,
3,918 shares; Enrico, 3,918 shares; George, 3,918 shares; Hale, 3,918
shares; Hollander, 3,918 shares; Hooper, 3,918 shares; Johnson, 1,764
shares; Sanger, 1,764 shares; Trujillo, 3,918 shares; Ulrich, 230,064
shares; Walter, 3,918 shares; Woodrow, 90,723 shares; Steinhafel, 57,473
shares; Pellegrene, 41,106 shares; and Gilpin, 21,489 shares; and all
executive officers as a group, 699,030 shares.
(3) Executive officer.
27
<PAGE>
(4) Includes shares of Common Stock held in the Corporation's Supplemental
Retirement, Savings, and Employee Stock Ownership Plan as of February 1,
1997.
(5) Includes 1,800 shares of Common Stock owned as of April 1, 1997 by certain
of Mr. DeSimone's family members as to which shares he disclaims beneficial
ownership.
(6) Ownership of Preferred Stock is not reflected in the table above. As of
February 1, 1997, Messrs. Ulrich, Woodrow, Steinhafel, Pellegrene and Gilpin
each owned 66 shares of Series B ESOP Convertible Preferred Stock
("Preferred Stock"), and all directors and executive officers of the
Corporation owned 733 shares of Preferred Stock.
The table below sets forth certain information, as to each person or entity
known to the Corporation to be the beneficial owner of more than five percent of
any class of the Corporation's voting securities:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS TITLE OF BENEFICIALLY PERCENT
OF BENEFICIAL OWNER CLASS OWNED OF CLASS
- ---------------------------------------------------- ---------- ----------------- ------------
<S> <C> <C> <C>
State Street Bank and Trust Company................. Common 17,434,062(1) 8.0%
Benefit Plan Services
200 Newport Avenue, #7N
North Quincy, Massachusetts 02171
FMR Corp............................................ Common 15,503,272(2) 7.2%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc............................. Common 14,884,823(3) 6.9%
One Post Office Square
Boston, Massachussetts 02109
</TABLE>
- ------------------------
(1) State Street Bank and Trust Company ("State Street") reported its beneficial
ownership as of December 31, 1996 on a Schedule 13G filed with the SEC. The
filing indicates that State Street has sole voting power for 0 shares,
shared voting power for 17,434,062 shares, sole dispositive power for 0
shares and shared dispositive power for 17,434,062 shares. The shares
reflected in the table include the Common Stock equivalent of the
unallocated shares of Series B ESOP Convertible Preferred Stock held in the
Dayton Hudson Corporation Supplemental Retirement, Savings, and Employee
Stock Ownership Plan Trust, of which State Street is trustee.
(2) FMR Corp. ("FMR") reported its beneficial ownership as of December 31, 1996
on a Schedule 13G filed with the SEC. The filing indicates that FMR has sole
voting power for 351,957 shares, shared voting power for 0 shares, sole
dispositive power for 15,503,272 shares and shared dispositive power for 0
shares.
(3) Putnam Investments, Inc. ("PI") on behalf of itself and Marsh & McLennan
Companies, Inc. ("MMC"), Putnam Investment Management, Inc. ("PIM") and The
Putnam Advisory Company, Inc. ("PAC") reported its beneficial ownership as
of December 31, 1996 on a Schedule 13G filed with the SEC. The filing
indicates that: MMC has sole voting power for 0 shares, shared voting power
for 0 shares, sole dispositive power for 0 shares and shared dispositive
power for 0 shares; PI has sole voting power for 0 shares, shared voting
power for 953,610 shares, sole dispositive power for 0 shares and shared
dispositive power for 14,884,823 shares; PIM has sole voting power for 0
shares, shared voting power for 0 shares, sole dispositive power for 0
shares and shared dispositive power for 12,792,813 shares; and PAC has sole
voting power for 0 shares, shared voting power for 953,610 shares, sole
dispositive power for 0 shares and shared dispositive power for 2,092,010
shares. PI, which is a wholly-owned subisidiary of MMC, wholly owns two
registered investment advisers: PIM, which is the investment adviser to the
PI family of mutual funds, and PAC, which is the investment adviser to PI's
institutional clients.
28
<PAGE>
ADDITIONAL INFORMATION
POLICY ON CONFIDENTIAL VOTING
It is the policy of the Corporation that all shareholder meeting proxies,
ballots and voting tabulations of a shareholder are to be confidential, if the
shareholder has requested confidentiality on the proxy card or ballot.
If the shareholder so requests, no such document will be available for
examination nor will the particular vote of such shareholder be disclosed prior
to the tabulation of the final vote at the annual shareholder meeting except (i)
to meet applicable legal requirements; or (ii) to allow the independent election
inspectors to count and certify the results of the shareholder vote; or (iii)
where there is a proxy solicitation in opposition to the Board of Directors,
based upon an opposition proxy statement filed with the SEC. The independent
election inspectors may at any time inform the Corporation whether or not a
shareholder has voted.
COMMITMENT TO DIVERSITY
The Corporation believes that attracting and retaining an employee
population reflecting the diversity of the customers and communities it serves
is an important goal and will provide a competitive advantage. The Corporation
is an equal opportunity employer and communicates to its employees information
regarding equal employment opportunities. The Corporation also encourages the
use of minority and women-owned contractors and service providers and it
supports the efforts of its employees, suppliers and vendors to adhere to these
principles of corporate responsibility.
The Corporation provides detailed statistical information on equal
employment opportunity to the federal government as required by law. Information
regarding the Corporation's diversity programs and its diverse employee
population are available upon request from the Corporation's Secretary.
For the benefit of hearing impaired persons, a sign language interpreter
will be present at the Corporation's 1997 Annual Meeting.
GENERAL
As of the date of this proxy statement, management knows of no matters that
will be presented for determination at the meeting other than those referred to
herein. If any other matters properly come before the meeting calling for a vote
of shareholders, it is intended that proxies in the enclosed form will be voted
in accordance with the judgment of the individual voting the proxies.
Expenses in connection with the solicitation of proxies will be paid by the
Corporation. Proxies are being solicited principally by mail and by telephone.
Georgeson & Company, Inc. has been retained by the Corporation to act as a proxy
solicitor for a fee estimated not to exceed $20,000, plus reimbursement of
out-of-pocket expenses. In addition, directors, officers and regular employees
of the Corporation may solicit proxies personally, by telephone, by fax or by
special letter. The Corporation may reimburse brokerage firms and others for
their expenses in forwarding proxy materials to the beneficial owners of shares
of the Corporation.
The Annual Report of the Corporation for the fiscal year ended February 1,
1997, including financial statements, is enclosed.
SHAREHOLDER PROPOSALS
Any shareholder proposals for the Corporation's 1998 Annual Meeting must be
received by the Secretary of the Corporation by December 15, 1997 in order to be
included in the proxy statement. Under the Corporation's By-laws, as amended, if
a shareholder plans to propose an item of business to be considered at any
annual or special meeting of shareholders, that shareholder is required to give
notice of
29
<PAGE>
such proposal to the Secretary of the Corporation at least 60 days prior to the
meeting and to comply with certain other requirements. The proposals also must
comply with all applicable statutes and regulations.
By Order of the Board of Directors
JAMES T. HALE
Secretary
Minneapolis, Minnesota
April 14, 1997
30
<PAGE>
PROXY
DAYTON HUDSON CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF SHAREHOLDERS MAY 21, 1997
Robert J. Ulrich, Douglas A. Scovanner and James T. Hale, and each of
them, are hereby appointed proxies, with power of substitution to each, to
represent and to vote as designated below and on the reverse side hereof, all
shares of capital stock of Dayton Hudson Corporation, a Minnesota
corporation, held by the undersigned at the Annual Meeting of Shareholders to
be held on May 21, 1997, and at any adjournment thereof. THIS PROXY WILL BE
VOTED AS DIRECTED, BUT IF NO DIRECTION IS GIVEN IT WILL BE VOTED FOR
PROPOSALS SET FORTH IN ITEMS 1, 2, 3 AND 4. THE PROXIES CANNOT VOTE YOUR
SHARES UNLESS YOU SIGN THIS CARD ON THE REVERSE SIDE AND RETURN THIS CARD.
For participants in the Supplemental Retirement, Savings and Employee
Stock Ownership Plan, this proxy card will constitute voting instructions to
the Trustee under this Plan. As a participant in this Plan, the undersigned
understands that, in accordance with the terms of the Plan, these
instructions shall be held in the strictest confidence by the Trustee and
shall not be divulged or released to any person, including officers or
employees of the Company. THESE INSTRUCTIONS WILL BE FOLLOWED AS DIRECTED,
BUT IF NO DIRECTION IS GIVEN, THE TRUSTEE IS INSTRUCTED TO VOTE FOR PROPOSALS
SET FORTH IN ITEMS 1, 2, 3 AND 4. SHARES HELD IN THE PLAN FOR WHICH NO VOTING
INSTRUCTIONS ARE RECEIVED BY THE TRUSTEE WILL BE VOTED IN THE SAME PROPORTION
AS VOTES ACTUALLY CAST BY PLAN PARTICIPANTS.
(INSTRUCTION: To withhold authority to vote for any named nominee or a
substitute nominee designated by the Board of Directors, write that nominee's
name or the words "substitute nominee" on the space provided on the reverse
side.)
SEE REVERSE
SIDE
- -------------------------------------------------------------------------------
--FOLD AND DETACH HERE--
ANNUAL MEETING
OF
DAYTON HUDSON CORPORATION SHAREHOLDERS
WEDNESDAY, MAY 21, 1997
9:30 A.M. CDT
THE CHILDREN'S THEATRE
2400 3RD AVENUE SOUTH
MINNEAPOLIS, MINNESOTA
Please present this ADMISSION TICKET at the Annual
Shareholders' Meeting as verification of your
Dayton Hudson share ownership.
<PAGE>
/X/ Please mark your votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
1. Election of Directors FOR / / WITHHELD / /
For, except withheld from the following nominee(s):
- ---------------------------------------------------
1. Election of Directors, Nominees: Betty Ruth Hollander, Richard M.
Kovacevich, Solomon D. Trujillo and Robert J. Ulrich.
2. Appointment of Ernst & Young as Independent Auditors
/ / FOR / / AGAINST / / ABSTAIN
3. Approval of Amended Long-Term Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Approval of Amended Executive Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark here if you would like your voting instructions to be confidential
pursuant to the Dayton Hudson Corporation Policy on Confidential Voting
described in the 1997 Proxy Statement.
Signature(s) ______________________________Date ____________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- ------------------------------------------------------------------------------
--FOLD AND DETACH HERE--
DAYTON HUDSON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
