UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.     )

 

 

 

 

 

8000 Bent Branch Drive

Irving, Texas 75063

April 30, 2019

Dear Stockholder:

We cordially invite you to attend our 2019 Annual Meeting of Stockholders on Tuesday, June 11,  2019, at 8:00 a.m. (local time), to be held at 8000 Bent Branch Drive, Irving, Texas 75063.

The Michaels Companies, Inc. has elected to deliver our proxy materials to our stockholders over the Internet under the Securities and Exchange Commission rules that allow companies to furnish proxy materials to stockholders over the Internet. This delivery process allows us to provide stockholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. On April 30, 2019, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy statement for our 2019 Annual Meeting of Stockholders and our 2018 Annual Report to Stockholders. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail.

The Notice will serve as an admission ticket for one stockholder (or proxyholder) to attend the 2019 Annual Meeting of Stockholders. If you request and receive a paper copy of the proxy materials in the mail, the proxy card includes an admission ticket for one stockholder (or proxyholder) to attend the Annual Meeting of Stockholders. All stockholders and proxyholders must also present a valid form of government‑issued picture identification in order to attend.

The proxy statement accompanying this letter describes the business we will consider at the meeting. Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting, we encourage you to consider the matters presented in the proxy statement and vote as soon as possible.

We hope that you will be able to join us on June 11th.

Sincerely,

 

The Michaels Companies, Inc.

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

June 11, 2019

 

The 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of The Michaels Companies, Inc. (the “Company” or “Michaels”) will be held at the Company’s Support Center, 8000 Bent Branch Drive, Irving, Texas 75063 on Tuesday,  June 11, 2019 at 8:00 a.m. (local time) for the following purposes as further described in the proxy statement accompanying this notice:

 

 

 

 

Stockholders of record at the close of business on April 16,  2019 are entitled to notice of, and entitled to vote at, the Annual Meeting and any adjournments or postponements thereof.

 

To attend the Annual Meeting, you must demonstrate that you were a Michaels stockholder as of the close of business on April 16, 2019, or hold a valid proxy for the Annual Meeting from such a stockholder. If you received a Notice of Internet Availability of Proxy Materials, the Notice will serve as an admission ticket for one stockholder to attend the 2019 Annual Meeting of Stockholders. If you request and receive a paper copy of the proxy materials in the mail, the proxy card includes an admission ticket for one stockholder to attend the Annual Meeting of Stockholders. You may alternatively present a brokerage statement showing proof of your ownership of Michaels stock as of April 16, 2019.  All stockholders must also present a valid form of government‑issued picture identification in order to attend. Please allow additional time for these procedures.

 

 

Irving, Texas

April 30, 2019

TABLE OF CONTENTS

 

 

 

 

The Michaels Companies, Inc.

 

ANNUAL MEETING OF STOCKHOLDERS

 

June 11, 2019

 

PROXY STATEMENT

 

The Board of Directors of The Michaels Companies, Inc. is soliciting your proxy for the 2019 Annual Meeting. Attendance in person or by proxy of a majority of the shares outstanding and entitled to vote at the meeting is required for a quorum for the meeting. 

 

You may vote on the Internet, using the procedures and instructions described on the Notice of Internet Availability of Proxy Materials (the “Notice”) that you received. If you request and receive a paper copy of these proxy materials, included with such copy is a proxy card or a voting instruction card from your bank, broker or other nominee for the Annual Meeting. You may vote by telephone using the toll‑free telephone number contained on the Notice, proxy card, or voting instruction card. Both Internet and telephone voting provide easy‑to‑follow instructions and have procedures designed to authenticate your identity and permit you to confirm that your voting instructions are accurately reflected.

 

You may revoke your proxy at any time before it is voted by voting later by telephone or Internet, returning a later‑dated proxy card, or delivering a written revocation to the Secretary of Michaels.

 

Stockholders of record at the close of business on April 16, 2019 are entitled to vote at the meeting. Each of the 158,121,299 shares of Common Stock outstanding on the record date is entitled to one vote.

 

This proxy statement, the proxy card and the 2018 Annual Report to Stockholders for our fiscal year ended February 2,  2019 (fiscal 2018) are being first mailed or made available to stockholders on or about the date of the notice of meeting. Our address is 8000 Bent Branch Drive, Irving, Texas 75063.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on June 11, 2019: Our proxy statement is attached. Financial and other information concerning Michaels is contained in our 2018 Annual Report to Stockholders for the fiscal year ended February 2, 2019. The proxy statement and our 2018 Annual Report to Stockholders are available on our website at http://investors.michaels.com. Additionally, you may access our proxy materials at www.proxyvote.com, a site that does not have “cookies” that identify visitors to the site.

 

 

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

Our Second Amended and Restated Certificate of Incorporation (the “Charter”) provides for no fewer than three and no more than fifteen Directors, with the exact number to be fixed by our Board of Directors. Our Board currently consists of ten Directors. The current term of all of our Directors expires at the Annual Meeting.

 

On February 28, 2019, the Company announced the appointment of Mark S. Cosby as the Interim Chief Executive Officer of the Company and a member of the Company’s Board of Directors. Mr. Cosby succeeded Carl S. Rubin, who resigned from his role as Chief Executive Officer effective February 28, 2019.  Mr. Rubin resigned from his role as Chairman of the Board and his employment as an employee of Michaels Stores, Inc. (“MSI”) terminated effective April 1, 2019.

 

Effective November 21, 2018, James Quella became the Lead Independent Director of the Board. In connection with Mr. Rubin’s resignation, Mr. Quella became Chairman of the Board.

 

All of our current Directors are standing for election at the Annual Meeting and have been recommended for nomination by our Nominating and Governance Committee and nominated by our Board for election at the Annual Meeting.

 

In making its recommendations for nominees, the Nominating and Governance Committee seeks nominees with established strong professional reputations, sophistication and experience in the retail and consumer industries. We also seek nominees with experience in substantive areas that are important to our business such as marketing and brand management; sales, buying and distribution; accounting, finance and capital structure; strategic planning and leadership of complex organizations; technology and social and digital media; human resources and development practices; and strategy and innovation. Our nominees hold or have held senior executive positions in large, complex organizations or in businesses related to important substantive areas, and in these positions have also gained experience in core management skills and substantive areas relevant to our business. Our nominees also have experience serving on boards of directors and board committees of other public companies, and each of our nominees has an understanding of corporate governance practices and trends.

 

We believe that each of our nominees possesses the professional and personal qualifications necessary for board service, and we have highlighted particularly noteworthy attributes for each director in the individual biographies below. The Board believes that each of the nominees listed brings strong skills and experience to the Board, giving the Board as a group the appropriate skills to exercise its responsibilities.

 

In connection with our initial public offering, we entered into an investor agreement with our significant stockholders, affiliates of or funds advised by Bain Capital Private Equity, L.P. (“Bain”) and The Blackstone Group L.P. (“Blackstone”), granting each of Bain and Blackstone the right, subject to certain conditions, to name representatives to our Board. Bain currently has the right to designate up to three nominees for election to our Board, and has designated Joshua Bekenstein and Ryan Cotton. Blackstone currently has the right to designate up to two nominees for election to our Board, and has designated Peter F. Wallace. Among other factors, the Nominating and Governance Committee and the Board reviewed and considered the investor agreement when determining the independence of directors designated as nominees by Bain and Blackstone. For more information, see “– Corporate Governance – Investor Agreement”.

 

Each nominee has consented to be named as a nominee for election as a Director and has agreed to serve if elected. If any of the nominees is not available for election at the time of the Annual Meeting, discretionary authority will be exercised to vote for substitutes designated by our Board of Directors, unless the Board chooses to reduce further the number of Directors. Management is not aware of any circumstances that would render any nominee unavailable. Directors elected at the Annual Meeting will hold office until the 2020 Annual Meeting or until their successors are elected and qualified.

 

Members of the Board are elected by a plurality of the votes cast at the Annual Meeting. This means that the director nominees with the most votes will be elected. Shares voting “Abstain” or broker non‑votes will have no effect

on the election of Directors. Brokers, banks and other nominees have no discretionary voting power in respect of this item. See, “Voting Requirements and Proxies.”

 

Your Board of Directors unanimously recommends that you vote FOR the election of each of the nominees as director.

 

Set forth below is information concerning each of the incumbent directors standing for election, including their ages as of April 16, 2019, present principal occupations, other business experiences during at least the last five years, membership on committees of the Board, public company directorships held during the last five years and certain other directorships.

 

 

Mr. Bekenstein is a Managing Director and Co-Chairman of Bain, having joined Bain at its inception in 1984. Prior to joining Bain, Mr. Bekenstein spent two years at Bain & Company as a consultant, where he was involved with companies in a variety of industries. Mr. Bekenstein serves as a director of Bright Horizons Family Solutions and Canada Goose Holdings Inc. Mr. Bekenstein received an M.B.A. from Harvard Business School and a B.A. from Yale University. Mr. Bekenstein possesses valuable financial expertise, including extensive experience with capital markets transactions and investments in both public and private companies.  Mr. Bekenstein’s many years of experience both as a senior executive of a large investment firm and as a director of companies in various business sectors make him highly qualified to serve on our Board.

 

Mr. Cosby was named Interim Chief Executive Officer and member of the Board of Directors in February 2019. Prior to joining the Company, Mr. Cosby served as President, North America for Office Depot from July 2014 until December 2016. From September 2011 to November 2013, Mr. Cosby served as President, Retail at CVS Caremark Corporation, where he was responsible for all aspects of the $65 billion retail business, including 7,600 retail stores, 19 distribution centers, retail merchandising, supply chain, marketing, real estate and store pharmacy operations. Prior to CVS, Mr. Cosby spent five years at Macy’s, Inc., where he served in a number of executive roles, including President, Stores from April 2009 to August 2011. Prior to Macy’s, Inc., Mr. Cosby served as President, Full-line Stores at Sears, Roebuck & Company and chief operating officer and chief development officer at YUM! Brands, Inc. Mr. Cosby serves on the Board of Directors of 2nd Swing, a specialty retailer and online seller of new and used golf equipment and accessories.

 

Mr. Cotton joined Bain in 2003, and has served as a Managing Director in the North American Private Equity – Consumer, Retail & Dining Vertical since 2015. Prior to joining Bain, Mr. Cotton was a consultant at Bain & Company, and worked in baseball operations at the Boston Red Sox. He is currently a member of the Board of Directors of Canada Goose Holdings Inc.,  and the boards of private companies, including Blue Nile Inc., Daymon Worldwide Inc., TOMS Shoes, and Virgin Voyages. Mr. Cotton received an M.B.A. from The Stanford Graduate School of Business where he was a Siebel Scholar, an Arjay Miller Scholar, and the winner of the Alexander A. Robichek Award for Outstanding Achievement in Finance. He received an A.B. in Philosophy from Princeton University. Mr. Cotton adds value to our Board through his extensive retail experience and prior public and private board service.

 

Mr. Ford is currently the Principal Partner at the CIO Strategy Exchange, an organization of the top 50 sitting Chief Information Officers in business. He also serves as a Network Partner to Brightwood Capital Advisors, which provides growth capital to growing middle-market businesses. From February 2012 until September 2013, he was the Chief Executive Officer of Aptean Software Corporation, a provider of enterprise application software. Prior to joining Aptean, he served as Senior Vice President and Chief Information Officer of American Airlines, Inc. from December

2000 through December 2011. Mr. Ford currently sits on the board of directors of Akamai Technologies, Inc., a leading internet network and security company where he serves on the Compensation Committee and Nominating and Corporate Governance Committee, and Iron Mountain Incorporated, a storage and information management company where he serves on the Compensation Committee and Risk and Safety Committee. Mr. Ford’s diverse leadership experience as well as extensive background in Information Technology make him a valuable contributor to our Board.

 

Ms. Kaplan has served as Chairman and Chief Executive Officer of Hill Holliday, Inc., one of the nation’s largest advertising agencies, since 2013, and has served in various roles for Hill Holliday since 1982. Ms. Kaplan is a Trustee of Fidelity Investments, a multinational financial services corporation, where she serves on the Audit and Compliance Committee and Nominating and Governance Committee. Ms. Kaplan was previously a member of the board of directors of each of Vera Bradley, Inc. and DSM USA Insurance Company, Inc. Ms. Kaplan holds a B.A. from the University of Massachusetts. Ms. Kaplan’s significant marketing and branding experience, as well as a strong tactical and financial background, allows her to provide valuable insight and make important contributions to our Board.

 

Mr. Levin serves as a Senior Advisor for Bain in the private equity business. From 2001 through 2015, Mr. Levin was a Managing Director of Bain and leader within the North America consumer products and retail industry vertical. Prior to joining Bain in 1992, Mr. Levin was a consultant at Bain & Company where he consulted in the consumer products and manufacturing industries. Mr. Levin received an M.B.A from Harvard Business School where he was a Baker Scholar, and a B.S. from the University of California Berkeley. Mr. Levin has also served on numerous other corporate boards over the course of his professional career. Mr. Levin’s significant experience in and knowledge of corporate finance and managing companies put him in a position to provide important contributions to our Board.

 

Mr. Mahoney retired as Vice Chairman of Staples, Inc. in July 2012, having served as Vice Chairman since January 2006. Mr. Mahoney also served as Chief Financial Officer for Staples, Inc. from 1996 through January 2012. Prior to 1996, Mr. Mahoney was a partner at Ernst & Young, LLP. He currently serves on the Board of Directors of Bloomin’ Brands, Inc., Burlington Stores, Inc. and Chico’s FAS, Inc. In addition to serving on the Audit Committees of each of Bloomin’ Brands, Inc. and Chico’s FAS, Inc., Mr. Mahoney also serves on the Nominating and Governance Committee of Bloomin’ Brands, Inc. and the Compensation Committees of both of Burlington Stores, Inc. and Chico’s FAS, Inc. Previously, Mr. Mahoney served on the Board of Directors of Advo, Inc. and Zipcar, Inc. Mr. Mahoney holds an M.B.A. from Northeastern University, as well as an undergraduate degree from the College of the Holy Cross. Mr. Mahoney’s strong financial background and experience as a Vice Chairman and former Chief Financial Officer of a Fortune 500 retail company, enables him to provide valuable counsel to our management and Board.  

 

Mr. Quella was named Chairman of the Board in April 2019 and Lead Independent Director in November 2018. Mr. Quella retired as a Senior Managing Director, Senior Operating Partner and co-head of the Portfolio Operations Group at Blackstone in the Private Equity Group in June 2014, having served in these roles since 2003. Mr. Quella received a B.A. in International Studies from the University of Chicago/University of Wisconsin Madison and an M.B.A. with Dean’s Honors from the University of Chicago Graduate School of Business. Mr. Quella serves as a director of DJO Global, Inc., Dun and Bradstreet Corporation and FGL Holdings, and serves on the Compensation Committees of both DJO Global, Inc. and FGL Holdings, the Audit Committee of Dun and Bradstreet Corporation and the Nominating and Corporate Governance Committee of FGL Holdings. Mr. Quella was formerly a director of Allied Waste, Catalent Pharma Solutions, Inc., Columbia House, Celanese Corporation, Freescale Semiconductor, Inc., Graham Packaging Company, L.P., Houghton Mifflin Harcourt Company, Intelenet Global Services, Lionbridge Technologies, Inc., The Nielsen Company and Vanguard Health Systems, Inc. Due to contributions that Mr. Quella can provide to our Board resulting from his financial expertise, as well as his significant experience in working with companies transitioning from control by private equity sponsors, he is qualified to be on and is an asset to our Board.

 

Ms. Raff has been Chief Executive Officer and Chairman of Helzberg Diamond Shops, Inc., a wholly owned subsidiary of Berkshire Hathaway Inc., since April 2009. From 2001 to 2009, and prior to joining Helzberg, Ms. Raff served in various management positions at J. C. Penney Company, Inc., most recently as Executive Vice President and General Merchandising Manager since September 2005. Prior to joining J.C. Penney, Ms. Raff served as Chairman and CEO of Zale Corporation. Ms. Raff is a director of Helen of Troy, Ltd., and serves on its Audit Committee. Ms. Raff was previously a director of Group 1 Automotive, Inc., Jo‑Ann Stores, Inc., The Make-A-Wish Foundation and Zale Corporation. Ms. Raff received her B.B.A. from Boston University and her M.B.A. from Drexel University. Ms. Raff adds value to our Board through her extensive experience in operating and managing large retail companies, as well as her prior public board service.

 

Mr. Wallace is a Senior Managing Director at Blackstone in the private equity group, which he joined in 1997. Mr. Wallace received a B.A. in Government from Harvard College. Mr. Wallace serves on the board of directors of Outerstuff, Ltd., Service King Collision Repair, Vivint, Inc., Vivint Solar and The Weather Group. Mr. Wallace was formerly a director of AlliedBarton Security Services,  GCA Services Group and SeaWorld Parks & Entertainment. These experiences and knowledge, along with his service on public company boards, enhance Mr. Wallace’s contributions and value to our Board.

 

BOARD STRUCTURE AND BOARD COMMITTEES

 

Board Committees

 

We have an Audit Committee, a Compensation Committee and a Nominating and Governance Committee, which have the composition and responsibilities described below. Each committee operates under a charter that has been approved by our Board. A copy of each charter can be found by clicking on “Governance” in the Investor Relations section of our website www.michaels.com.  The Board considers the Nominating and Governance Committee’s recommendation prior to appointing the individuals to serve as members of each committee. Each member serves until his or her successor is elected and qualified, unless he or she is earlier removed or resigns. In addition, from time to time, special committees may be established under the direction of the Board when necessary to address specific issues.

 

Audit Committee

 

The purpose of the Audit Committee is to assist the Board in fulfilling the Board’s oversight responsibilities with various aspect of the Company’s business, including but not limited to the integrity of the Company’s financial statements and the Company’s compliance with legal and regulatory requirements. The Audit Committee’s primary duties and responsibilities are to:

 

 

 

 

 

 

 

The Audit Committee consists of Mr. Ford, Ms. Kaplan and Mr. Mahoney, each of whom has been determined to be an independent director by our Board. Mr. Mahoney is also an “audit committee financial expert” within the meaning of Item 407 of Regulation S‑K. A copy of the Audit Committee charter is available on our website. The Audit Committee met seven times in fiscal 2018.

 

Compensation Committee

 

The purpose of the Compensation Committee is to assist the Board in fulfilling responsibilities relating to oversight of the Company’s incentive and equity‑based compensation programs as well as the compensation of our directors, executive officers and other employees. The Compensation Committee reviews and provides recommendations and guidance to our Board with respect to compensation plans, policies and programs and approves specific compensation levels for all executive officers. In fiscal 2018, the Compensation Committee met ten times. The Compensation Committee consists of Ms. Raff and Messrs. Levin, Quella and Wallace, each of whom has been

determined to be an independent director by our Board. A copy of the Compensation Committee charter is available on our website.

 

Nominating and Governance Committee

 

The purpose of the Nominating and Governance Committee is to oversee the director nomination process and maintain the Company’s corporate governance guidelines. The Nominating and Governance Committee’s primary duties and responsibilities are to review recommendations and nominations for individuals to serve as directors, recommend a slate of director nominees to the Board, taking into account each candidate’s ability, judgment and experience and the overall diversity and composition of the Board, determine and recommend for Board approval independence of our directors and manage the Board and committee evaluation process. The committee is also responsible for recommending to the Board qualified individuals to serve as committee members on the various Board committees, annually reviewing the Company’s corporate governance guidelines and identifying best practices with respect to corporate governance. A copy of the Nominating and Governance Committee charter is available on our website.

 

The Nominating and Governance Committee consists of Mr. Ford, Ms. Kaplan and Mr. Mahoney, each of whom has been determined to be an independent director by our Board. In fiscal 2018, the Nominating and Governance Committee met five times.

 

CORPORATE GOVERNANCE

 

Our Board is responsible for governing the business and affairs of the Company. Highlights of our corporate governance practices are described below.

 

Board Independence. The Board evaluates any relationships of each director and nominee and makes an affirmative determination whether or not such director or nominee is independent. Under our Corporate Governance Guidelines, an “independent” director is one who meets the qualification requirements for being independent under applicable laws and the corporate governance listing standards of Nasdaq. Our Board reviews any transactions and relationships between each non‑management director or any member of his or her immediate family and the Company. The purpose of this review is to determine whether there are any such transactions or relationships and if so, whether they are inconsistent with a determination that the director was independent. The Board has determined that each of Messrs. Bekenstein, Cotton, Ford, Levin, Mahoney, Quella and Wallace and Mses. Kaplan and Raff is independent under our Corporate Governance Guidelines and Nasdaq listing standards.

 

Board Expertise and Diversity. Our Corporate Governance Guidelines provide that the Board shall be committed to a diversified membership, in terms of both the individuals involved as well as their personal backgrounds, various experiences and areas of expertise. We also seek a Board that reflects a range of talents, ages, skills, viewpoints, professional experience, educational background and expertise to provide sound and prudent guidance with respect to our operations and interests. All of our directors are financially literate, and at least one member of our Audit Committee is an audit committee financial expert.

 

Board Annual Performance Reviews. Our Corporate Governance Guidelines and Nominating and Governance Committee charter provide that the Nominating and Governance Committee shall be responsible for periodically, and at least annually, conducting an evaluation of the Board as a whole, as well as each of the committees’ performance, on an annual basis. Using criteria developed to conduct these evaluations, the Nominating and Governance Committee shall report to the Board on its findings.

 

Board Nominees. Our Nominating and Governance Committee is responsible for recommending for Board approval the candidates for election to the Board at the Company’s annual meeting of stockholders and for recommending individuals to fill vacancies on the Board that may occur between annual meetings of stockholders. It is the policy of the Nominating and Governance Committee to consider recommendations for director nominees from all sources, including stockholders, and to evaluate all recommendations under the same standards and criteria. Stockholders may recommend a director candidate for the consideration of the Nominating and Governance Committee by submitting the candidate’s name and biography c/o Office of the Corporate Secretary, The Michaels Companies, Inc., 8000 Bent Branch Drive, Irving, Texas 75063. The Corporate Governance Guidelines provide that nominees for director shall be selected on the basis of their character, wisdom, judgment, ability to make independent analytical inquiries, business experiences, understanding of the Company’s industry and business environment, time commitment and

acumen. Board members are expected to become and remain informed about the Company, its business and its industry and rigorously prepare for, attend and participate in all Board and applicable committee meetings. The Nominating and Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best perpetuate the success of our business, represent stockholder interests and exercise sound judgment using its diversity of experience. In addition, the Nominating and Governance Committee considers, in light of our business, each director nominee’s experience, qualifications, attributes and skills. See “Proposal 1 Election of Directors” for the biographical information of the director nominees. Stockholders may also nominate director candidates for election at an annual meeting of stockholders, according to the procedures set forth in our bylaws, which are posted on our website, www.michaels.com. See also “Stockholder Proposals and Director Nominations”.

 

Board Leadership Structure. Under our Corporate Governance Guidelines, our Board may select a Chairman of the Board of Directors at any time, who may also be an executive officer of the Company. In connection with the resignation of Mr. Rubin, the Board decided to separate the roles of Chairman and Chief Executive Officer, appointing Mr. Cosby as Interim Chief Executive Officer in February 2019 and James Quella as the Chairman of the Board in April 2019. During the leadership transition to a new full-time Chief Executive Officer, the Board believes that separating the roles allows the Interim Chief Executive Officer to focus on the business and day to day operations of the Company while the Chairman can handle the Board governance process.  

 

Policies Relating to Board Service. It is our policy that no director shall be nominated who has attained the age of 73 prior to or on the date of his or her election or re‑election. We also expect each of our directors to attend the Annual Meeting of Stockholders. Under our Audit Committee Charter, members of the Audit Committee should serve on no more than three separate public company audit committees simultaneously without prior review and determination by the Board that such simultaneous service would not impair the ability of such member to effectively serve on the Audit Committee.

 

Attendance. Our Board of Directors held seven meetings in fiscal 2018. During fiscal 2018, each director attended at least 75% of the Board and committee meetings on which he or she served during the periods that he or she served. Our independent directors also met separately in executive session at each of our regularly scheduled Board meetings during the year. Nine of our directors attended the 2018 Annual Meeting of Stockholders.  

 

Code of Business Ethics and Conduct. We have adopted a written Code of Business Ethics and Conduct (the “Code of Ethics”) that applies to our directors, officers and employees, including our executive officers, and is designed to ensure that our business is conducted with integrity. The Code of Ethics covers professional conduct, conflicts of interest, the protection of confidential information, as well as adherence to laws and regulations applicable to the conduct of our business. A copy of the Code of Ethics is posted on our website, at www.michaels.com. We intend to disclose any future amendments to, or waivers from, the Code of Ethics for our executive officers within four business days of the waiver or amendment through a website posting or by filing a Current Report on Form 8‑K with the Securities and Exchange Commission, or the SEC.

 

Environmental and Corporate Social Responsibility. We operate by a set of core values, including giving back and doing the right thing.  Our environmental sustainability and social responsibility efforts reflect those values. Michaels has long pursued initiatives that are good for society as well as our profitability, and in 2019, we published our first Corporate Social Responsibility Report. We believe in the value of environmentally sound business practices throughout our operations, including energy conservation as well as recycling and waste reduction efforts. We also expect our merchandise vendors and their factories to follow a certain set of standards and principles, including with respect to human rights. Each merchandise vendor must agree in writing to comply with our Vendor Code of Conduct and Human Rights Policy (the “Vendor Code”) as a prerequisite to doing business with us. Those principles include, among others, respecting an employee’s basic human rights, non-discriminatory hiring practices, fair compensation, a ban on child or slave/forced labor, and maintaining a safe working environment. The 2019 Corporate Social Responsibility Report and the Vendor Code are posted on our website.

 

Communications with Directors. Stockholders and other interested parties may communicate directly with the Board, the non‑management directors or the independent directors as a group, or specified individual directors by writing to such individual or group c/o Office of the Corporate Secretary, The Michaels Companies, Inc., 8000 Bent Branch Drive, Irving, Texas 75063. The Secretary will forward such communications to the relevant group or individual at or prior to the next meeting of the Board.

 

Online Availability of Information. The current versions of our Charter, bylaws, Corporate Governance Guidelines, Code of Ethics, Vendor Code and charters for our Audit, Compensation and Nominating and Governance Committees are available on our website at www.michaels.com.

 

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers serves as a member of the board of directors or compensation committee of any other entity (other than a subsidiary of the Company) that has one or more executive officers who serve on our Board or Compensation Committee.

 

Our Board’s Role in Risk Oversight

 

The Board has oversight responsibility for the systems established to report and regularly monitor the most significant risks applicable to Michaels. The Board administers its risk oversight role directly and through its committee structure and the committees’ regular reports to the Board at Board meetings. The Board reviews strategic, financial and execution risks and exposures associated with the annual plan and multi‑year plans, major litigation and other matters that may present material risk to the Company’s operations, plans, prospects or reputation, acquisitions and divestitures and senior management succession planning. The Audit Committee reviews risks associated with financial and accounting matters, including financial reporting, accounting, disclosure, internal controls over financial reporting, ethics and compliance programs, data security and cybersecurity. The Compensation Committee reviews risks related to executive compensation and the design of compensation programs, plans and arrangements. The Nominating and Governance Committee reviews risks and best practices with respect to corporate governance guidelines.  

 

It is also management’s responsibility to manage risk and bring to the Board’s attention risks that are material to Michaels, including risks related to cybersecurity. The Company’s management provides quarterly reports to the Audit Committee on cybersecurity updates and preventive measures being taken to avoid attacks. As the Company reviews and updates its cybersecurity plans and policies, it plans to continue to take the steps it believes are necessary to ensure effective Board oversight of this area.

 

Related Person Transactions Policy

 

In accordance with the charter of our Audit Committee and our Related Person Transaction Policy, our Audit Committee is be responsible for reviewing and approving related person transactions.

 

The policy with respect to related person transactions applies to transactions, arrangements and relationships (or any series of similar transactions, arrangements or relationships) where the aggregate amount involved will, or may be expected to, exceed $120,000 in any calendar year, and where we (or our subsidiaries) are a participant and in which a related person has or will have a direct or indirect material interest. A related person is: (1) any person who is, or at any time since the beginning of our fiscal year was, a director or executive officer of the Company, or a nominee for director or executive officer of the Company; (2) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities; (3) any immediate family member of the foregoing persons; and (4) any firm, corporation or other entity in which any of the foregoing persons has a position or relationship, or in which such person, together with his or her immediate family members, has a 10% or greater beneficial ownership.

 

In the course of its review and approval of related person transactions, our Audit Committee will consider the relevant facts and circumstances to decide whether to approve such transactions. In particular, our policy with respect to related person transactions will require our Audit Committee to consider, among other factors it deems appropriate:

 

 

 

 

 

 

The Audit Committee may only approve those transactions that are in, or are not inconsistent with, our best interests and those of our stockholders, as the Audit Committee determines in good faith.

 

Our Related Person Transaction Policy is available on our website www.michaels.com.  

 

Investor Agreement

 

As described above, we entered into an investor agreement with Bain and Blackstone that grants each of them the right, subject to certain conditions, to name representatives to our Board. Each of Bain and Blackstone has the right to designate up to three nominees for election to our Board until such time as it owns less than 25% of our outstanding Common Stock, up to two nominees if its ownership level is 10% or more but less than 25% of our outstanding Common Stock and one nominee if its ownership level is 3% or more but less than 10% of our outstanding Common Stock. Subject to the terms of the investor agreement, each of Bain and Blackstone agreed to vote its shares in favor of the election of the director nominees designated by each other pursuant to the investor agreement. In addition, the investor agreement provides each of Bain and Blackstone with certain indemnification rights. As of April 16, 2019, Bain and Blackstone owned 33.4% and 12.9%, respectively, of our outstanding Common Stock.

 

Amended and Restated Registration Rights Agreement

 

In connection with our initial public offering, our existing registration rights agreement with Bain, Blackstone and certain other stockholders was amended and restated. The amended and restated registration rights agreement provides Bain and Blackstone demand registration rights in respect of their shares of our Common Stock. In addition, in the event that we register additional shares of Common Stock for sale to the public, we are required to give notice of such registration to each of Bain and Blackstone and the other stockholders party to the agreement of our intention to effect such a registration, and, subject to certain limitations, Bain, Blackstone and such holders have piggyback registration rights providing them with the right to require us to include shares of Common Stock held by them in such registration. We are required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes, associated with any registration of shares by Bain, Blackstone or other holders described above. The amended and restated registration rights agreement also contains certain restrictions on the sale of shares by each of Bain and Blackstone. The amended and restated registration rights agreement includes customary indemnification provisions.

EXECUTIVE OFFICERS

 

Our current executive officers, their ages as of April 16, 2019, and their business experience during at least the past five years are set forth below.

 

 

See “Proposal 1 – Election of Directors” for a description of Mr. Cosby’s business experience.

 

Ms. Paulonis was appointed Executive Vice President – Chief Financial Officer in August 2016. Prior to becoming Chief Financial Officer, Ms. Paulonis served as Senior Vice President – Finance of the Company from November 2015 to August 2016 and Vice President – Investor Relations, Treasury and Corporate Finance from September 2014 to November 2015. Prior to joining the Company, she served in various capacities at PepsiCo, Inc. since 2009, including Vice President, Financial Planning & Analysis, Frito Lay from August 2013 to September 2014 and Vice President, Finance & Strategy, PepsiCo U.S. Sales from January 2011 to July 2013. Since May 2018, she has served as a member of the board of directors of Sally Beauty Holdings, Inc., an international specialty retailer and distributor of professional beauty supplies.

 

Mr. Carlotti was named Executive Vice President – Marketing of the Company, effective June 2014. Prior to joining Michaels, he served as Chief Executive Officer of The Cambridge Group (a growth strategy consultancy owned by The Nielsen Corporation, a global marketing research firm), beginning in October 2011 and as Executive Vice President, Global Practices and Consulting Services at Nielsen from June 2011 to October 2011. Prior to joining Nielsen, Mr. Carlotti served as Senior Partner at Prophet (a brand strategy consulting firm) from June 2010 to June 2011. Prior to joining Prophet, Mr. Carlotti served in various capacities at McKinsey & Company since 1990, including as Senior Partner from 2005 to June 2010. Mr. Carlotti is a board member of E&J Gallo Winery.

 

Mr. Koch was named Executive Vice President – Stores and Development in May 2018. Prior to joining Michaels, Mr. Koch served as Executive Vice President of Business Development at Office Depot, Inc. from August 2017 to May 2018, after having served as Senior Vice President of Real Estate at Office Depot since December 2013. In his 20 years with Office Depot, he has held various key leadership positions in both Finance and Operations, including Senior Vice President, Merchandising; Senior Vice President, Real Estate, Construction and Strategy; Vice President, North American Finance; and Vice President of Financial Planning and Corporate Development. Prior to joining Office Depot in 1994, Mr. Koch held various positions in the corporate finance division of Blockbuster Entertainment.

 

Mr. Pappas was named Interim President – Merchandising and Supply Chain in February 2019. Mr. Pappas joined the Company in 2009 as Executive Vice President – Merchandising and was named President – Michaels Stores Procurement, Inc. in August 2017. Prior to joining Michaels, he served as Chief Merchandising Officer at Tweeter Home Entertainment Group, Inc. (a specialty consumer electronics retailer) from April 2003 to October 2008. Prior to joining Tweeter, Mr. Pappas served in various management positions at Staples, Inc. (an office supply store chain) from November 1994 to April 2003, most recently as Senior Vice President of Merchandising.

 

 

STOCK OWNERSHIP INFORMATION

 

Beneficial Ownership

 

The following table sets forth information regarding the beneficial ownership of our Common Stock as of April 16, 2019 by (i) such persons known to us to be beneficial owners of more than 5% of our Common Stock, (ii) each director, director nominee and Named Executive Officer (as defined in “Executive Compensation – Compensation Discussion and Analysis” below) , and (iii) all directors, nominees and executive officers as a group. Unless otherwise indicated by footnote, the address for each listed director, officer and stockholder is c/o The Michaels Companies, Inc., 8000 Bent Branch Drive, Irving, Texas 75063 and each beneficial owner exercises sole voting and investment power over the shares noted below. The percentage of beneficial ownership for our directors and executive officers, both individually and as a group, and beneficial owners of 5% or more of Common Stock is calculated based on 158,121,299 shares of Common Stock outstanding as of April 16, 2019, and the number of unissued shares as to which such person or persons has the right to acquire voting and/or investment power within 60 days. The beneficial ownership information set forth below was provided or disclosed by or on behalf of our executive officers, our directors, and our beneficial owners of 5% or more of our Common Stock.  As such, the Company has not independently verified the accuracy or completeness of the information so provided.

 

*Less than one percent. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers to file reports of holdings and transactions in our Common Stock with the SEC and Nasdaq. To facilitate compliance, we have undertaken the responsibility to prepare and file these reports on behalf of our officers and our independent directors. Based on our records and other information, all reports were timely filed in fiscal 2018.

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Introduction

 

The following Compensation Discussion and Analysis relates to compensation paid to our executive officers named in the Summary Compensation Table for fiscal 2018.

 

These individuals, referred to as our “Named Executive Officers” for fiscal 2018 are: Carl S. Rubin, former Chairman and Chief Executive Officer; Denise A. Paulonis, Executive Vice President – Chief Financial Officer; Stephen J. Carlotti, Executive Vice President—Marketing; and J. Robert Koch, Executive Vice President – Stores and Development. This Compensation Discussion and Analysis and the executive compensation discussion and tables that immediately follow describe our compensation, objectives, the strategy and elements of our compensation program, and our compensation‑setting process as applied to our Named Executive Officers.

 

Highlights of Fiscal 2018 Performance

 

The highlights of our fiscal 2018 performance include the following: 

 

Compensation Program

 

The principal objectives of our compensation program are:

 

 

 

 

Currently, the total compensation for our officers at the Vice President level and above, including our Named Executive Officers, consists of three main components: base salary, annual cash incentive bonuses and long‑term equity‑based incentive compensation awards. The strategy of the cash incentive compensation program is to provide higher annual cash incentive compensation for exceptional corporate and business financial performance. We also believe that by placing a significant equity opportunity in the hands of executives who are capable of driving and sustaining longer‑term growth, our stockholders will benefit along with the executives who helped create stockholder value. The table, immediately below, includes the principal components of our pay‑for‑performance approach.

 

 

Compensation Strategy: Policies and Procedures

 

Role of Compensation Committee and Chief Executive Officer in Compensation Decisions

 

The Compensation Committee reviews and recommends to the Board for approval the compensation for all executive officers at the level of Executive Vice President and above. The Board is ultimately responsible for determining the compensation of our executive officers at the level of Executive Vice President and above, which includes our Named Executive Officers. Both the Compensation Committee and the Board receive recommendations with respect to compensation‑related decisions regarding our executive officers, other than the Chief Executive Officer, by senior management, principally the Chief Executive Officer and the Senior Vice President – Human Resources. In determining compensation levels for the executive officers, the Compensation Committee considers the scope of an

individual’s responsibilities, the competitive market salary at comparable companies, an individual’s performance and prior experience, the performance of the Company and the attainment of planned financial and strategic initiatives. These factors are evaluated by the Compensation Committee and the Board, with the attainment of planned financial and strategic initiatives given greater weight with respect to executive bonuses. The Compensation Committee considers overall past compensation and incentives in determining the compensation of executive officers and seeks to assure that the executives have appropriate incentives to achieve high levels of Company performance. The Compensation Committee, through its members’ involvement in other companies, has experience evaluating compensation programs for executive officers. Approvals by the Compensation Committee and recommendations to the Board by the Compensation Committee are based on a number of factors, including a review of competitive market data (as described below) and executive performance (as described below), the experience of the members of the Compensation Committee and alignment of compensation with the overall strategic direction and goals of the Company.

 

Competitive market data and use of compensation consultants

 

As part of the compensation review process, Korn Ferry Hay Group (“Korn Ferry”), a compensation consulting firm engaged by the Company on behalf of the Compensation Committee, provides market survey data on executive total compensation levels and general information regarding executive compensation practices in our industry to the Compensation Committee.  In 2017, the Compensation Committee directed Korn Ferry to evaluate our fiscal 2018 peer group. Korn Ferry used a variety of factors, including company revenue, profitability, other financial metrics, type of retail business, and competition for executive talent. Following the evaluation, Korn Ferry developed, and our Compensation Committee approved, the following companies as our peer group for fiscal 2018:

 

The Compensation Committee used our peer group to assess the appropriateness of the following key components of our Chief Executive Officer’s compensation: base salary, annual cash bonuses and long‑term equity incentives. In connection with fiscal 2018 bonus and base compensation targets for our Named Executive Officers, which were approved in March 2018,  respectively, the Compensation Committee used such data, as well as retail industry survey data provided by Korn Ferry and information gathered through its members’ involvement in other companies, to set the overall executive compensation program. The Compensation Committee may request that Korn Ferry (or another compensation consultant) provide other periodic market data on our peer group of companies.

 

Compensation Elements

 

Base Salaries

 

Base salaries for our executive officers are established based on the scope of their responsibilities, individual performance and prior experience, Michaels operating and financial performance and the attainment of planned financial and strategic initiatives, taking into account the knowledge of the members of the Compensation Committee and the advice of Korn Ferry regarding competitive market compensation paid by companies for similar positions. The Compensation Committee recommends, and the Board sets, base salaries for officers at the level of Executive Vice President and above at a level designed to attract and retain highly qualified individuals who make contributions that result in Michaels meeting its operating and financial goals. Base salaries are reviewed and adjusted annually as deemed appropriate by the Compensation Committee and the Board, as applicable, based on performance and business results, among other factors.

 

In December 2017, the Compensation Committee reviewed recommendations regarding fiscal 2018 annual base salary rates for the executive officer group based on the criteria set forth under “Compensation Strategy: Policies and Procedures”. Merit guidelines for fiscal 2018 were determined by reviewing surveys of market data provided by Korn Ferry, as well as giving consideration to the Company’s overall budget for team member compensation. The Compensation Committee also reviewed the Company’s financial results for fiscal 2017.  After completing its review and analysis, the Compensation Committee made the decision to not grant a merit increase for fiscal 2018 to the Chief

Executive Officer. Annual base salary rates for the Named Executive Officers for fiscal 2017 and 2018,  are shown below. 

 

 

Annual Bonuses

In connection with our initial public offering, our Board adopted The Michaels Companies, Inc. Annual Incentive Plan (the “Annual Plan”). Starting with fiscal 2015, annual award opportunities for executive officers, including our Named Executive Officers, and other key team members were granted under the Annual Plan. The Annual Plan provides financial incentives to these individuals and those other members of management who are in positions to make important contributions to Michaels’ success. In March 2018, the Compensation Committee recommended that the Board approve the fiscal 2018 bonus criteria for executive officers, including the Named Executive Officers, under the Annual Plan (such bonus criteria, the “2018 Bonus Plan”). The Board subsequently approved the 2018 Bonus Plan. The structure of the 2018 Bonus Plan and the specific objectives relating to bonus payments were proposed by the Chief Executive Officer and were reviewed by the Compensation Committee in consultation with Korn Ferry.  

For each of the Named Executive Officers, the 2018 Bonus Plan tied 80% of bonus opportunity to Michaels’ attainment of a financial objective (earnings before interest and taxes, with certain adjustments, or “EBIT”), and 20% to individual performance. Individual management business objectives for Mr. Rubin were reviewed with the members of the Compensation Committee in the early part of fiscal 2018. Individual management business objectives for Ms. Paulonis and Mr. Carlotti were also reviewed with the members of the Compensation Committee at such time, and approved by the Chief Executive Officer.  Mr. Koch’s individual management business objectives were reviewed with the members of the Compensation Committee and approved by the Chief Executive Officer shortly after Mr. Koch’s start date with the Company.

Under the 2018 Bonus Plan, before any business unit or individual performance payout would be earned, the actual results of the financial objective (EBIT) was required to meet the threshold established by the Compensation Committee, which represented approximately 90% of target. Each participating Named Executive Officer was entitled to a bonus equal to a certain percentage of that executive officer’s base salary, depending on the achievement of the threshold, target or maximum performance level. The Compensation Committee set threshold, target and maximum performance levels for all executive officers of the Company. The final award depended on the actual level of performance achieved; however, the Compensation Committee retained the right to make adjustments in its sole discretion. The target levels of performance for the bonus goals were set at levels that the Compensation Committee and the Board believed to be reasonably achievable in view of Michaels’ historical annual performance. In the Compensation Committee’s view, taking into account comparative data provided to the Committee by Korn Ferry, the compensation payable to the Named Executive Officers upon reaching target levels of performance, when added to their base salaries, creates a level of total cash compensation competitive with that paid by comparable companies for similar positions. Additional information regarding the targets and objectives is set forth below.

 

For fiscal 2018 annual bonuses, the threshold, target and maximum percentages of base salary, as well as the bonus element weightings, for each of the Named Executive Officers were as follows:

 

 

Company Financial Measures

 

At the beginning of fiscal 2018, the Compensation Committee established, and the Board approved, the EBIT threshold for bonuses under the 2018 Bonus Plan at $650.1 million, with a target level of $722.3 million, and a maximum of $780.1 million. In March 2019, the Compensation Committee reviewed the Company’s financial results and determined that for fiscal 2018, the Company achieved financial performance of $668.5 million, which was above the threshold level, but below the target level. As a result, fiscal 2018 bonuses were earned under the 2018 Bonus Plan.

 

Individual Performance Measures

 

Because the financial objective threshold applicable to all Named Executive Officers was met, each of the Named Executive Officers was eligible to earn a bonus for fiscal 2018. Individual performance was also evaluated to determine whether the Named Executive Officers met their individual management business objectives, which are both quantitative and subjective. These objectives are assessed in the aggregate to determine the individual’s level of performance and bonus achieved. No specified weight is given to a single measure within the group of individual management business objectives, and assessment of achievement reflects a generalized view of overall achievement of the group of measures. In addition, the individual management business objectives for all executives included an assessment of the executive’s job knowledge and skills, communication skills, interpersonal skills, effectiveness of management, judgment and decision‑making, drive and commitment, leadership and customer satisfaction.

 

Mr. Rubin’s group of individual management business objectives were focused primarily on sales, EBIT, cash flow, progressing with our digital strategy, improvement of operational excellence, maintenance of organizational health, including team member engagement, solidifying the Company’s succession plans, balancing near-term and long-term profitability and opportunities.  Ms. Paulonis’s group of individual management business objectives were focused primarily on sales, EBIT, cash flow, managing the Company’s banking matters and integral partnership across the other operations of the business. Mr. Carlotti’s group of individual management business objectives focused primarily on sales, EBIT and growth of our e-commerce platform and custom framing business, leading new and existing marketing initiatives and development of our new data platform and analytical capabilities. Mr. Koch’s group of individual management business objectives were primarily focused on sales, EBIT, cash flow, leading the store operations organization, managing the Company’s real estate portfolio, including leasing and site location, and directing the business development function primarily focused on identifying and pursuing new growth opportunities.  The Compensation Committee determined that Mr. Rubin achieved his individual objectives at 25% of target.  The Compensation Committee also determined that each of Messrs. Carlotti,  Koch and Ms. Paulonis achieved their individual objectives at 100% of target. 

 

Actual Payouts

 

Actual payouts for the Named Executive Officers, as a percentage of each individual’s base salary, were as follows (compared to target):

 

 

Long‑Term Equity‑Based Compensation

 

Equity awards granted by the Company are intended to align the long‑term incentives of our Named Executive Officers and stockholders. Target long-term incentive values are based on market data for comparable roles provided by Korn Ferry. This award value is then converted into a number of shares based on the Company’s stock price on the grant date. Beginning in 2013, the Company began issuing a combination of annual option and restricted stock grants to vest over four years. As of fiscal 2018, the award mix of the annual grants was approximately five times the number of shares underlying a stock option grant as a restricted stock unit grant (5 shares per stock option award to 1 share per restricted stock unit award).  In fiscal 2018, performance-based awards were granted in September 2018. In fiscal 2017, the annual equity grant award cadence was moved to March. Prior to fiscal 2017, the annual equity grant was awarded during August / September.  

 

Annual option and restricted stock unit grant amounts are generally awarded based on the midpoint of the award grant range for such officer’s level, with occasional exceptions based on an individual’s performance. Grants are also typically awarded when an executive is hired and may be awarded for subsequent promotions. New hire grants and promotion‑related grants are generally issued at a multiple of the range midpoint, on a case‑by‑case basis. All stock option grants made in fiscal 2018 were at exercise prices set at or above the grant date fair market value of the underlying stock as determined by our Board. Details regarding option and grants of restricted stock and restricted stock units made to our Named Executive Officers in fiscal 2018 and awards outstanding at the end of fiscal 2018 is provided, respectively, in the Grants of Plan‑Based Awards for Fiscal 2018 table and the Outstanding Equity Awards at Fiscal Year‑End 2018 table that follow this Compensation Discussion and Analysis.

 

September 2018 Performance-Based Awards

 

In September 2018, the Company granted performance restricted stock units to each of the Named Executive Officers. The goal of this one-time grant of performance-based equity was to retain key leadership, drive long-term Company performance and motivate the leadership team to achieve long-term financial objectives. The vesting of these awards is 100% performance-based and tied to achievement of certain Company financial measures and strategic initiatives through the 2021 fiscal year, ending on January 30, 2022. Should these measures go unmet after January 30, 2022, all unvested performance restricted stock units will be forfeited. Valuations of these awards in this Compensation Discussion and Analysis are based on the probable outcome of the performance criteria as of the grant date.

 

Mr. Rubin was granted 431,530 restricted stock units in September 2018 (as described above). In connection with his separation, Mr. Rubin forfeited these performance restricted stock units, effective April 1, 2018.

 

For more information regarding these awards, see “Executive and Director Compensation – Grants of Plan-Based Awards for Fiscal 2018” and “Executive and Director Compensation – Outstanding Equity Awards at Fiscal Year-End 2018”.

 

Stock Ownership Guidelines

 

In March 2017, Michaels updated its ownership guidelines applicable to all officers, including the Named Executive Officers. The Chief Executive Officer’s ownership is expected to equal five times his base salary. Each of the remaining Named Executive Officer’s ownership is expected to equal three times his or her base salary. For those officers not already meeting the parameters outlined in the guidelines, compliant ownership is to be achieved before their fifth anniversary with Michaels, and they are expected to continuously own sufficient shares to meet the guideline once attained. Individuals who become subject to a greater ownership level due to promotion are expected to meet the

applicable guideline no more than five years after first becoming subject to the greater ownership level. Ownership includes shares held outright, unvested restricted shares, unvested restricted stock units, the in‑the‑money value of vested stock options, and shares held in trusts.

 

Margin Accounts, Pledging and Hedging Transactions

 

With limited exceptions, anyone who regularly has access to material non-public information about the Company, or an insider, is generally prohibited from holding Company securities in margin accounts and pledging Company securities as collateral. Insiders are also prohibited from entering into hedging transactions, as such transactions can cause the interest of such person to not be aligned with the interest of the Company’s other stockholders. The Board believes these prohibitions, as found in the Company’s Insider Trading Policy, prevent the misuse of confidential information, promote compliance with securities laws and maintain alignment with the long-term goals of its stockholders. The Insider Trading Policy, adopted in June 2014, is available on our website at www.michaels.com.

 

Other Benefits and Perquisites

 

Our Named Executive Officers also receive certain other benefits and perquisites. During fiscal 2018, these benefits included contributions to 401(k) accounts, relocation benefits, Company-paid life insurance premiums, certain Company‑paid medical benefits and, in some cases, reimbursement for income taxes on long-term disability insurance premiums and medical benefits. Our former Chief Executive Officer, Mr. Rubin, was also entitled to the use of a Company‑owned or leased automobile. The Compensation Committee and the Board believe that these benefits and perquisites are reasonable and consistent with the nature of the executives’ responsibilities, provide a competitive level of total compensation to our executives and serve as an important element in retaining those individuals. The cost to Michaels of these benefits to the Named Executive Officers is set forth in the Summary Compensation Table under the column “All Other Compensation” and detail about each element is set forth in the table presented in footnote 5 to the Summary Compensation Table.

 

Clawback Policy

 

In March 2017, the Board approved a Policy for Recovery of Incentive Compensation, which allows the Company to recover incentive compensation from a current or former Named Executive Officer in the event the individual engaged in knowing or intentional fraudulent or illegal conduct that materially contributed to the need for a restatement of the Company’s financial statements. The Policy for Recovery of Incentive Compensation is available on our website at www.michaels.com.

 

Employment and Severance Agreements

 

We entered into an employment agreement with Mr. Rubin (the “Rubin Agreement”), which became effective on March 18, 2013, the date he commenced employment. The Rubin Agreement included certain severance benefits in the event of termination other than for cause or by Mr. Rubin for good reason, as such terms are defined in the agreement. Mr. Rubin resigned from his role as Chief Executive Officer of the Company effective February 28, 2019. He resigned from his role as Chairman of the Board, and his employment as an employee of the Company terminated, effective April 1, 2019. In connection with his separation, the Company entered into a Separation Letter, dated February 27, 2019 and an Addendum and Amendment to Separation Letter, dated March 20, 2019 (together, the “Separation Agreement”). The specific terms of Mr. Rubin’s employment agreements,  including the terms agreed to in his Separation Agreement are discussed in the section entitled “Agreements with Carl S. Rubin” following the Grants of Plan‑Based Awards table as well as under “Executive Compensation – Potential Payments upon Termination or Change of Control – Estimated Separation Payments”.

 

In April 2008, the Board approved the Company’s Officer Severance Pay Plan (the “OSPP”), which was amended in July 2008, May 2014, December 2014 and March 2017. The OSPP was established by the Company to provide certain severance benefits, subject to the terms and conditions of the OSPP, to designated officers (those with a position of Vice President or above, or an equivalent title as approved by the Compensation Committee, and excluding the Chief Executive Officer) in the event that their employment is terminated as a result of a “Qualifying Termination” (as defined in the OSPP and described below). A more detailed description of the OSPP may be found under “Potential Payments upon Termination or Change of Control”.

 

Tax Considerations

 

While the Compensation Committee takes into account tax and accounting considerations in structuring the components of the Company’s compensation program, these considerations are secondary to the primary objectives of the program. Section 162(m) of the Code (“Section 162(m)”) disallows a U.S. federal income tax deduction to any publicly held corporation for compensation exceeding $1 million in any taxable year. Prior to the Tax Cuts and Jobs Act (the “Tax Reform Law”) that was enacted on December 22, 2017, the limitation only applied to the corporation’s chief executive officer and its other three most highly paid named executive officers other than its chief financial officer, and certain compensation that qualified as performance‑based was eligible for an exemption from Section 162(m). Effective for taxable years beginning after December 31, 2017, the Tax Reform Law expanded the deduction limitation to apply to a corporation’s chief financial officer and repealed the exemption for performance-based compensation except for certain grandfathered compensation arrangements. Although the Compensation Committee may take the deductibility limitations of Section 162(m) into account in its compensation decisions, the Compensation Committee expects it will authorize compensation payments that are not deductible under Section 162(m) to attract and retain talent. 

 

The Company’s Compensation Policies and Practices as They Relate to Risk Management

 

In accordance with the applicable disclosure requirements, to the extent that risks may arise from the Company’s compensation policies and practices that are reasonably likely to have a material adverse effect on the Company, the Company is required to discuss those policies and practices for compensating the employees of the Company (including employees that are not Named Executive Officers) as they relate to the Company’s risk management practices and the possibility of incentivizing risk‑taking.

 

The Compensation Committee has evaluated the policies and practices of compensating the Company’s employees in light of the relevant factors, including the following:

 

 

 

 

 

 

 

Based on such evaluation, the Compensation Committee has determined that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S‑K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and be incorporated by reference into our Annual Report on Form 10‑K for the fiscal year ended February 2, 2019.

 

EXECUTIVE AND DIRECTOR COMPENSATION

 

Summary Compensation Table

 

The following table and footnotes include specific compensation information for each of the Named Executive Officers previously identified in the Compensation Discussion and Analysis above.

 

 

 

 

 

 

 

 

 

 

 

Chief Executive Officer Pay Ratio

 

For 2018, the total compensation of Mr. Rubin, the Company’s former Chief Executive Officer, was  $10,472,847, as presented in the Summary Compensation Table, and approximately 915 times the total compensation of the Company’s median employee of $11,440 calculated in the same manner.

 

Over half of Mr. Rubin’s total compensation is attributable to the 431,530 performance-based restricted stock units granted to Mr. Rubin in fiscal 2018. In connection with Mr. Rubin’s termination of employment with the Company, these performance restricted stock units were forfeited. These restricted units were to vest as certain award performance criteria were met on or before January 30, 2022. As of September 10, 2018 (the date of grant), these restricted stock units were valued at $3,749,921, based on the probable outcome of the performance criteria. None of these restricted stock units had vested as of the last day of fiscal 2018. Excluding the grant of these restricted stock units, Mr. Rubin’s total compensation for fiscal 2018 would be $6,722,926, and approximately 588 times the total compensation of the Company’s median employee.

 

The employee population was determined as of January 31, 2019. On that date, the Company had a total employee population of 37,525 employees in the United States, Canada, China and Hong Kong. With a total of 121 employees in China and Hong Kong, the de minimis exemption under SEC regulations was applied. The median employee was determined from the active employee population of the United States and Canada on the determination date, excluding Mr. Rubin. All of the Company’s active employees were included, whether employed on a full-time or part-time or seasonal basis. Adjustments were made to annualize the compensation of employees who were not employed by the Company for the entire year. The median employee, a part-time employee in our stores, was identified by reviewing the wages of our employees as reflected in our payroll records for 2018. We converted earnings paid in Canadian dollars to U.S. dollars using the published exchange rate as of January 31, 2019. After identifying the median

employee, the 2018 annual total compensation was calculated for the median employee using the same methodology used for the Company’s former Chief Executive Officer as presented in the Summary Compensation Table above.

 

Nearly 75% of our employees are part-time and / or seasonal employees in our stores or distribution centers. In comparison, the total compensation of the Company’s former Chief Executive Officer was approximately 273 times the total compensation of the Company’s median full-time employee of $38,417 calculated in the same manner as mentioned above. The median full-time employee was determined from the active employee population of the United States and Canada on the determination date, excluding Mr. Rubin.

 

The SEC rules allow us the flexibility to select a methodology for identifying our median employee in a manner that is most appropriate based on our size, organizational structure, policies and procedures. As such, the pay ratios reported by other companies, including by our peer companies or other companies in the arts and craft specialty retail industry, which may have employed other permitted methodologies or assumptions, may not be comparable to our pay ratio.

 

Grants of Plan‑Based Awards for Fiscal 2018

 

The following table sets forth the plan‑based awards granted to our Named Executive Officers pursuant to Company plans during fiscal 2018.

 

Grants of Plan‑Based Awards

 

 

 

 

 

 

 

 

Employment Agreements with Certain Named Executive Officers

 

Agreements with Carl S. Rubin

 

We entered into an employment agreement with Mr. Rubin, our former Chairman and Chief Executive Officer, which became effective on March 18, 2013, the date he commenced employment. The Rubin Agreement provided for an initial annual base salary of $1,100,000, subject to increase in the Board’s discretion. Mr. Rubin was eligible to earn an annual incentive bonus at a target of 125% of his annual base salary and a maximum bonus of 250% of his annual base salary, based on performance criteria established by the Board for each fiscal year during his employment. Mr. Rubin received no additional compensation for his service as a director of the Company.

 

In connection with Mr. Rubin’s resignation from the Company, the Company and its subsidiary MSI entered into the Separation Agreement with Mr. Rubin. Under the Separation Agreement, Mr. Rubin will receive the severance benefits from his employment agreement. In particular, the Company will pay (1) his base salary of $1,202,000 for two years following his separation date of April 1, 2019; (2) an amount equal to two times his target bonus of 125% of his base salary; (3) a lump-sum amount equal to MSI’s premium cost for medical and/or dental plans during the COBRA period, subject to his payment of the employee portion; and (4) the cost of an executive physical. The Company also agreed to pay Mr. Rubin’s legal fees in connection with the negotiation of his Separation Agreement.

 

Mr. Rubin’s equity awards that were scheduled to vest, in part, on September 14, 2019 and September 30, 2019, respectively, vested on his separation date, as though Mr. Rubin had remained in continuous employment with MSI through such scheduled vesting dates, pro-rated based on the number of days he was employed with MSI since the prior vesting dates of September 14, 2018 and September 30, 2018, respectively and his separation date. Mr. Rubin will have up to two years from his separation date to exercise 62.5% of his vested but unexercised options and up to 60 days to exercise the remaining 37.5% of such options. The parties also agreed to certain mutual non-disparagement obligations.

 

For more information about the payments and benefits payable to Mr. Rubin in connection with the termination of his employment, please see “Executive Compensation – Potential Payments upon Termination or Change of Control” below.

 

Outstanding Equity Awards at Fiscal Year‑End 2018

 

The following table sets forth information regarding equity awards held by our Named Executive Officers as of February 2, 2019.