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.  )

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

x  Preliminary Proxy Statement

 

 

o  Definitive Proxy Statement

 

o  Definitive Additional Materials

 

 

LOWE’S COMPANIES, INC.

 

(Name of Registrant as Specified In Its Charter)

 

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

o  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 28, 2010 — the Notice of Annual Meeting of Shareholders, Proxy Statement and Annual Report are available at www.proxyvote.com.

April   , 2010

 

TO LOWE’S SHAREHOLDERS:

 

It is my pleasure to invite you to attend our 2010 Annual Meeting to be held at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina, on Friday, May 28, 2010 at 10:00 a.m., local time. Directions to the Ballantyne Hotel are printed on the back of this Proxy Statement.

 

This year, we are pleased to be again using the U.S. Securities and Exchange Commission rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our shareholders a Notice of Internet Availability of Proxy Materials instead of a paper copy of this Proxy Statement and our 2009 Annual Report. The Notice contains instructions on how to access those documents and vote online. The Notice also contains instructions on how each of those shareholders can receive a paper copy of our proxy materials, including this Proxy Statement, our 2009 Annual Report and a form of proxy card or voting instruction card. All shareholders who do not receive a Notice of Internet Availability will receive a paper copy of the proxy materials by mail unless they have previously requested delivery of proxy materials electronically. Continuing to employ this distribution process will conserve natural resources and reduce the costs of printing and distributing our proxy materials.

 

We will broadcast the meeting live on the Internet. To access the webcast, visit Lowe’s website (www.Lowes.com/investor) where a link will be posted a few days before the meeting. A replay of the Annual Meeting will also be available beginning approximately three hours after the meeting concludes and will continue to be available for two weeks after the meeting.

 

Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. There are five items of business on this year’s agenda, each as described in this Proxy Statement. Your vote by proxy or in person at the meeting is important.

 

Yours cordially,

 

 

Robert A. Niblock

Chairman of the Board

and Chief Executive Officer

 

 

Notice of
Annual Meeting of Shareholders
of Lowe’s Companies, Inc.

 

 

 

The Company’s Proxy Statement is attached. Financial and other information is contained in the Company’s Annual Report to Shareholders, a copy of which accompanies this Notice of Annual Meeting of Shareholders.

 

By order of the Board of Directors,

 

 

Gaither M. Keener, Jr.

Senior Vice President,

General Counsel, Secretary &

Chief Compliance Officer

 

Mooresville, North Carolina

April   , 2010

 

Table of Contents

 

Lowe’s Companies, Inc.

 

Proxy Statement
for
Annual Meeting of Shareholders
May 28, 2010

 

 

This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors (“Board of Directors” or “Board”) of Lowe’s Companies, Inc. (“Company” or “Lowe’s”) of proxies to be voted at the Annual Meeting of Shareholders to be held at the Ballantyne Hotel located at 10000 Ballantyne Commons Parkway, Charlotte, North Carolina on Friday, May 28, 2010 at 10:00 a.m., local time.

 

In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of our proxy materials to each shareholder of record, we are now furnishing proxy materials to our shareholders on the Internet. If you received only a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request a copy. Instead, the Notice of Internet Availability of Proxy Materials will instruct you how you may access and review the proxy materials over the Internet. The Notice of Internet Availability of Proxy Materials will also instruct you as to how you may submit your proxy over the Internet. If you received only a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, however, you should follow the instructions for requesting those materials included in the Notice.

 

The Notice of Internet Availability of Proxy Materials is first being sent to shareholders on or about April   , 2010. This Proxy Statement and the enclosed form of proxy relating to the 2010 Annual Meeting are also first being made available to shareholders on or about April   , 2010.

 

Outstanding Shares

 

On March 26, 2010, there were           shares of Company common stock (“Common Stock”) outstanding and entitled to vote. Shareholders are entitled to one vote for each share held on all matters to come before the meeting.

 

Who May Vote

 

Only shareholders of record at the close of business on March 26, 2010 are entitled to notice of and to vote at the meeting or any postponement or adjournment thereof.

 

How To Vote

 

You may vote by proxy or in person at the meeting. If you received a paper copy of the proxy materials by mail, you may vote your shares by proxy by doing any one of the following: vote at the Internet site address listed on your proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or mail your signed and dated proxy or voting instruction card to our tabulator in the self-addressed envelope provided. If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares online by proxy at the Internet site address listed on your Notice. You may also request a paper copy of our proxy materials by visiting the Internet site address listed on your Notice, or by calling the toll-free number or sending an e-mail to the e-mail address listed on your Notice. Even if you plan to attend the meeting, we recommend that you vote by proxy prior to the meeting. You can always change your vote as described below.

 

How Proxies Work

 

The Board of Directors is asking for your proxy. By giving us your proxy, you authorize the proxyholders (members of Lowe’s management) to vote your shares at the meeting in the manner you direct. If you do not specify how you wish the proxyholders to vote your shares, they will vote your shares “FOR ALL” director nominees, “FOR” ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public

accounting firm, “FOR” the proposal to amend Lowe’s Bylaws decreasing the percentage of shares required to call a special meeting of shareholders and “AGAINST” each of the two shareholder proposals. The proxyholders also will vote your shares according to their discretion on any other matter properly brought before the meeting.

 

You may receive more than one Notice of Internet Availability of Proxy Materials, more than one e-mail (if you have elected electronic delivery of proxy materials) or more than one paper copy of the proxy materials, including multiple paper copies of this Proxy Statement and multiple proxy or voting instruction cards, depending on how you hold your shares. For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold your shares. If you are a shareholder of record and your shares are registered in more than one name, you may receive more than one Notice, more than one e-mail or more than one proxy card. To vote all of your shares by proxy, you must vote at the Internet site address listed on your proxy or voting instruction card, call the toll-free number listed on your proxy or voting instruction card, or sign, date and return each proxy card and voting instruction card that you receive; and vote over the Internet the shares represented by each Notice and e-mail that you receive (unless you have requested and received a proxy or voting instruction card for the shares represented by one or more of those Notices or e-mails).

 

If for any reason any of the nominees for election as director becomes unavailable for election, discretionary authority may be exercised by the proxyholders to vote for substitutes proposed by the Board of Directors.

 

Abstentions and shares held of record by a broker or its nominee (“broker shares”) that are voted on any matter are included in determining the number of votes present or represented at the meeting. Broker shares that are not voted on any matter at the meeting are not included in determining whether a quorum is present.

 

Under New York Stock Exchange (“NYSE”) rules, the proposals to ratify the appointment of the independent registered public accounting firm and approve the proposed amendment to the Bylaws are considered “discretionary” items. This means that brokerage firms may vote in their discretion on these matters on behalf of clients who have not furnished voting instructions. The proposal to elect directors and the two shareholder proposals are “non-discretionary” matters, which means that brokerage firms may not use their discretion to vote on such matters without express voting instructions from their customers.

 

Quorum

 

In order to carry out the business of the meeting, we must have a quorum. This means that at least a majority of the outstanding shares eligible to vote must be represented at the meeting, either by proxy or in person. Shares owned by the Company are not voted and do not count for this purpose.

 

Revoking Your Proxy

 

The shares represented by a proxy will be voted as directed unless the proxy is revoked. Any proxy may be revoked before it is exercised by filing with the Secretary of the Company an instrument revoking the proxy or a proxy bearing a later date. A proxy is also revoked if the person who executed the proxy is present at the meeting and elects to vote in person.

 

Votes Needed

 

Election of Directors.  In uncontested elections, directors are elected by the affirmative vote of a majority of the outstanding shares of the Company’s voting securities voted at the meeting, including those shares for which votes are “withheld.” In the event that a director nominee fails to receive the required majority vote, the Board of Directors may decrease the number of directors, fill any vacancy, or take other appropriate action. If the number of nominees exceeds the number of directors to be elected, directors will be elected by a plurality of the votes cast by the holders of voting securities entitled to vote in the election.

 

Other Proposals.  Approval of the other proposals and any other matter properly brought before the meeting requires the favorable vote of a majority of the votes cast on the applicable matter at the meeting in person or by proxy.

Our Voting Recommendation

 

Our Board of Directors recommends that you vote:

 

 

Proxy cards that are timely signed, dated and returned but do not contain instructions on how you want to vote will be voted in accordance with our Board of Directors’ recommendations.

 

Voting Results

 

The preliminary voting results will be announced at the meeting. The final voting results will be published in a current report on Form 8-K filed with the SEC within four business days after the meeting.

 

Attending In Person

 

Only shareholders as of the close of business on March 26, 2010, their properly designated proxies and guests of the Company may attend the Annual Meeting. You must present photo identification for admittance. If you are a shareholder of record or hold your shares through the Company’s 401(k) Plan, Employee Stock Purchase Plan or Direct Stock Purchase Program, your name will be verified against the list of shareholders of record or plan or purchase program participants on the record date prior to your admission to the Annual Meeting. If you are not a shareholder of record or a participant in one of the Company’s plans or purchase programs, but hold shares through a broker, trustee or nominee, you must provide proof of beneficial ownership on the record date, such as your most recent account statement prior to March 26, 2010 or other similar evidence of ownership. If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted to the Annual Meeting.

 

The meeting will begin promptly at 10:00 a.m., local time, and check-in will begin at 8:30 a.m., local time.

 

The Articles of Incorporation of the Company previously divided the Board into three classes, designated Class I, Class II and Class III, with one class standing for election each year for a three-year term. At our 2008 Annual Meeting of Shareholders, the Board of Directors recommended, and shareholders approved, amendments to the Company’s Articles of Incorporation to declassify the Board over a three-year period. Accordingly, current directors, including Class I directors elected to three-year terms at the 2008 Annual Meeting and Class II directors elected to two-year terms at last year’s Annual Meeting, will continue to serve the remainder of their elected terms. Class III directors with terms expiring at this year’s Annual Meeting will be elected to one-year terms expiring at the 2011 Annual Meeting of Shareholders. Beginning with the 2011 Annual Meeting of Shareholders, and at each Annual Meeting thereafter, all directors will be elected annually.

 

The number of directors is currently fixed at 11. The four nominees standing for election as Class III directors at the 2010 Annual Meeting of Shareholders are: David W. Bernauer, Leonard L. Berry, Dawn E. Hudson and Robert A. Niblock. If elected, each Class III nominee will serve until his or her term expires in 2011 or until a successor is duly elected and qualified.

 

All of the nominees are currently serving as directors. Unless authority to vote in the election of directors is withheld, it is the intention of the persons named as proxies to vote “FOR ALL” of the four nominees. If at the time of the meeting any of these nominees is unavailable for election as a director for any reason, which is not expected to occur, the proxyholders will vote for such substitute nominee or nominees, if any, as shall be designated by the Board of Directors.

 

Nominees for Election as Class III Directors — Term to Expire in 2011

 

 

Mr. Bernauer served as the non-executive Chairman of the board of directors of Walgreen Co., the nation’s largest drugstore chain with approximately 7,650 locations in 50 states, the District of Columbia, Guam and Puerto Rico, from January 2007 until his retirement in July 2007. From January 2002 until July 2006, he served as Chief Executive Officer of Walgreens, at which time he ceased to be Chief Executive Officer and served as executive Chairman of the company until January 2007. Mr. Bernauer previously served as President and Chief Operating Officer of Walgreens. Mr. Bernauer currently serves on the board of directors of Office Depot, Inc. In addition to his strong leadership and broad business management skills developed as the Chief Executive Officer of the nation’s largest drugstore chain, Mr. Bernauer brings more than 40 years of retail industry experience to Lowe’s Board, including an in-depth knowledge of the challenges of managing a rapidly-expanding store base, store operations, marketing, merchandising, finance, and information technology.

 

 

Dr. Berry is a Distinguished Professor of Marketing, Presidential Professor for Teaching Excellence and holds the M.B. Zale Chair in Retailing and Marketing Leadership in the Mays Business School at Texas A&M University. Dr. Berry has been a Professor of Marketing at Texas A&M University since 1982, and a Professor of Humanities in Medicine in the College of Medicine at The Texas A&M University System Health Science Center, since 2004. He is also the founder of the Center for Retailing Studies at Texas A&M University. An accomplished author, he has published numerous articles and a series of books on service management, marketing and quality. Dr. Berry currently serves on the boards of directors of Darden Restaurants, Inc. and Genesco Inc. Dr. Berry’s extensive academic background in teaching and conducting research in marketing is a valuable asset to Lowe’s Board in support of understanding customer expectations, improving service quality and building a strong services brand for Lowe’s.

 

 

Ms. Hudson is Vice Chair of The Parthenon Group, an advisory firm focused on business strategy consulting. Ms. Hudson was the President and Chief Executive Officer of Pepsi-Cola North America, the multi-billion dollar refreshment beverage unit of PepsiCo, Inc. in the United States and Canada until November 2007, where she served as President since May 2002 and Chief Executive Officer since March 2005. Previously, Ms. Hudson served as Chief Executive Officer of the PepsiCo Foodservice Division from March 2005 to November 2007. Prior to joining PepsiCo, Ms. Hudson spent 13 years in the marketing, advertising and branding strategy arena with leadership positions at major agencies such as D’Arcy Masius Benton & Bowles and Omnicom. She currently serves on the boards of directors of Allergan, Inc. and P.F. Chang’s China Bistro, Inc. Ms. Hudson brings to Lowe’s Board extensive experience in executive leadership spanning consumer goods, foodservice and communication companies. In addition, as a former marketing executive, Ms. Hudson brings valuable expertise and insights in leveraging national brands, proprietary brand development and consumer behavior to Lowe’s Board.

 

 

Mr. Niblock has served as Chairman of the Board and Chief Executive Officer of Lowe’s Companies, Inc. since January 2005. Prior to that, he served as President of Lowe’s from 2003 to 2006. Mr. Niblock joined Lowe’s in 1993, and during his career with the Company, has served as Vice President and Treasurer, Senior Vice President — Finance, and Executive Vice President and Chief Financial Officer. Before joining Lowe’s, Mr. Niblock had a nine-

year career with accounting firm Ernst & Young. He currently serves on the board of directors of ConocoPhillips. Mr. Niblock has also been a member since 2003, and is the immediate past Chairman of the board of directors of the Retail Industry Leaders Association (RILA), a trade association based in Arlington, VA for the retail industry that includes eight of the top 10 U.S. retailers among its members. During his 17-year career with the Company, Mr. Niblock has held a number of different positions with the Company, gaining a deep understanding of Lowe’s operations and its organizational culture and values. With a background in accounting, Mr. Niblock also brings accounting and related financial management experience to Lowe’s Board.

 

 

Class I Directors — Term to Expire in 2011

 

 

Mr. Ingram has been a General Partner of Hatteras Venture Partners, LLC, a venture capital firm that invests in early stage life science companies in the southeast United States, since 2007. He has also served as an advisor to the Chief Executive Officer of GlaxoSmithKline plc, a pharmaceutical research and development company, since January 2010. Mr. Ingram previously served as Vice Chairman Pharmaceuticals of GlaxoSmithKline, acting as a special advisor to the Corporate Executive Team and attending its meetings in that capacity, from January 2003 until December 2009. Prior to that, Mr. Ingram was Chief Operating Officer and President, Pharmaceutical Operations of GlaxoSmithKline from January 2001 to January 2003. Previously, he was Chief Executive Officer of Glaxo Wellcome plc from 1997 to 2000 and Chairman of Glaxo Wellcome Inc., Glaxo Wellcome plc’s United States subsidiary, from 1999 to 2000. He currently serves on the boards of directors of Allergan, Inc., Cree, Inc., Edwards Lifesciences Corporation, OSI Pharmaceuticals, Inc., where he serves as Chairman of the board, and Valeant Pharmaceuticals International, where he serves as Lead Director. He was a director of Misys plc, Nortel Networks Corporation and Wachovia Corporation until 2005, 2006 and 2008, respectively. In addition to his strong managerial and leadership skills developed as Chairman and Chief Executive Officer of one of the world’s largest pharmaceutical companies, Mr. Ingram brings valuable board governance and management succession experience to Lowe’s Board.

 

 

Mr. Johnson is the founder and Chairman of The RLJ Companies, which owns or holds interests in a diverse portfolio of companies in the banking, private equity, real estate, hospitality, professional sports (including the NBA Charlotte Bobcats), film production, gaming and automobile dealership industries. Prior to forming The RLJ Companies, he was founder and Chairman of Black Entertainment Television (BET), which was acquired in 2001 by Viacom Inc., a media-entertainment holding company. Mr. Johnson continued to serve as Chief Executive Officer of BET until 2006. He currently serves on the boards of directors of KB Home and Strayer Education, Inc. He was a director of Hilton Hotels Corporation and US Airways Group, Inc. until 2006 and 2005, respectively. As a successful business leader and entrepreneur, Mr. Johnson brings to Lowe’s Board his experience in a number of critical areas, including real estate, finance, brand development, multicultural marketing and providing customer satisfaction.

 

 

Mr. Lochridge is the founder and has served as President of Lochridge & Company, Inc., a general management consulting firm, since 1986. He currently serves on the boards of directors of Dover Corporation and PetSmart, Inc. He was a director of John H. Harland Company until 2007. Mr. Lochridge brings to Lowe’s Board his more than 40 years of experience as a consultant working closely with senior management on operational and organizational strategies and challenges at leading companies across a broad range of industries, including a number of large retailers with international operations.

Class II Directors — Term to Expire in 2011

 

 

Mr. Browning has been the managing director of Peter C. Browning & Associates, LLC, a board advisory consulting firm, since 2009. Prior to that, he was the Dean of the McColl Graduate School of Business at Queens University of Charlotte, North Carolina, from March 2002 to May 2005. From 1998 to 2000, Mr. Browning was President and Chief Executive Officer, from 1996 to 1998, President and Chief Operating Officer, and from 1993 to 1996, Executive Vice President of Sonoco Products Company, a manufacturer of industrial and consumer packaging products. Before joining Sonoco, Mr. Browning was Chairman, President and Chief Executive Officer of National Gypsum Company, a manufacturer and supplier of building and construction products, from 1990 to 1993. He currently serves on the boards of directors of Acuity Brands, Inc., EnPro Industries, Inc. and Nucor Corporation, where he served as non-executive Chair from 2000 to 2006 and currently serves as Lead Director, and was a director of Wachovia Corporation and The Phoenix Companies, Inc. until 2008 and 2009, respectively. Mr. Browning brings a unique breadth and depth of experience and expertise to Lowe’s Board, including board governance, board performance and dynamics and executive leadership transition and succession planning. Mr. Browning also brings to Lowe’s Board industry experience in the building and construction products sector.

 

 

Mr. Larsen has served as Chairman of Goodrich Corporation, a supplier of systems and services to the aerospace and defense industry, since October 2003, and President and Chief Executive Officer, since February 2002 and April 2003, respectively. Prior to that, Mr. Larsen was Chief Operating Officer of Goodrich from February 2002 to April 2003, and Executive Vice President and President and Chief Operating Officer of Goodrich Aerospace division of Goodrich from 1995 to 2002. He currently serves on the board of directors of Becton, Dickinson and Company. As Chairman and Chief Executive Officer of a publicly traded company for the past seven years, Mr. Larsen has developed strong executive leadership and strategic management skills. Mr. Larsen also brings to Lowe’s Board 30 years of domestic and international business experience, including expertise in a number of critical areas, such as accounting and finance, retail sales and marketing.

 

 

Mr. Page served as Vice Chairman and Chief Financial Officer of United Technologies Corporation (UTC), a manufacturer of high-technology products and services to the building systems and aerospace industries, from 2002 until his retirement in 2004. From 1997 to 2002, Mr. Page was President and Chief Executive Officer of Otis Elevator Company, a subsidiary of UTC, and from 1993 to 1997, Executive Vice President and Chief Financial Officer of UTC. Prior to joining UTC in 1993, Mr. Page was Chief Financial Officer and Executive Vice President of The Black & Decker Corporation, a global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology based fastening systems. He currently serves on the boards of directors of Liberty Mutual Holding Company, Inc. and PACCAR Inc. He served as a director of UTC until 2004. In serving as Chief Financial Officer for two public companies and as a certified public accountant for the past 40 years, Mr. Page has developed strong accounting and financial management skills, which are a valuable asset to Lowe’s Board, particularly on the Audit Committee. Mr. Page also brings to Lowe’s Board his demonstrated leadership abilities as a former chief executive officer and an understanding of business, both domestically and internationally. Mr. Page also practiced corporate law for approximately 10 years.

 

Mr. Sloan has served as Chairman of General Parts International, Inc., a distributor of automotive replacement parts based in Raleigh, North Carolina, since 1961. From 1961 to December 2008, he served as Chief Executive Officer of General Parts International. Mr. Sloan also co-founded Highwoods Properties Inc., a Raleigh-based real estate investment trust. He currently serves on the boards of directors of Golden Corral and Highwoods Properties, Inc., where he serves as Chairman of the board, and was the Lead Director of Bank of America Corporation until 2009. In serving as Chairman and Chief Executive Officer of a multi-billion dollar company for more than 40 years, Mr. Sloan has developed strong executive leadership and strategic management skills. Mr. Sloan also brings to Lowe’s Board significant experience in a number of important areas, including retail sales and operations, mergers and acquisitions, accounting and financial management and board governance, performance and dynamics.

 

Corporate Governance Guidelines and Code of Business Conduct and Ethics

 

The Board of Directors has adopted Corporate Governance Guidelines setting forth guidelines and standards with respect to the role and composition of the Board, the functioning of the Board and its committees, the compensation of directors, succession planning and management development, the Board’s and its committees’ access to independent advisers and other matters. The Governance Committee of the Board of Directors regularly reviews and assesses corporate governance developments and recommends to the Board modifications to the Corporate Governance Guidelines as warranted. The Company has also adopted a Code of Business Conduct and Ethics (“Code”) for its directors, officers and employees. The Governance Guidelines and Code are posted on the Company’s website at www.Lowes.com/investor.

 

Director Independence

 

Lowe’s Corporate Governance Guidelines provide that in accordance with long-standing policy, a majority of the members of the Company’s Board of Directors must qualify as independent directors. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with the Company. The Board has adopted Categorical Standards for Determination of Director Independence (“Categorical Standards”) to assist the Board in making determinations of independence. A copy of these Categorical Standards is attached as Appendix A to this Proxy Statement.

 

The Governance Committee and the Board have evaluated the transactions, relationships or arrangements between each director (and his or her immediate family members and related interests) and the Company in each of the most recent three completed fiscal years. They include the following, all of which were entered into by the Company in the ordinary course of business:

 

 

 

In addition, the Board considered the amount of the Company’s discretionary charitable contributions in each of the most recent three completed fiscal years to charitable organizations where a director, or a member of his or her immediate family, serves as a director or trustee.

 

As a result of this evaluation, the Board has affirmatively determined, upon the recommendation of the Governance Committee, that currently each director, other than Robert Niblock, and all of the members of the Audit Committee, Compensation Committee, and Governance Committee, are “independent” within the Company’s Categorical Standards and the NYSE rules, and, in the case of Audit Committee members, the separate SEC requirement, which provides that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company other than their compensation as directors.

 

Compensation of Directors

 

Annual Retainer Fees.  Directors who are not employed by the Company are paid an annual retainer of $75,000, and non-employee directors who serve as a committee chairman receive an additional $15,000 annually, or $25,000 annually in the case of the Audit Committee Chairman, for serving in such position. The independent Lead Director receives an additional retainer of $25,000 per year. Directors who are employed by the Company receive no additional compensation for serving as directors. The annual retainer amount was last increased in 2002.

 

Stock Awards.  In May 2005, shareholders approved the Lowe’s Companies, Inc. Amended and Restated Directors’ Stock Option and Deferred Stock Unit Plan (the “Directors’ Plan”), allowing the Board to elect to grant deferred stock units or options to purchase Common Stock at the first directors’ meeting following the Annual Meeting of Shareholders each year (the “Award Date”) to non-employee directors. Beginning with the directors’ meeting following the Annual Meeting of Shareholders held May 27, 2005, it has been the Board’s policy to grant only deferred stock units. A deferred stock unit represents the right to receive one share of Lowe’s Common Stock. The annual grant of deferred stock units for each of the Company’s directors who is not employed by the Company is determined by taking the annual grant amount of $115,000 and dividing it by the closing price of a share of Lowe’s Common Stock as reported on the NYSE on the Award Date, which amount is then rounded up to the next 100 units. The deferred stock units receive dividend equivalent credits, in the form of additional units, for any cash dividends subsequently paid with respect to Common Stock. All units credited to a director are fully vested and will be paid in the form of Common Stock after the termination of the director’s service.

 

The Directors’ Plan expired by its terms in 2008. At our 2009 Annual Meeting of Shareholders, the Board of Directors recommended, and shareholders approved, amendments to the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan (the “2006 LTIP”) that made the Company’s non-employee directors eligible to participate in that plan. Under the amended and restated 2006 LTIP, the Board of Directors is continuing to grant deferred stock units following the Annual Meeting each year to non-employee directors. The annual grant is determined as it was previously determined under the Directors’ Plan, subject to change by the Board of Directors upon recommendation of the Executive Committee.

 

Deferral of Annual Retainer Fees.  In 1994, the Board adopted the Lowe’s Companies, Inc. Directors’ Deferred Compensation Plan. This plan allows each non-employee director to defer receipt of all, but not less than all, of the annual retainer and any committee chairman or Lead Director fees otherwise payable to the director in cash. Deferrals are credited to a bookkeeping account and account values are adjusted based on the investment measure selected by the director. One investment measure adjusts the account value based on interest calculated in the same manner and at the same rate as interest on amounts invested in the short-term interest fund option available to employees participating in the Lowe’s 401(k) Plan, a tax-qualified, defined contribution plan sponsored by the

Company. The other investment measure assumes that the deferrals are invested in Lowe’s Common Stock with reinvestment of all dividends. A director may allocate deferrals between the two investment measures in 25% multiples. Account balances may not be reallocated between the investment measures. Account balances are paid in cash in a single sum payment following the termination of a director’s service.

 

The following table summarizes the compensation paid to non-employee directors during fiscal year 2009:

 

Director Compensation Table
Fiscal Year 2009

 

 

 

 

Board Meetings, Committees of the Board and Board Leadership Structure

 

Attendance at Board and Committee Meetings.  During fiscal year 2009, the Board of Directors held six meetings. All incumbent directors attended at least 75% of all meetings of the Board and the committees on which they served.

 

Board Leadership Structure.  Robert A. Niblock currently holds the positions of Chairman of the Board and Chief Executive Officer of the Company. The Corporate Governance Guidelines of the Company provide for an independent Lead Director to be elected by the independent directors annually at the meeting of the Board of Directors held in conjunction with the annual meeting of shareholders. O. Temple Sloan, Jr. has served as Lead Director of the Company since August 2008. The Corporate Governance Guidelines provide that the Lead Director will:

 

 

The Lead Director also serves as the Chairperson of the Governance Committee of the Board of Directors, which functions as the Board’s nominating committee as well, and is comprised entirely of independent directors.

 

The Board believes that the Company’s current leadership structure with the combined role of Chairman and CEO promotes unified leadership and direction for the Company, which allows for a single, clear focus for management to execute the Company’s strategy and business plans. The Board also believes that having an independent Lead Director whose responsibilities closely parallel those of an independent Chairman ensures that the appropriate level of independent oversight is applied to all Board decisions.

 

Board’s Role in the Risk Management Process.  Management must take a wide variety of risks to enhance shareholder value. It is the Board of Directors’ responsibility to ensure that management has established and adequately resourced processes for identifying and preparing the Company to manage those risks effectively. It is also the Board’s responsibility to challenge management regularly to demonstrate that those processes are effective in operation.

 

Lowe’s has adopted the concept of enterprise risk assessment (“ERM”) using the framework issued in 2004 by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s Senior Vice President and Chief Risk Officer, who reports directly to the Chairman and CEO, is responsible for implementing the Company’s ERM processes. During the extended Board meeting held each November, he presents to the Board a comprehensive review of the Company’s ERM processes. His presentation includes an update on any significant new risks that have been identified and assessed during the year and the strategies management has developed for managing them. During his presentation, the directors actively discuss with him and other members of management present the risks that have been identified to gain a deeper understanding of the risks the Company faces and establish a mutual understanding between the Board and management regarding the Company’s willingness to take risks and the strategies to be used to manage them. The Company’s Senior Vice President and Chief Risk Officer also presents updates on the Company’s ERM processes at other meetings of the Board during the year.

 

Although the Board of Directors believes that oversight of the Company’s ERM processes is a responsibility of the full Board, the Audit Committee of the Board addresses at each of its regular meetings risk oversight of the Company’s major financial exposures and the steps management has taken to identify, assess, monitor, control, remediate and report such exposures. The Audit Committee also reviews periodically with the Company’s Senior Vice President and General Counsel legal matters that may have a material adverse impact on the Company’s financial statements, compliance with laws and any material reports received from regulatory agencies. And finally, as noted in the “Compensation Discussion & Analysis” section of this Proxy Statement, the Compensation

Committee of the Board annually conducts a self audit of the risk associated with the Company’s non-equity and equity incentive plans.

 

Executive Sessions of the Non-Management Directors.  The non-management directors, all of whom are independent, met in executive session at each of the six regularly scheduled Board meetings in fiscal year 2009. Mr. Sloan, Lead Director, presides over these executive sessions, and, in his absence, the non-management directors may select another non-management director present to preside.

 

Attendance at Annual Meetings of Shareholders.  Directors are expected to attend the Annual Meeting of Shareholders. All of the incumbent directors attended last year’s Annual Meeting of Shareholders.

 

Committees of the Board of Directors and their Charters.  The Board has four standing committees: the Audit Committee, the Compensation Committee, the Executive Committee and the Governance Committee. Each of these committees, other than the Executive Committee, acts pursuant to a written charter adopted by the Board of Directors. The Executive Committee operates in accordance with the Company’s Bylaws and Corporate Governance Guidelines. A copy of each written committee charter and the Corporate Governance Guidelines are available on our website at www.Lowes.com/investor.

 

How to Communicate with the Board of Directors and Independent Directors.  Interested persons wishing to communicate with the Board of Directors may do so by sending a written communication addressed to the Board or to any member individually in care of Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117. Interested persons wishing to communicate with the independent directors as a group, may do so by sending a written communication addressed to O. Temple Sloan, Jr., as Lead Director, in care of Lowe’s Companies, Inc., 1000 Lowe’s Boulevard, Mooresville, North Carolina 28117. Any communication addressed to a director that is received at Lowe’s principal executive offices will be delivered or forwarded to the individual director as soon as practicable. Lowe’s will forward all communications received from its shareholders or other interested persons that are addressed simply to the Board of Directors to the Lead Director or to the chairman of the committee of the Board of Directors whose purpose and function is most closely related to the subject matter of the communication.

 

 

The following table shows the beneficial ownership of Common Stock as of March 19, 2010, except as otherwise noted, by each director, each nominee for election as a director, the named executive officers listed in the Summary Compensation Table, each shareholder known by the Company to be the beneficial owner of more than 5% of the Common Stock, and the incumbent directors, director nominees and executive officers as a group. Except as otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the securities beneficially owned by them as set forth opposite their name, subject to community property laws where applicable.

 

 

 

 

Based solely upon a review of Forms 3 and 4, and any amendments thereto, furnished to the Company pursuant to Rule 16a-3(e) of the Exchange Act during fiscal year 2009, and Forms 5, and any amendments thereto, furnished to the Company with respect to fiscal year 2009, and other written representations from certain reporting persons,

the Company believes that all filing requirements under Section 16(a) applicable to its officers, directors and greater than 10% beneficial owners have been complied with during fiscal year 2009 and prior fiscal years.

 

 

Summary

 

The Compensation Committee of the Board of Directors (the “Committee”) is responsible for administering the Company’s executive compensation program. The Committee believes strongly in pay for performance, and the Committee continued to administer the executive compensation program in 2009 with the pay for performance philosophy firmly in mind.

 

The Committee continued to use two six-month performance measurement periods with separate performance targets for each period for the 2009 non-equity incentive compensation plan. The Committee first adopted the six-month performance periods for 2008 in response to the rapid changes that were occurring in the economy and the need to maintain flexibility to respond to those changes. The Committee continued to use the two six-month performance measurement periods, because it believed the economy would remain unpredictable in 2009. The Committee used earnings before interest and taxes (“EBIT”) (weighted 75%) and sales (weighted 25%) as the performance measures for the 2009 non-equity incentive compensation plan.

 

Despite the continuing external challenges in 2009, the Company achieved $47.220 billion of sales (98.8% of projected sales in its 2009 operating plan) and $3.166 billion of EBIT, excluding approximately $53 million in impairment charges for operating stores (108% of projected EBIT in its 2009 operating plan). The Company achieved these results through disciplined management of inventory levels and store staffing (without sacrificing customer satisfaction), product mix, inventory shrink, distribution costs and general and administrative expenses. In addition, the Company continued its focus on superior customer service and highlighted repair and maintenance-related projects in its advertising and provided information and tips to customers to help them complete their home improvement projects. The Company’s executives earned above target awards for 2009 under the Company’s non-equity incentive plan for achieving these results.

 

The Committee approved performance-based restricted stock awards to senior management employees in 2007 and 2008 that will become vested only if the Company satisfies a three-year performance objective set by the Committee when the awards were approved. The Committee adopted a time-vesting schedule for the regular, annual restricted stock awards granted on March 1, 2009 due to the continuing uncertainty in the economy and to aid in the retention of senior management employees.

 

Compensation Philosophy and Objectives

 

The Committee believes that total compensation should support Lowe’s key strategic objectives by:

 

 

The executive compensation program administered by the Committee applies to all executive officers, including the executive officers named in the compensation disclosure tables that follow this section. Members of the Committee are appointed by the Board of Directors. There are currently five members of the Committee, all of whom are independent, non-employee directors. Robert L. Johnson, a member of the Committee since May 2009, is an independent, non-employee director, but he is not an outside director under Section 162(m) of the

Internal Revenue Code due to the sponsorship agreement between the Company and the Charlotte Bobcats NBA team described on pages 7 and 8. For this reason, Mr. Johnson does not participate in any decisions with respect to performance based compensation awarded under the Company’s equity and non-equity incentive plans.

 

The Committee meets in person four times a year, telephonically as needed and also occasionally considers and takes action by written consent. The Chairman of the Committee reports all the actions and recommendations of the Committee to the Board of Directors.

 

The Committee has full discretionary power and authority to administer the executive compensation program. In carrying out its responsibilities, the Committee:

 

 

Role of the Independent Compensation Consultant

 

The Committee has directly engaged and regularly consults with an independent consultant for advice on executive compensation matters. For the fiscal year ended January 29, 2010, the Committee consulted with senior members of the compensation consulting practice of Hewitt Associates. Hewitt was engaged to (i) help ensure that the Committee’s actions are consistent with the Company’s business needs, pay philosophy, prevailing market practices and relevant legal and regulatory mandates, (ii) provide market data as background against which the Committee can consider executive management base salary, bonus and long-term incentive awards each year and (iii) consult with the Committee on how best to make compensation decisions with respect to executive management in a manner that is consistent with shareholders’ long-term interests.

 

Hewitt does not perform any other consulting services for the Company with respect to compensation, benefit plan design or actuarial services. The Lowe’s administrative committee, the ERISA “named fiduciary” for the Lowe’s 401(k) Plan, separately engaged Hewitt to provide investment advisor services to the administrative committee for the 401(k) Plan’s investment options. The Committee reviewed the retention of Hewitt as the investment advisor to the 401(k) Plan and concluded that the investment advisor services do not conflict with the compensation consulting services Hewitt provides to the Committee. The aggregate fees paid to Hewitt in 2009 were $203,304 for executive compensation consulting services and $155,982 for the 401(k) Plan investment advisor services.

 

Role of Company Management

 

The Committee is also supported in its work by the Company’s Human Resource Management executives and supporting personnel. The Company’s Senior Vice President of Human Resources works most closely with the Committee, both in providing information and analysis for review and in advising the Committee concerning compensation decisions (except as it relates specifically to her compensation). The Chairman and Chief Executive Officer provides input to the Senior Vice President of Human Resources and her staff to develop recommendations concerning executive officer compensation, with the exception of his compensation, and presents these recommendations to the Committee.

 

In 2009, the Company retained PricewaterhouseCoopers, LLC (“PwC”) to assist with the development of alternative designs for performance-based equity incentive plan awards. The Committee reviewed the design alternatives at its November 2009 meeting and referred them to its consultant, Hewitt, for further review and analysis. At its January 2010 meeting, the Committee decided to adopt a single, twelve-month performance

measurement period for the 2010 non-equity incentive compensation plan. In view of (i) the change in the non-equity incentive compensation plan, (ii) the Committee’s continued concern over the volatility in the housing industry and broader economy, (iii) the unknown long-term cost of proposed federal health care reform legislation and (iv) the Committee’s desire to promote the retention of senior management employees, the Committee decided not to adopt any of the design alternatives for the 2010 equity incentive plan awards. The aggregate fees paid to PwC in 2009 were $22,143 for the equity incentive plan design services. PwC also provides tax compliance and review services to the Company. The aggregate fees paid to PwC in 2009 for those services were $1,100,976.

 

General Principles of the Company’s Executive Compensation Program

 

Competitive Pay for Performance.  The program is designed to establish a strong link between the creation of shareholder value and the compensation earned by the Company’s executive officers. The fundamental objectives of the program are to:

 

 

Analysis of the “Market.”  The program is intended to provide total annual compensation at the median of companies of similar size and complexity when the Company meets its financial performance goals. At the same time, the program seeks to provide above-average total annual compensation if the Company’s financial performance goals are exceeded, and below-average total annual compensation if the Company’s financial performance goals are not achieved.

 

At the beginning of each fiscal year, the Committee reviews an independent consultant-prepared analysis of the compensation paid to executives of a comparable group of companies. The Committee uses the analysis to review the market and to set target compensation levels for the fiscal year.

 

The Committee reviews the composition of the comparable company group each year to ensure the group consists of companies that satisfy the Committee’s guidelines and to make any changes in the group the Committee deems appropriate. The Committee believes the group’s members should be similar in size and complexity to the Company and represent companies with whom the Company competes for employees. The Committee, upon the recommendation of Hewitt, used the following guidelines to select the members of the comparable company group for the Committee’s 2009 fiscal year compensation decisions:

 

 

The companies in the comparable company group approved by the Committee were 3M Company; Best Buy Co., Inc.; CVS Caremark Corporation; Deere & Company; General Mills, Inc.; The Home Depot, Inc.; J.C. Penney Company, Inc.; Kimberly-Clark Corporation; Macy’s, Inc. (formerly Federated Department Stores, Inc.); Masco Corporation; McDonald’s Corporation; Sara Lee Corporation; Staples, Inc.; SUPERVALU Inc.; Target Corporation; United Parcel Service, Inc.; Walgreen Co.; Wal-Mart Stores, Inc.; and Whirlpool Corporation. For the 2009

fiscal year, the Committee removed American Standard Companies, Inc. from the comparable company group because American Standard sold all of its businesses other than its air conditioning systems and services business in 2007 and was subsequently acquired by Ingersoll-Rand Company Limited in 2009.

 

Hewitt used data from its proprietary Hewitt Total Compensation Measurement^tm database as the primary data source for the analysis. Hewitt also used data from proxies filed by the members of the comparable company group in 2008 for additional reference data.

 

The Company’s compensation philosophy is to pay compensation at the median of companies of similar size and complexity. In keeping with this philosophy, the Committee accepted Hewitt’s recommendation to use as a guideline the 65^th percentile of the comparable company group data to evaluate whether each executive’s (i) base salary, (ii) threshold, target and maximum annual non-equity incentive compensation award and (iii) equity incentive plan award is at the market median. The Committee believes the 65^th percentile is the best match of the size and complexity of the Company to a market median of the comparable company group. This percentile is also consistent with the financial performance of the Company compared to the 65^th percentile of performance of the comparable company group in several key areas, such as sales growth, growth in earnings per share, return on capital, return on equity and total shareholder return, over multiple measurement periods. The Committee also believes this approach is analogous to using size-adjusted data, but it eliminates the subjective judgments required to develop size-adjusted survey data and a hypothetical median based on that size-adjusted data.

 

The analysis reviewed by the Committee showed that the total target compensation opportunities for all the executives other than Mr. Niblock were within market levels and that the Company’s program generally has more pay at risk (that is, the executives’ base salaries are at or below market levels while their at-risk pay opportunities (non-equity and long-term equity based incentives) are above market levels) than the market. The analysis showed that Mr. Niblock’s base salary was below market and his below market base salary results in his target non-equity incentive and total target compensation being below market as well.

 

After reviewing the analysis, the Committee decided to freeze the base salaries of the Chairman and Chief Executive Officer, the President and Chief Operating Officer, all executive vice presidents and all senior vice presidents of the Company for the 2009 fiscal year. The Committee decided to make no changes in the components of each executive’s total annual compensation target based on the analysis and taking into consideration the re-balancing of compensation elements for the executive vice presidents the Committee approved for 2008.

 

In March 2009, the Committee conducted a self audit of the risk associated with the Company’s non-equity and equity incentive plans. The Committee considered the balance between pay components, competitive practice, the setting of appropriate performance targets and the overlap of performance periods. The Chief Financial Officer actively participated in the Committee meeting to discuss the setting of performance targets and the verification of results. The Committee believes the Company’s pay practices, stock ownership and holding requirements and clawback provisions all discourage inappropriate risk taking by Company executives.

 

The following table shows the at-risk elements of pay under the program for 2009:

 

 

Compensation Paid under the Executive Compensation Program in 2009

 

Base Salary.  Base salaries for executive officers are established on the basis of the qualifications and experience of the executive, the nature of the job responsibilities and the base salaries for competitive positions in the market as described above. The Committee reviews and approves executive officers’ base salaries annually. Any

action by the Committee with respect to the base salary of the Chairman and Chief Executive Officer is subject to ratification by the independent members of the Board of Directors. The Committee did not approve any increases in executive officer base salaries for 2009. The Committee has also decided not to provide any increase in executive officer base salaries for 2010.

 

Non-Equity Incentive Plan Compensation.  Executives earn non-equity incentive compensation under the program for each fiscal year based on the Company’s achievement of one or more financial performance measures established by the Committee. Due to the continued uncertainty of the economic environment in which the Company operated in 2009, the Committee continued for 2009 the practice that was first adopted in 2008 of having two six-month performance measurement periods with separate performance levels established at the beginning of each six-month period. The Committee believes the two six-month performance measurement periods enable the setting of performance goals that would not be set either too low or too high in the event the economic environment experienced an improvement or decline that could not have been foreseen over a longer, one year performance measurement period.

 

For both performance measurement periods in 2009, the Committee adopted EBIT (weighted 75%) and sales (weighted 25%) as the performance measures for the non-equity incentive compensation plan. The Committee believes EBIT is an effective performance measure because it rewards the profitability of existing stores and the development of new stores that contribute quickly to the Company’s earnings. The Committee included the sales performance measure to focus the executives on driving market share gains given the disruptions occurring in the economy.

 

The following tables show the threshold, target and maximum performance levels for EBIT and sales established by the Committee for the two six-month performance measurement periods in 2009. The target performance levels for both of the six-month performance periods were based on the Company’s operating plan. The plan required aggressive management of inventory levels and store staffing (without sacrificing customer satisfaction), product mix, inventory shrink, distribution costs and general and administrative expenses. The Company’s actual performance during the two six-month performance periods is also shown in the following tables.

 

The threshold, target and maximum EBIT performance levels shown below for the second six-month period in 2009 did not include any impairment charges in the plan for operating stores. Similarly, the actual EBIT performance shown below does not include approximately $53 million in actual impairment charges recorded by the Company for operating stores for the second six-month period. The Company is required to record an impairment charge for financial accounting purposes if the fair value of a store is less than the carrying value of the store. The Committee believes the Company’s EBIT without the impairment charges for operating stores more accurately measures the earnings produced by store operations.

 

First Six-Month Period (February 2009 through July 2009) Performance Measures

 

 

Second Six-Month Period (August 2009 through January 2010) Performance Measures

 

 

 

 

Based on the performance measures established by the Committee and the Company’s actual performance, the named executives earned non-equity incentive awards for the two six-month performance periods in 2009 as follows:

 

 

 

Equity Incentive Plan Awards.  The Company’s equity incentive plans authorize awards of stock options, performance- and time-vested restricted stock, performance accelerated restricted stock (“PARS”), performance shares and stock appreciation rights. Although the Committee generally has the discretion to establish the terms of all awards, the equity incentive plans limit certain award terms. For example, the Committee may not extend the original term of a stock option or, except as provided by the plans’ anti-dilution provision, reduce its exercise price. In addition, the plans generally require the vesting period for stock awards to be at least three years, although a period as short as one year is permitted if based on the satisfaction of financial performance objectives prescribed by the Committee and stock options may not be re-priced without shareholder approval.

 

Each year, at its meeting in January or February, the Committee makes its annual equity incentive award decisions. Currently, all store managers and employees in more senior positions are eligible to receive an annual equity incentive award. The effective date for the annual equity awards is the March 1 following the Committee’s January or February meeting.

 

At the January or February meeting, the Committee considers and approves the following factors related to the awards:

 

 

In February 2009, the Committee observed that 25% of the 2007 restricted stock awards were projected to become vested. The Committee concluded that the low projected vesting level was the result of setting performance objectives that did not fully contemplate the effect of the dramatic

economic downturn and its continuing impact on the housing market and home improvement industry and not the lack of performance by Company management. The Committee did not consider any supplemental equity grants or overriding the performance vesting provisions of the 2007 restricted stock awards to compensate executives for the low projected vesting caused by unforeseen external factors that were beyond the control of the executives. However, the Committee adopted a time-based vesting schedule for the March 1, 2009 restricted stock awards that provides for 100% vesting on the third anniversary of the award date. This vesting schedule represents a change from the performance-vesting schedule the Committee adopted for the 2007 and 2008 restricted stock awards due to the continuing uncertainty in the economy and to aid in the retention of senior management employees.

 

The performance-vesting schedules adopted for the 2007 and 2008 restricted stock awards provide that the restricted stock will become vested based on the Company’s return on non-cash average assets (“RONCAA”) during the three fiscal year period following the awards. RONCAA is computed on an annual basis by dividing the Company’s EBIT for the year by the average of the Company’s non-cash assets as of the beginning and end of the year. The return percentages for each year in the performance period are then averaged to yield a RONCAA for the three-year performance period.

 

The performance-vesting period for the 2007 restricted stock awards expired on January 29, 2010, the last day of the Company’s 2009 fiscal year. The following table shows the performance-vesting schedule that applied to those awards:

 

 

The Company’s RONCAA for the three-year performance period was 12.76%. Based on that RONCAA level and the absence of any incremental vesting for RONCCA between the levels in the table, 25% of the performance-based restricted shares vested. The remaining 75% of the shares were forfeited.

 

Based on the Company’s performance during the 2008 and 2009 fiscal years, the Committee anticipates that approximately 63% of the performance-based restricted stock granted on March 1, 2008 will become vested following the expiration of the three-year performance period for that grant in 2011.

 

 

Pursuant to authority delegated by the Committee, on August 1 of each year, the Chairman and Chief Executive Officer makes equity incentive awards to all employees who are hired or promoted into a store manager or more senior position after the preceding March 1 annual grant date and who are not Section 16 officers. The same number of shares for each position as were granted on the preceding March 1 are granted on the succeeding August 1 at the closing price of the Company’s Common Stock on August 1 (or the most recent prior business day in the event August 1 falls on a

non-business day). The Chairman and Chief Executive Officer also has the authority to make special retention, assignment or hiring package grants to employees who are not Section 16 officers as of May 1, August 1 or November 1.

 

Any other equity incentive grants, such as special retention grants or hiring package grants to Section 16 officers are reviewed and approved by the Committee at a meeting held prior to the grant effective date.

 

Summary of CEO’s 2009 Compensation

 

The following tables show how Mr. Niblock’s actual 2009 compensation compares with actual performance and the future performance required to realize gains from his 2009 equity incentive plan awards. These tables differ from the amounts presented for Mr. Niblock in the Summary Compensation Table on page 28 because the Summary Compensation Table combines actual compensation received in 2009 and the grant date fair value of his 2009 equity incentive awards.

 

The first table provides information as to the actual levels of compensation Mr. Niblock received during 2009 and a description of the performance results that generated the compensation. The equity incentive plan awards were earned over multiple years. For this reason, the first table provides both the total value of the equity incentive plan awards and the ratable amount of compensation earned each year the awards were outstanding. The second table shows the equity incentive plan awards granted to Mr. Niblock in 2009 that may be earned over future years.

 

Compensation Received by Mr. Niblock in 2009*

 

 

 

 

Summary of Mr. Niblock’s 2009 Equity Incentive Plan Awards

 

The amounts presented for Mr. Niblock in the stock awards and option awards columns of the Summary Compensation Table are the total accounting expense the Company will recognize for the awards. The amounts do not reflect what Mr. Niblock will actually realize if the awards become vested and the vested stock options are exercised. The amount of compensation Mr. Niblock will realize from the awards may be nothing or it may be greater than the amounts presented in the Summary Compensation Table depending on satisfaction of the performance criteria and the future value of the Company’s Common Stock.

 

 

Other Compensation

 

The Company’s executive officers participate in the Lowe’s 401(k) Plan and the other employee benefit plans sponsored by the Company on the same terms and conditions that apply to all other employees. The Company makes only nominal use of perquisites in compensating its executive officers. The Company provides limited supplemental long-term disability coverage for all senior vice presidents and more senior officers whose annual compensation (base salary and target bonus) exceeds $400,000, provided the executive has also enrolled in and paid the cost for coverage under the Company’s voluntary group long-term disability plan that is available to all employees. The Company’s total cost for providing such supplemental coverage to the 31 executives in this category is approximately $39,948. All senior vice presidents and more senior officers of the Company are required to use professional tax preparation, filing and planning services, and the Company reimburses the cost of such services up to an annual maximum of $5,000. Prior to 2009, the reimbursement was grossed up for taxes. The tax gross-up was eliminated effective January 1, 2009. Such officers are also required to receive an annual physical examination, at the Company’s expense, subject to maximum amounts that are based on the officer’s age. In March 2007, the Committee approved a policy that permits the President and Chief Operating Officer to use Company-owned aircraft for up to 25 hours a year of personal travel. The Committee approved the policy to provide additional compensation to the President and Chief Operating Officer and to recognize his assumption and performance of additional duties and responsibilities. Finally, the independent members of the Board of Directors require the Chairman and Chief Executive Officer to utilize corporate aircraft for all business and personal travel for his safety, health and security, to enhance his effectiveness, to ensure immediate access to the Chairman and Chief Executive Officer for urgent matters and to maintain the confidentiality of the purpose of the travel. The Company does not provide any tax gross-up to the Chairman and Chief Executive Officer or the President and Chief Operating Officer for the taxable income imputed to them for their personal use of corporate aircraft.

 

Nonqualified Deferred Compensation Programs

 

The Company sponsors three nonqualified deferred compensation programs for senior management employees: the Benefit Restoration Plan, the Cash Deferral Plan and the Deferred Compensation Program.

 

The Company’s Benefit Restoration Plan provides qualifying executives with benefits equivalent to those received by all other employees under the Company’s 401(k) Plan. Qualifying executives are those whose contributions, annual additions and other benefits, as normally provided to all participants under the tax-qualified 401(k) Plan, would be curtailed by the effect of Internal Revenue Code limitations and restrictions.

 

The Cash Deferral Plan permits qualifying executives to voluntarily defer a portion of their base salary, non-equity incentive compensation and certain other bonuses on a tax-deferred basis. Qualifying executives are those employed by the Company in more senior positions. The Company does not make matching or any other contributions to the Cash Deferral Plan.

The Deferred Compensation Program is a part of the Company’s equity incentive plans. Only equity incentive plan compensation realized from pre-2004 awards may be deferred under the Deferred Compensation Program. Any shares representing stock incentives that are deferred under the Deferred Compensation Program are cancelled and tracked as “phantom” shares. During the deferral period, the participant’s account is credited with amounts equal to the dividends paid on actual shares.

 

All of the Company’s nonqualified deferred compensation programs are unfunded. Any deferred compensation payment obligations under the programs are at all times unsecured payment obligations of the Company.

 

The Company has previously entered into Management Continuity Agreements with each of the named executive officers and other senior officers of the Company. The Committee approved amended and restated Management Continuity Agreements in 2009 that comply with the requirements of Section 409A of the Internal Revenue Code. In connection with the amendment and restatement process, the Committee established (i) a policy on which executive and senior officers of the Company should be covered by a Management Continuity Agreement (resulting in a decrease in the number of these agreements) and (ii) a standard level of benefits to be provided under the agreements that complies with the Senior Executive Severance Policy adopted by the Board of Directors.

 

The agreements provide for certain benefits if the Company experiences a change-in-control followed by termination of the executive’s employment:

 

 

“Cause” means continued and willful failure to perform duties or conduct demonstrably and materially injurious to the Company or its affiliates.

 

All of the agreements with the named executives provide for three-year terms. On the first anniversary, and every anniversary thereafter, the term is extended automatically for an additional year unless the Company elects not to extend the term. All of the agreements automatically expire on the second anniversary of a change-in-control notwithstanding the length of the terms remaining on the date of the change-in-control.

 

If benefits are paid under an agreement, the executive will receive (i) a lump-sum severance payment equal to the present value of 2.99 times the executive’s annual base salary, non-equity incentive compensation and welfare insurance costs, and (ii) any other unpaid salary and benefits to which the executive is otherwise entitled. In addition, the executive will be compensated for any excise tax liability he may incur as a result of any benefits paid to the executive being classified as excess parachute payments under Section 280G of the Internal Revenue Code and for income and employment taxes attributable to such excise tax reimbursement.

 

All legal fees and expenses incurred by the executives in enforcing these agreements will be paid by the Company.

 

The following table shows the amounts that would have been payable to the named executive officers if a change-in-control of the Company had occurred on January 29, 2010 and the named executive officers’ employment was terminated by the Company’s successor without cause immediately thereafter:

 

 

 

 

 

Stock Ownership Guidelines.  The Committee strongly believes that executive officers should own appropriate amounts of the Company’s Common Stock to align their interests with those of the Company’s shareholders. The Company’s 401(k) Plan, employee stock purchase plan and equity incentive plans provide ample opportunity for executives to acquire such Common Stock.

 

The Committee also has adopted stock ownership and retention guidelines for all senior vice presidents and more senior officers of the Company. The ownership target under the current policy is ten times base salary for the Chairman and Chief Executive Officer, six times base salary for the President and Chief Operating Officer, four times base salary for executive vice presidents and two times base salary for all senior vice presidents. If an executive meets the age and service requirements for retirement, the executive may request Board approval of the executive’s retirement. If approval is granted, the executive’s stock option and restricted stock awards continue to vest in accordance with their original vesting schedules and the stock options remain exercisable for the remainder of their original seven-year term. This ensures an executive’s interests are aligned with the Company’s interests even after retirement.

 

The Committee reviews compliance with the guidelines annually at its March meeting. The Company determines the number of shares required to be held by each senior officer as of March 1 each year. The number of shares is determined by dividing the ownership requirement (expressed as a dollar amount) by the average closing price of Lowe’s stock for the preceding fiscal year. Shares are counted towards ownership as follows:

 

 

Senior officers may not sell the net shares resulting from a restricted stock vesting event or stock option exercise until the ownership requirement has been satisfied. All of the named executive officers were in compliance with this policy for fiscal year 2009.

 

Oversight of Executive Equity Ownership; Recoupment of Incentive Compensation

 

The Committee has always supported governance and compliance practices that are transparent and protect the interests of the Company’s shareholders. To strengthen the Company’s practices in these areas, the Company has adopted (i) controls over executive equity awards and ownership and (ii) a policy on the recoupment of incentive compensation in the event of significant restatement.

 

The Company’s controls over executive equity awards and ownership prohibit any executive from:

 

 

Trading in Lowe’s stock, including stock held in an account under the Lowe’s 401(k) Plan, by an executive and the executive’s immediate family members who reside with the executive or whose transactions are subject to the executive’s influence or control, is limited to open window trading periods designated by the Company’s General Counsel and Chief Compliance Officer. In addition, all transactions by an executive involving Company stock must be pre-cleared by the General Counsel and Chief Compliance Officer.

The recoupment policy requires the Board of Directors to review any incentive compensation that was provided to executive officers on the basis of the Company having met or exceeded specific performance targets during a performance period that is subject to a significant restatement of Company financial results. If (1) the incentive compensation would have been lower had it been based on the restated financial results and (2) the Board determines that an executive officer engaged in fraud or intentional misconduct that caused or substantially caused the need for the restatement, then the Board is required, to the extent practicable, to seek to recover, for the benefit of the Company, the portion of such compensation that would not have been earned had the incentive compensation been based on the financial results as restated.

 

Tax Deductibility of Compensation.  Section 162(m) of the Internal Revenue Code limits the amount of non-performance based compensation paid to the named executive officers (other than Mr. Hull, the Chief Financial Officer) that may be deducted by the Company for federal income tax purposes in any fiscal year to $1,000,000. Performance-based compensation that has been approved by the Company’s shareholders and that is administered by a committee composed entirely of outside directors is not subject to the $1,000,000 deduction limit. All of the Company’s equity and non-equity incentive plans have been approved by the Company’s shareholders. In addition, the compensation awarded under the plans is administered by the members of the Committee who are outside directors under Section 162(m) of the Internal Revenue Code.

 

Because the Company’s plans are shareholder approved and administered solely by outside directors, all awards under those plans, other than restricted stock awards that do not vest solely on the performance of the Company, should qualify as “performance-based” compensation that is fully deductible and not subject to the Internal Revenue Code Section 162(m) deduction limit. Although the Committee has not adopted a formal policy that requires all compensation paid to the named executive officers to be deductible, whenever practical, the Committee structures compensation plans to make the compensation paid thereunder fully deductible.

 

Summary Compensation Table — This table shows the base salary, annual non-equity incentive compensation and all other compensation paid to the named executives. The table also shows the grant date fair value of the stock and option awards made to the named executives.

 

 

 

 

 

All amounts presented above, other than the amount for personal use of corporate aircraft, equal the actual cost to the Company of the particular benefit or perquisite provided. The amount presented for personal use of corporate aircraft is equal to the incremental cost to the Company of such use. Incremental cost includes fuel, landing and ramp fees and other variable costs directly attributable to the personal use. Incremental cost does not include an allocable share of the fixed costs associated with the Company’s ownership of the aircraft.

Grants of Plan-Based Awards — This table presents the potential annual non-equity incentive awards the named executives were eligible to earn in 2009, the restricted stock and stock options awarded to the executives in 2009 and the grant date fair value of the restricted stock and option awards.

 

 

 

Outstanding Equity Awards at Fiscal Year-End — This table presents information about unvested stock and option awards held by the named executives on January 29, 2010.

 

 

 

 

 

 

 

 

Option Exercises and Stock Vested at Fiscal Year-End — This table presents information about stock options exercised by the named executive officers and the number and value of stock awards that became vested in the named executive officers during the 2009 fiscal year.

 

 

 

 

Nonqualified Deferred Compensation — The Company sponsors three non-qualified deferred compensation plans for the benefit of senior management employees: the Benefit Restoration Plan (the “BRP”), the Cash Deferral Plan (the “CDP”) and the Deferred Compensation Program (the “DCP”).

 

BRP

 

The BRP allows senior management employees to defer receipt of the difference between (i) 6% of the sum of base salary and annual non-equity incentive plan compensation and (ii) the amount the employee is allowed to contribute to the Company’s tax-qualified 401(k) Plan. The deferred amounts are credited to the employee’s BRP account. The Company makes matching contributions to the employee’s BRP account under the same matching contribution formula that applies to employee contributions to the 401(k) Plan. An employee’s account under the BRP is deemed to be invested in accordance with the employee’s election in one or more of the investment options available under the 401(k) Plan, except an employee may not elect to have any amounts deferred under the BRP after February 1, 2003 to be deemed to be invested in Company Common Stock. An employee may elect to change the investment of the employee’s BRP account as frequently as each business day. An employee’s account under the BRP is paid to the employee in cash after the end of the plan year in which the employee terminates employment but no earlier than 180 days after the employee’s termination of employment.

 

CDP

 

The CDP allows a senior management employee to elect to defer receipt of up to 80% of his or her base salary, annual non-equity incentive plan compensation and certain other bonuses. The deferred amounts are credited to the employee’s CDP account. The Company does not make any contributions to the CDP. An employee’s CDP account is deemed to be invested in accordance with the employee’s election in one or more of the investment options available under the 401(k) Plan, except an employee may not elect to have any amounts deferred under the CDP to be deemed to be invested in Company Common Stock. An employee may elect to change the investment of the employee’s CDP account as frequently as each business day. An employee’s account under the CDP is paid to the employee in cash after the end of the plan year in which the employee terminates employment but no earlier than 180 days after the employee’s termination of employment. In addition, an employee may elect to have a portion of the employee’s deferrals segregated into a separate sub-account that is paid at a date elected by the employee so long as the date is at least five years from the date of the employee’s deferral election.

 

DCP

 

Prior to January 1, 2009, the DCP required the deferral of any equity incentive compensation payable to a named executive officer to the extent the compensation would not be deductible for federal income tax purposes under Section 162(m) of the Internal Revenue Code. The DCP also allowed executives to elect prior to January 1, 2005 to defer receipt of stock awards and gains from the exercise of stock options. The Company does not make any contributions to the DCP. All deferrals under the DCP are deemed to be invested in shares of the Company’s Common Stock. Any dividends that would have been paid on shares of stock credited to an executive’s DCP account are deemed to be reinvested in additional shares of Common Stock. The aggregate

earnings on an executive’s DCP account shown in the table below are attributable solely to fluctuations in the value of the Company’s Common Stock and dividends paid with respect to the Company’s Common Stock. Shares of Company Common Stock credited to an executive’s DCP account that are attributable to mandatory deferrals are paid to the executive when the distribution is fully deductible by the Company for federal income tax purposes. Shares of Company Common Stock credited to an executive’s DCP account that are attributable to pre-2005 elective deferrals are paid in accordance with the executive’s election in a lump sum or five annual installments after the executive’s termination of employment or attainment of a specified age.

 

The following table presents information about the amounts deferred by the named executive officers under the Company’s three deferred compensation plans.