UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

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

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GameStop Corp.

(Name of Registrant as Specified In Its Charter)

 

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

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625 Westport Parkway

Grapevine, Texas 76051

 

May 16, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of GameStop Corp. The meeting will be held at 1:30 p.m., Central Standard Time, on Tuesday, June 21, 2011 at the Hilton Southlake Town Square, 1400 Plaza Place, Southlake, Texas.

 

Information about the meeting and the various matters on which the stockholders will act is included in the Notice of Annual Meeting of Stockholders and Proxy Statement which follow. Also included are a Proxy Card and postage paid return envelope.

 

It is important that your shares are represented at the Annual Meeting whether or not you plan to attend. Accordingly, we request your cooperation by signing, dating and mailing the enclosed proxy card, or voting by telephone or electronically through the Internet as soon as possible to ensure your representation at the Annual Meeting.

 

Thank you for your continued interest in GameStop Corp.

 

Sincerely,

 

Daniel A. DeMatteo

Executive Chairman

625 Westport Parkway

Grapevine, Texas 76051

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on June 21, 2011: the Proxy Statement and the accompanying Annual Report to Stockholders are available at http://investor.gamestop.com.

GameStop Corp.

625 Westport Parkway

Grapevine, Texas 76051

 

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 21, 2011

 

INTRODUCTION

 

This Proxy Statement and enclosed Proxy Card are being furnished commencing on or about May 16, 2011 in connection with the solicitation by the Board of Directors (the “Board of Directors” or the “Board”) of GameStop Corp., a Delaware corporation (together with its predecessor companies, “GameStop,” “we,” “our,” or the “Company”), of proxies for use at the Annual Meeting of Stockholders to be held on June 21, 2011 (the “Meeting”) for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. Any proxy given pursuant to such solicitation and received in time for the Meeting will be voted as specified in such proxy. If no instructions are given, proxies will be voted FOR the election of the nominees listed below under the caption “Election of Directors — Information Concerning the Directors and Nominees — Nominees for Election as Director,” FOR the approval, by non-binding vote, of executive compensation as disclosed in these materials, FOR the approval of the GameStop Corp. 2011 Incentive Plan (the “2011 Incentive Plan”), FOR the ratification of the appointment of BDO USA, LLP as the independent registered public accounting firm for the Company’s fiscal year ending January 28, 2012, and in the discretion of the proxies named on the Proxy Card with respect to any other matters properly brought before the Meeting and any adjournments or postponements thereof. Since the Board is making no recommendation related to the advisory vote on the frequency of advisory votes on executive compensation, no vote will be recorded on this matter unless a vote for one of the alternatives presented is specifically indicated. Any proxy may be revoked by written notice received by the Secretary of the Company at any time prior to the voting thereof by submitting a subsequent proxy or by attending the Meeting and voting in person.

 

Only holders of record of the Company’s Class A Common Stock as of the close of business on May 2, 2011 are entitled to notice of and to vote at the Meeting. As of the record date, 141,272,865 shares of Class A Common Stock, par value $.001 per share (“Common Stock”), were outstanding. Each share of Common Stock entitles the record holder thereof to one vote on each of the proposals and on all other matters properly brought before the Meeting. The presence of a majority by vote of the outstanding shares of the Common Stock represented in person or by proxy at the Meeting will constitute a quorum.

 

Nominees for director shall be elected by a majority of the votes cast in person or by proxy. A majority of the votes cast means the affirmative vote of a majority of the total votes cast “for” and “against” such nominee. Elected directors will serve until the 2014 annual meeting of stockholders and until their respective successors are duly elected and qualified. The proposal to ratify the appointment of the Company’s independent registered public accountants, the proposal to approve the 2011 Incentive Plan, and all other matters that may be voted on at the Meeting, will require the affirmative vote of a majority of the votes cast on the proposal in person or by proxy at the Meeting.

 

With respect to the proposal to elect the three nominees for director, the proposal to ratify the appointment of the Company’s independent registered public accountants, the proposal to approve the 2011 Incentive Plan and the two advisory votes, abstentions and “broker non-votes” will not be included in vote totals and will have no effect on the outcome. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular matter because the nominee does not have discretionary voting power on that matter and has not received instructions from the beneficial owner. Please note that last year the New York Stock Exchange (the “NYSE”) rules regarding how brokers may vote your shares changed. Brokers may no longer vote your shares on the election of directors in the absence of your specific instructions as to how to vote, so we encourage you to provide instructions to your broker regarding the voting of your shares.

 

Abstentions and “broker non-votes” are included in determining whether a quorum is present.

A Proxy Card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ACCOMPANYING ENVELOPE, which is postage-paid if mailed in the United States.

 

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROXY STATEMENT.

 

ELECTION OF DIRECTORS

 

PROPOSAL 1

 

Information Concerning the Directors and Nominees

 

Our Board of Directors currently consists of 11 directors. Our certificate of incorporation divides our Board of Directors into three classes: Class 1, whose terms will expire at the annual meeting of stockholders to be held in 2012, Class 2, whose terms will expire at the annual meeting of stockholders to be held in 2013, and Class 3, whose terms will expire at the Meeting. Daniel A. DeMatteo, Michael N. Rosen and Edward A. Volkwein are in Class 1; R. Richard Fontaine, Jerome L. Davis, Steven R. Koonin and Stephanie M. Shern are in Class 2; and Leonard Riggio, Stanley (Mickey) Steinberg, Gerald R. Szczepanski and Lawrence S. Zilavy are in Class 3. Leonard Riggio has decided not to stand for re-election upon expiration of his term at the Meeting. At each annual meeting of stockholders, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. As the Company expands its presence in the digital gaming industry, the Board is searching for a replacement for Mr. Riggio with candidates possessing expertise in digital gaming and is using a third-party search firm to conduct a search for the appropriate candidates.

 

In addition, our certificate of incorporation provides that the authorized number of directors may be changed only by resolution of the Board of Directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.

 

Background information and qualifications with respect to our Board of Directors and nominees for election as directors, all of whom are incumbent directors, appear below. See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding such persons’ holdings of equity securities of the Company.

 

The following table sets forth the names and ages of our directors, the year they first became a director and the positions they hold with the Company:

 

 

 

The Board believes that each director has valuable individual skills and experiences that, taken together, provide us with the variety and depth of knowledge necessary for effective oversight, direction and vision for the Company. As indicated in the following biographies, the current directors, as well as the nominees, have extensive experience in a variety of fields including retail (Messrs. Fontaine, DeMatteo, Szczepanski and Zilavy and Mrs. Shern), entertainment, including experience specifically related to the video game industry (Messrs. Volkwein, Steinberg and Koonin), consumer marketing (Messrs. Volkwein, Koonin and Davis), financial (Mrs. Shern and Mr. Zilavy), real estate (Mr. Steinberg), consulting (Messrs. Davis and Steinberg) and law (Mr. Rosen), each of which the Board believes provides valuable knowledge related to the key components of the Company’s business. In addition, the Board also believes that its Board members and nominees, as indicated in the following biographies, have each demonstrated significant leadership skills as a Chief Executive Officer or Chief Operating Officer (Messrs. Fontaine, DeMatteo, Steinberg, Szczepanski and Davis), as a senior partner in a large services firm (Mr. Rosen and Mrs. Shern) and executive management in other large corporations (Messrs. Koonin, Zilavy and Volkwein). All of our current Board members and nominees have experience in oversight of public corporations due to their experience on the Board of Directors of GameStop and other companies. The Board believes that the skills and experience of each standing director and nominee qualify them to serve as a director of the Company.

 

Nominees for Election as Director

 

The following individuals are nominees for director at the Meeting:

 

Stanley (Mickey) Steinberg is a director and has served as a director since October 2005. Mr. Steinberg is a member of the Nominating and Corporate Governance Committee. Mr. Steinberg currently serves as a consultant to multiple companies in the real estate investment, development, design and construction business, as well as in the trade show business. From August 1994 to June 1998, Mr. Steinberg served as Chairman of Sony Retail Entertainment. From 1989 to 1994, Mr. Steinberg served as Executive Vice President and Chief Operating Officer of Walt Disney Imagineering, responsible for the development, design and construction of all Disney theme parks. Mr. Steinberg serves on the board of directors of three privately held companies — AMC, Inc., the owner and manager of AmericasMart, an Atlanta trade show center; ECI Group, an Atlanta apartment development, construction and management company; and NRI Construction, an Atlanta construction company that specializes in apartment repairs and rehabilitation. During the past five years, Mr. Steinberg has also served as a director of Reckson Associates Realty Corp.

 

Gerald R. Szczepanski is a director and has served as a director for the Company or our predecessor companies since 2002. Mr. Szczepanski is Chair of the Compensation Committee and a member of the Audit Committee. Mr. Szczepanski is currently retired. Mr. Szczepanski was the co-founder, and, from 1994 to 2005, the Chairman and Chief Executive Officer of Gadzooks, Inc., a publicly traded specialty retailer of casual clothing and accessories for teenagers. On February 3, 2004, Gadzooks, Inc. filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (Case No. 04-31486-11). Mr. Szczepanski is also a director of Rush Enterprises, Inc.

 

Lawrence S. Zilavy is a director and a member of the Audit Committee. Mr. Zilavy has served as a director since October 2005. Since October 2009, Mr. Zilavy has been employed by LR Enterprises Management LLC, the family office of Leonard Riggio. Mr. Zilavy was a Senior Vice President of Barnes & Noble College Booksellers,

Inc. from May 2006 to September 2009. Mr. Zilavy was Executive Vice President, Corporate Finance and Strategic Planning for Barnes & Noble from May 2003 until November 2004 and was Chief Financial Officer of Barnes & Noble, Inc. (“Barnes & Noble”) from June 2002 through April 2003. Mr. Zilavy is also a director of The Hain Celestial Group, Inc. and the non-profit Community Resource Exchange. During the past five years, Mr. Zilavy has also served as a director of Barnes & Noble.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF EACH NOMINEE FOR DIRECTOR NAMED ABOVE. PROXIES SOLICITED BY THIS PROXY STATEMENT WILL BE VOTED FOR EACH NOMINEE NAMED ABOVE UNLESS A VOTE AGAINST A NOMINEE OR AN ABSTENTION IS SPECIFICALLY INDICATED.

 

Other Directors whose Terms of Office Continue after the Meeting

 

Daniel A. DeMatteo is a director and Executive Chairman, a position he has held since June 2010. He served as our Chief Executive Officer from August 2008 to June 2010. He served as Vice Chairman and Chief Operating Officer from March 2005 to August 2008. Prior to March 2005, Mr. DeMatteo served as President and Chief Operating Officer of the Company or our predecessor companies since November 1996. He has served on our Board since 2002 and has been an executive officer in the video game industry since 1988.

 

R. Richard Fontaine is our Chairman International. He served as our Executive Chairman of the Board from August 2008 until June 2010 and was Chairman of the Board and Chief Executive Officer from GameStop’s predecessor company’s initial public offering in February 2002 until August 2008. Mr. Fontaine served as Chief Executive Officer of our predecessor companies from November 1996 to February 2002. He has been an executive officer or director in the video game industry since 1988. Effective June 2010, Mr. Fontaine’s employment agreement was amended to extend his role as Chairman International of the Company until March 3, 2013.

 

Jerome L. Davis is a director and Chair of the Nominating and Corporate Governance Committee. Mr. Davis has served as a director since October 2005. Mr. Davis is Vice President of Food and Retail for Waste Management, Inc. where he is responsible for the strategy and performance of the food and retail segment, which includes the restaurant, grocery and retail industries. Mr. Davis was President of Jerome L. Davis & Associates, LLC, a consulting firm focusing on executive coaching and leadership development from 2006 until December 2009. Mr. Davis was Global Vice President, Service Excellence for Electronic Data Systems, a business and technology services company, from July 2003 until October 2005. From May 2001 to July 2003, he served in various capacities at Electronic Data Systems, including Chief Client Executive Officer and President, Americas for Business Process Management. Prior to joining Electronic Data Systems, Mr. Davis served as President and Executive Officer of the Commercial Solutions Division of Maytag Corporation, a home and commercial appliance company, from October 1999 until May 2001. Mr. Davis served as Senior Vice President of Sales and Corporate Officer for Maytag Appliances Division from March 1998 to September 1999. From March 1992 to February 1998, Mr. Davis was Vice President of National Accounts and Area Vice President for Frito Lay. Mr. Davis also held senior executive positions in Sales and Marketing with Procter & Gamble from 1977 to 1992. Mr. Davis is currently a director and Chair of the Finance and Enterprise Risks Committee and a member of the Nominating and Corporate Governance Committee of Apogee Enterprises, Inc., where he has been a director since 2004.

 

Steven R. Koonin is a director and has served as a director since June 2007. Mr. Koonin is a member of the Nominating and Corporate Governance Committee. Mr. Koonin is President of Turner Entertainment Networks (“Turner”), which includes TNT, TBS, truTV and Turner Classic Movies. Mr. Koonin joined Turner Broadcasting System in 2000 as Executive Vice President and General Manager of TNT. He added oversight of TBS in 2003 and was promoted to his current position in 2006. Mr. Koonin was responsible for the rebranding of TNT and TBS and for the development of some of the most successful programming in cable television history. He also led the rebrand of Court TV as truTV. Prior to joining Turner, Mr. Koonin spent 14 years with The Coca-Cola Company, including as Vice President of Consumer Marketing. Mr. Koonin is also a director of the Metro Atlanta Chamber of Commerce, the Georgia Aquarium and the Fox Theatre.

 

Michael N. Rosen is a director and has served as a director for the Company or our predecessor companies since October 1999. Mr. Rosen served as the Secretary of the Company or our predecessor companies from October 1999 until May 2007. Mr. Rosen served as a director of Barnes & Noble and its subsidiaries and affiliates through

April 2007. Mr. Rosen has been a partner at Bryan Cave LLP, counsel to the Company, since their July 2002 combination with Robinson Silverman LLP. Prior to that, Mr. Rosen was Chairman of Robinson Silverman LLP.

 

Stephanie M. Shern is a director and Chair of the Audit Committee and has served in these capacities since 2002. Mrs. Shern is also a member of the Compensation Committee. Mrs. Shern formed Shern Associates LLC in February 2002 to provide business advisory and board services, primarily to publicly-held companies. From 1995 until April 2001, Mrs. Shern was the Vice Chair and Global Director of Retail and Consumer Products for Ernst & Young LLP and a member of Ernst & Young’s Management Committee. Mrs. Shern is currently a director and Chair of the Audit Committee of The Scotts/Miracle Gro Company and a director and member of the Audit and Remuneration Committees of Royal Ahold. During the past five years, Mrs. Shern has also served as a director of Embarq Corp, CenturyLink, Sprint Nextel Corp. and Nextel Communications, Inc.

 

Edward A. Volkwein is a director and has served as a director for the Company or our predecessor companies since 2002. Mr. Volkwein is a member of the Compensation Committee. Mr. Volkwein was President of Hydro-Photon, Inc., a water purification technology company, from 2005 to 2010 and is currently consulting with start-up companies. Mr. Volkwein is Chairman of Blue Hill Harbor School, now in its fourth year, which he co-founded to explore new High School learning models. Prior to joining Hydro-Photon, Mr. Volkwein had a broad marketing career beginning in brand management for General Foods and Chesebrough-Ponds, Inc. He served as Senior Vice President, Global Advertising and Promotion, for Philips Consumer Electronics and as Senior Vice President Marketing for Sega of America, where he was instrumental in developing Sega into a major video game brand. Mr. Volkwein has also held senior executive positions with Funk & Wagnalls as President and Prince Manufacturing as Senior Vice President.

 

Directors Not Standing for Re-Election

 

Leonard Riggio is a director. Mr. Riggio was the Chairman of the Board of GameStop or its predecessor companies from November 1996 until GameStop’s initial public offering in February 2002. Mr. Riggio has been Chairman of the Board and a principal stockholder of Barnes & Noble since its inception in 1986 and served as Chief Executive Officer from its inception in 1986 until February 2002. Mr. Riggio has chosen not to stand for re-election to the Board of Directors when his term expires at the Meeting.

 

Meetings and Committees of the Board

 

The Board of Directors met 12 times during the fiscal year ended January 29, 2011 (“fiscal 2010”). All directors who were directors for the full fiscal year attended at least 75% of all of the meetings of the Board of Directors and the committees thereof on which they served during fiscal 2010, with the exception of Mr. Riggio, for whom medical reasons prevented attendance at 75% of the meetings.

 

The Board of Directors has three standing committees:  an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee.

 

Audit Committee.  The Audit Committee’s principal functions include reviewing the adequacy of the Company’s internal system of accounting controls, the appointment, compensation, retention and oversight of the independent registered public accountants, conferring with the independent public accounting firm concerning the scope of their examination of the books and records of the Company, reviewing and approving related party transactions and considering other appropriate matters regarding the financial affairs of the Company. In addition, the Audit Committee has established procedures for the receipt, retention and treatment of confidential and anonymous complaints regarding the Company’s accounting, internal accounting controls and auditing matters. The Board of Directors has adopted a written charter setting out the functions of the Audit Committee, a copy of which is available on the Company’s website at http://investor.gamestop.com and is available in print to any stockholder who requests it in writing to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. As required by the charter, the Audit Committee will continue to review and reassess the adequacy of the charter annually and recommend any changes to the Board of Directors for approval. The current members of the Audit Committee are Stephanie M. Shern (Chair), Gerald R. Szczepanski and Lawrence S. Zilavy, all of whom are “independent” directors under the listing standards of the NYSE. In addition to meeting the independence standards of the NYSE, each member of the Audit Committee is financially literate and meets the

independence standards established by the Securities and Exchange Commission (the “SEC”). The Board of Directors has also determined that Mrs. Shern has the requisite attributes of an “audit committee financial expert” as defined by regulations promulgated by the SEC and that such attributes were acquired through relevant education and/or experience. The Audit Committee met eight times during fiscal 2010.

 

Compensation Committee.  The principal function of the Compensation Committee is, among other things, to make recommendations to the Board of Directors with respect to matters regarding the approval of employment agreements, management and consultant hiring and executive compensation. The Compensation Committee is also responsible for administering our Amended and Restated 2001 Incentive Plan, as amended (the “2001 Incentive Plan”), and our Supplemental Compensation Plan, and will be responsible for administering the 2011 Incentive Plan if approved at the Meeting. The current members of the Compensation Committee are Gerald R. Szczepanski (Chair), Stephanie M. Shern and Edward A. Volkwein, all of whom meet the independence standards of the NYSE. The Board of Directors has adopted a written charter setting out the functions of the Compensation Committee, a copy of which is available on the Company’s website at http://investor.gamestop.com and is available in print to any stockholder who requests it in writing to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. The Compensation Committee met 12 times during fiscal 2010.

 

Nominating and Corporate Governance Committee.  The principal function of the Nominating and Corporate Governance Committee is, among other things, to review and recommend to the Board candidates for service on the Board and its committees, including the renewal of existing directors, and to recommend to the Board the corporate governance guidelines applicable to the Company. The current members of the Nominating and Corporate Governance Committee are Jerome L. Davis (Chair), Steven R. Koonin and Stanley (Mickey) Steinberg, all of whom meet the independence standards of the NYSE. Our Board of Directors has adopted a written charter setting out the functions of the Nominating and Corporate Governance Committee, a copy of which can be found on our website at http://investor.gamestop.com and is available in print to any stockholder who requests it in writing to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. The Nominating and Corporate Governance Committee met three times during fiscal 2010.

 

Minimum Qualifications

 

The Nominating and Corporate Governance Committee does not set specific minimum qualifications for directors except to the extent required to meet applicable legal, regulatory and stock exchange requirements, including, but not limited to, the independence requirements of the NYSE and the SEC, as applicable. Nominees for director are selected on the basis of outstanding achievement in their personal careers; board experience; wisdom; integrity; diversity; ability to make independent, analytical inquiries; understanding of the business environment; and willingness to devote adequate time to Board of Directors’ duties. While the selection of qualified directors is a complex and subjective process that requires consideration of many intangible factors, the Nominating and Corporate Governance Committee believes that each director should have a basic understanding of (i) the principal operational and financial objectives and plans and strategies of the Company, (ii) the results of operations and financial condition of the Company and of any of its significant subsidiaries or business segments, and (iii) the relative standing of the Company and its business segments in relation to their competitors.

 

Nominating Process

 

Consideration of new Board of Director nominee candidates, if any, typically involves a series of internal discussions, review of information concerning candidates and interviews with selected candidates. The Nominating and Corporate Governance Committee is willing to consider candidates submitted by a variety of sources (including incumbent directors, stockholders (in accordance with the process described below), Company management and third-party search firms) when reviewing candidates to fill vacancies and/or expand the Board of Directors. When nominating a sitting director for re-election at an annual meeting, the Nominating and Corporate Governance Committee will consider the director’s performance on the Board of Directors and the director’s qualifications in respect of the foregoing.

As the Company expands its presence in the digital gaming industry, the Board is searching for a replacement for Mr. Riggio with candidates possessing expertise in digital gaming and is using a third-party search firm to conduct a search for the appropriate candidates.

 

Consideration of Stockholder-Nominated Directors

 

Stockholders have the right to submit nominations for persons to be elected to the Board of Directors as described below. If such a nomination occurs and if a vacancy arises or if the Board of Directors decides to expand its membership, and at such other times as the Board of Directors deems necessary or appropriate, the Nominating and Corporate Governance Committee will consider potential nominees submitted by stockholders. The Company’s Bylaws provide that, in order for a stockholder to nominate a person for election to the Board of Directors at an annual meeting of stockholders, such stockholder must give written notice to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051, not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days’ notice or prior public disclosure of the date of the meeting is given to stockholders, notice by the stockholder must be given not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such notice must contain the proposing stockholder’s record name and address, and the number of shares of the Company which are beneficially owned by such stockholder. Such notice must also contain all information relating to such nominee that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including such person’s written consent to being a nominee and to serving as a director if elected.

 

Corporate Governance

 

Codes of Ethics

 

The Company has adopted a Code of Ethics for Senior Financial and Executive Officers that is applicable to the Company’s Executive Chairman, Chairman International, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, and any Executive Vice President of the Company or Vice President of the Company employed in a finance or accounting role. The Company also has adopted a Code of Standards, Ethics and Conduct applicable to all of the Company’s management-level employees and non-employee directors. The Code of Ethics for Senior Financial and Executive Officers and the Code of Standards, Ethics and Conduct are available on the Company’s website at http://investor.gamestop.com and are available in print to any stockholder who requests them in writing to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. In accordance with SEC rules, the Company intends to disclose any amendment (other than any technical, administrative or other non-substantive amendment) to either of the above Codes, or any waiver of any provision thereof with respect to certain specified officers listed above, on the Company’s website at http://investor.gamestop.com within four business days following such amendment or waiver.

 

Claw-back Policy

 

The Company has adopted a claw-back policy which requires the Board, when permitted by law, to require reimbursement of annual incentive payments or long-term incentive payments from a current or former executive officer of the Company where the payment was predicated upon achieving certain financial results or other operating metrics, and either (1) the Board determines in its good faith judgment that such financial results or other operating metrics were achieved in whole or part as a result of fraud or other misconduct on the part of such executive, or fraud or other misconduct of other employees of the Company of which such executive had knowledge, whether or not such conduct results in any restatement of Company financial statements filed with the SEC, or (2) such financial results or other operating metrics were the subject of a restatement of Company financial statements filed with the SEC, and a lower payment would have been made to the executive officer based upon the restated financial results. The Company will, to the fullest extent possible under applicable law, seek to recover from the individual executive officer, in the case of (1), the full amount of the individual executive officer’s incentive payments for the relevant period (including, at a minimum, for the three-year period prior to such financial results), and in the case of (2), the amount by which the individual executive officer’s incentive payments for the

relevant period (including, at a minimum, for the three-year period prior to the restatement of financial results) exceeded the lower payment that would have been made based on the restated financial results.

 

Equity Ownership Policy

 

The Board believes that it is important for each executive officer and non-employee director of the Company to have a financial stake in the Company to help align the executive officer’s or non-employee director’s interests with those of the Company’s stockholders. To that end, the Company has adopted an equity ownership policy requiring that each executive officer and non-employee director of the Company maintain ownership of Company common stock with a value of at least the following multiples of base salary or annual cash retainer for service on the Board:

 

 

New executive officers or non-employee directors of the Company will be given a period of five (5) years to attain full compliance with these requirements. These requirements will be reduced by 50% after an executive reaches age 62 in order to facilitate appropriate financial planning.

 

For purposes of these determinations, (i) stock ownership includes shares of Company common stock which are directly owned or owned by family members residing with the executive officer or non-employee director, or by family trusts, as well as vested options and vested restricted stock, and unvested restricted stock or equivalents, unless they are subject to achievement of performance targets, and common stock or stock equivalents credited to such executive officer or non-employee director under any deferred compensation plan, and (ii) Company common stock shall be valued per share using the 200-day trailing average NYSE per share closing price.

 

Anti-Hedging Policy

 

Given that the aim of ownership of Company common stock is to ensure that employees and directors of the Company have a direct personal financial stake in the Company’s performance, hedging transactions on the part of employees and directors of the Company could be contrary to that purpose. Therefore, the Company has adopted an anti-hedging policy which states that the implementation by an employee or director of the Company of hedging strategies or transactions using short sales, puts, calls or other types of financial instruments (including, but not limited to, prepaid variable forward contracts, equity swaps, collars, and exchange funds) based upon the value of Company common stock and applied to equity securities granted to such employee or director, or held, directly or indirectly, by such employee or director, is strictly prohibited.

 

Corporate Governance Guidelines

 

The Board of Directors has adopted Corporate Governance Guidelines. The Corporate Governance Guidelines are available on the Company’s website at http://investor.gamestop.com and are available in print to any stockholder who requests them in writing to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Texas 76051.

 

Communications Between Stockholders and Interested Parties and the Board of Directors

 

Stockholders and other interested persons seeking to communicate with the Board of Directors should submit any communications in writing to the Company’s Secretary, GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. Any such communication must state the number of shares beneficially owned by the stockholder making the communication. The Company’s Secretary will forward such communication to the full Board of Directors or to any individual director or directors (including the presiding director of the executive sessions of the non-management directors or the non-management directors as a group) to whom the communication is directed.

Attendance at Annual Meetings

 

All members of the Board of Directors are expected to attend in person the Company’s annual meeting of stockholders and be available to address questions or concerns raised by stockholders. Nine of the Company’s 11 directors attended the 2010 GameStop annual meeting of stockholders.

 

Director Independence

 

The current members of the Board of Directors who are “independent” directors under the listing standards of the NYSE are Jerome L. Davis, Steven R. Koonin, Leonard Riggio, Stephanie M. Shern, Stanley (Mickey) Steinberg, Gerald R. Szczepanski, Edward A. Volkwein and Lawrence S. Zilavy. In addition to meeting the independence standards of the NYSE, each of these directors meets the independence standards established by the SEC. The non-management directors of the Company hold regularly scheduled executive sessions without management present at least once annually and the independent directors hold at least one meeting annually with only independent directors present. The presiding director for each non-management or independent director executive session is Mrs. Shern.

 

Board Leadership Structure

 

The Board believes that at this time, the Company’s stockholders are best served by the Board’s current leadership structure. The Board structure is comprised of an Executive Chairman position that is separate from the Chief Executive Officer position, as well as ten other directors of which eight are independent, including a lead independent director who is also the Chair of the Audit Committee. Under the Board’s current structure, Mr. DeMatteo is the Executive Chairman and is also a member of management and former Chief Executive Officer of the Company. The Board believes that Mr. DeMatteo’s in-depth knowledge of the Company’s business and its challenges, as well as his experience in the video game industry as a whole, make him the best qualified person to serve as Executive Chairman. In addition, this structure facilitates better communication between management and the Board and allows Mr. DeMatteo to more effectively execute the Company’s strategic initiatives, including the implementation of the Company’s multi-channel retail strategy. The separate non-Board Chief Executive Officer position, held by J. Paul Raines, also enhances the oversight of the Company’s day-to-day operations and provides additional management expertise of the complexities of the Company’s business units, including the existing store base, international operations and the new digital initiatives. All directors play an active role in overseeing the Company’s business both at the Board and committee level. For additional oversight, the lead independent director presides over regularly scheduled meetings with the other non-management directors to discuss and evaluate the Company’s business without members of management present. This structure, together with our other corporate governance practices, provides strong independent oversight of management while ensuring clear strategic direction for the Company.

 

Risk Oversight

 

Responsibility for risk oversight resides with the full Board of Directors. Committees have been established to help the Board carry out this responsibility by focusing on key areas of risk inherent in the business. The Audit Committee oversees risk associated with financial and accounting matters, including compliance with legal and regulatory requirements, related-party transactions and the Company’s financial reporting and internal control systems. The Audit Committee also oversees the Company’s internal audit function and regularly meets separately with the Company’s head of internal audit, general counsel, external auditors and other financial and executive management. The Compensation Committee oversees risks associated with compensation policies and the retention and development of executive talent, including the development of policies that do not encourage excessive risk-taking by our executives. These policies include various factors to help mitigate risk, including fixed compensation components and variable components that include mitigating factors such as a consistent structure across all business units, generally involving consolidated income components; targeted award amounts that are not significant as a percentage of revenue and holding periods or claw-back provisions. The Compensation Committee and management also regularly review the Company’s compensation policies to determine effectiveness and to assess the risk they present to the Company. Based on this review, the Company has concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company. In addition, at

least annually, the Board conducts a formal business review including a risk assessment related to the Company’s existing business and new initiatives. Because overseeing risk is an ongoing process and inherent in the Company’s strategic decisions, the Board also discusses risk throughout the year at other meetings in relation to specific topics or actions.

 

Executive Officers

 

The following table sets forth the names and ages of our executive officers and the positions they hold:

 

 

Information with respect to executive officers of the Company who are also directors is set forth in “Information Concerning the Directors and Nominees” above.

 

J. Paul Raines is GameStop’s Chief Executive Officer, a role he has held since June 2010. He joined GameStop as Chief Operating Officer in September 2008. Prior to joining GameStop, Mr. Raines spent eight years with The Home Depot (“Home Depot”) in various management positions in retail operations, including the Executive Vice President of U.S. Stores and President of the Southern Division. Prior to Home Depot, he spent four years in global sourcing for L.L. Bean and ten years with Kurt Salmon Associates in their consumer products group. Mr. Raines serves on the Board of Directors of Advance Auto Parts.

 

Tony D. Bartel is President of GameStop, a role he has held since June 2010. He served as the Executive Vice President of Merchandising and Marketing from March 2007 to June 2010. Prior to that, Mr. Bartel was the Senior Vice President of International Finance, a role he held since joining GameStop in 2005. Mr. Bartel joined GameStop from NCH Corporation where he was the Chief Administrative Officer from May 2003 to May 2005. From 1989 to May 2003, Mr. Bartel held various positions with PepsiCo and Yum! Brands, Inc., including Operational Finance, Strategic Planning, Controller and eventually Chief Financial Officer of Pizza Hut. Prior to 1989, Mr. Bartel held various positions with the public accounting firm of KPMG Peat Marwick.

 

Robert A. Lloyd is Executive Vice President and Chief Financial Officer, a role he has held since June 2010. He served as our Interim Chief Financial Officer from February 2010 to June 2010. Mr. Lloyd also served as our Chief Accounting Officer, a position he held from October 2005 to February 2010. Prior to that, Mr. Lloyd was the Vice President — Finance of GameStop or its predecessor companies from October 2000 and was the Controller of GameStop’s predecessor companies from December 1996 to October 2000. From May 1988 to December 1996, Mr. Lloyd held various financial management positions as Controller or Chief Financial Officer, primarily in the telecommunications industry. Prior to May 1988, Mr. Lloyd held various positions with the public accounting firm of Ernst & Young. Mr. Lloyd is a Certified Public Accountant.

 

Michael K. Mauler has been Executive Vice President of GameStop International since January 2010. Mr. Mauler was formerly the Company’s Senior Vice President of Supply Chain and International Support, a position he held since October 2005. Prior to that, Mr. Mauler was the Vice President of Logistics of Electronics Boutique. Mr. Mauler has also held senior management positions for Baxter Healthcare, Dade Behring and Fisher Scientific, where he led operations for 22 countries.

 

Our executive officers are elected by our Board of Directors on an annual basis and serve until the next annual meeting of our Board of Directors or until their successors have been duly elected and qualified.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth the number of shares of our Common Stock and exercisable options to purchase such stock beneficially owned on May 2, 2011 by each director and each of the executive officers named in the

Summary Compensation Table, each holder of 5% or more of our Common Stock and all of our directors and executive officers as a group. Except as otherwise noted, the individual director or executive officer or his or her family members had sole voting and investment power with respect to the identified securities. The total number of shares of our Common Stock outstanding as of May 2, 2011 was 141,272,865.

 

 

 

 

Compensation Committee Interlocks and Insider Participation

 

The members of the Compensation Committee are Gerald R. Szczepanski (Chair), Stephanie M. Shern and Edward A. Volkwein, none of whom has ever been an employee of the Company. No member of the committee had a relationship requiring disclosure in this Proxy Statement under Items 404 or 407 of SEC Regulation S-K.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

The Compensation Committee believes that the Company’s directors and senior executives should be compensated commensurate with their success in maintaining the growth, cash flow and high level of performance necessary for GameStop to produce ongoing and sustained value for our stockholders. The Company’s strategic initiatives are critical to providing ongoing and sustained value as they are intended to transition the Company into a multi-channel retailer and result in revenue and market share growth in the short-term, while also driving earnings growth and opportunities in emerging markets, including digital gaming, in the future. The Compensation Committee will continue to develop and recommend compensation programs to support these critical objectives. The Board of Directors will continue to have sole approval rights over the Compensation Committee’s recommendations.

 

Recent Results

 

The Company had a very strong year in fiscal 2010, with significant improvement in operating results over the fiscal year ended January 30, 2010 (“fiscal 2009”) and with substantial progress on the Company’s strategic initiatives to develop into a multi-channel retailer. During fiscal 2010, the Company completed the following initiatives:

 

 

Since the end of fiscal 2010, the Company completed the acquisitions of Spawn Labs, Inc. and Impulse, Inc., which both provide further avenues of digital distribution of video games and ultimately digital revenue streams for the Company. In addition, the Company began selling downloadable content in stores in France.

For fiscal 2010, the Company increased revenues by 4.4% and operating earnings by 4.0%, and grew net income by 8.1% and earnings per share by 17.8%. The Company’s share price increased from $19.77 at the close of the last trading day of fiscal 2009 to $20.98 at the close of the last trading day of fiscal 2010, an increase of 6.1%. During fiscal 2010, the Company repurchased $381 million in shares of its common stock and retired $200 million of debt.

 

The Company achieved 97% of the targeted operating earnings for fiscal 2010 and as a result the Compensation Committee and the Board authorized payment of only 75% of the targeted short-term incentive award for named executive officers and all other bonus eligible employees. While management was pleased with the operating results and growth for the year, the original target was not met and, under the terms of the Supplemental Compensation Plan, management was therefore not entitled to full performance-based compensation. J. Paul Raines, the Company’s Chief Executive Officer, was named to his role in June 2010. Mr. Raines’ cash bonus was subject to the 75% payout and was also pro-rated for the portion of the year during which he was Chief Executive Officer.

 

Recent Events

 

Following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), management and the Compensation Committee of the Board undertook a review of the Company’s executive compensation and governance practices to identify where changes were warranted to align with stockholders’ interests. The following changes were made as a result of this review:

 

 

In addition, the Company adopted the 2011 Incentive Plan, subject to stockholder approval at the Meeting, with stockholder-favorable provisions, including a requirement for stockholder approval to re-price stock options and setting minimum three-year vesting periods for time-based awards.

 

General

 

The Company’s executive officer compensation program is administered by the Compensation Committee of the Board of Directors. The program is based upon the following guiding principles:

 

1. Total compensation provided by the Company to its executive officers should be competitive and allow the Company to attract and retain individuals whose skills are critical to the long-term success of the Company.

 

2. The compensation offered by the Company should reward and motivate individual and team performance in attaining business objectives and maximizing stockholder value, while avoiding the encouragement of unnecessary or excessive risk-taking.

 

3. Compensation awards should be based on the fundamental principle of aligning the long-term interests of GameStop’s employees with those of GameStop’s stockholders. Therefore, a meaningful portion of most management employees’ compensation will be in the form of long-term equity compensation. All of the short-

term incentives, in the form of annual cash bonuses, and a large portion of equity compensation for named executive officers are tied to performance measures, and may include situational bonuses, as appropriate, in recognition of meeting unique, time-sensitive performance challenges that may arise.

 

4. The overall value of the incentive and total compensation opportunities will be designed to be consistent with the level of the Company’s operational performance over time and the level of returns provided to stockholders.

 

The compensation program is designed to reward the executive officers for the dedication of their time, efforts, skills and business experience to the business of the Company. The compensation program is designed to reward both annual and long-term performance. Annual performance is rewarded through salary and annual bonus and is measured by the Company’s operating earnings and growth, among other factors. Long-term performance is rewarded through restricted stock and cash awards, some of which are subject to performance measures tied to earnings.

 

The Compensation Committee oversees risks associated with compensation policies and the retention and development of executive talent, including the development of policies that do not encourage excessive risk-taking by our executives. These policies include various factors to help mitigate risk, including fixed compensation components and variable components that include mitigating factors such as a consistent structure across all business units, generally involving consolidated income components; targeted award amounts that are not significant as a percentage of revenue and holding periods or claw-back provisions. The Compensation Committee and management also regularly review the Company’s compensation policies to determine effectiveness and to assess the risk they present to the Company. Based on this review, the Company has concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.

 

Role of Compensation Consultants

 

The Compensation Committee believes that an independent compensation consultant can play an essential role in the process of impartial compensation evaluation and such consultants can and should provide independent recommendations and points of view to assist the Compensation Committee in developing effective recommendations and evaluating the Company’s pay practices. Therefore, when appropriate, the Compensation Committee will utilize an independent compensation consultant who will report to and take direction from the Compensation Committee. The consultant’s research and viewpoints then provide one of several necessary data points that will be used to determine the Compensation Committee’s specific compensation recommendations to the Board of Directors.

 

In fiscal 2010, the Compensation Committee engaged Pay Governance LLC (“Pay Governance”) to review the compensation programs in place for the Company’s executive officers. Pay Governance was formed during 2010 by executive compensation experts formerly with Towers Watson in order to be able to provide independent executive compensation consulting services to compensation committees of public companies. The Company had not previously retained Pay Governance for any other services. Pay Governance was engaged to perform the following on behalf of the Compensation Committee:

 

 

Pay Governance was specifically engaged to complete the review of the executive compensation program for the Company’s Executive Chairman, Chief Executive Officer, President, Executive Vice President and Chief Financial Officer, and Executive Vice President of GameStop International.

Significant research and effort was devoted by Pay Governance to establishing the Company’s peer group for the fiscal year ending January 28, 2012 (“fiscal 2011”). The peer group used to benchmark compensation was recommended by Pay Governance and established by the Compensation Committee from the population of all other specialty retailers in the Standard & Poor’s 500 (the “S&P 500”). The Compensation Committee established this peer group after consideration of each potential peer’s revenue size, number of stores, number of employees, international scope, retail square footage, market value and a number of related measures. One of the considerations of the Compensation Committee was the non-subjective nature of using all of the companies in the S&P 500 specialty retail group as opposed to selecting specific companies to form a peer group. The S&P 500 specialty retail peer group of companies includes Abercrombie & Fitch, AutoNation, AutoZone, Bed Bath & Beyond, Best Buy, CarMax, Gap, Home Depot, Limited Brands, Lowes, O’Reilly Automotive, Office Depot, RadioShack, Ross Stores, Staples, Tiffany & Co., TJX Companies and Urban Outfitters.

 

In performing its assessment of the Company’s executive compensation packages versus those of the peer group, Pay Governance considered proxy data for fiscal 2010 for the peer group. Positions within the Company for each of the executives were matched to the peer group based upon title and survey data. Elements of compensation which were analyzed included base salary, annual incentive bonus, targeted total annual cash compensation, long-term incentives and total compensation (cash and long-term incentives). The key elements of compensation were analyzed against the peer group both independently and collectively in order to determine in which percentile of the peer group the Company’s executive officers fell. The purpose of this engagement was to determine whether the Company’s total compensation plan and allocation of compensation between base salary, annual bonus and long-term incentives (primarily stock-based) were reasonable considering the Company’s peers and to determine whether the elements of the Company’s compensation program which were based on performance measures were reasonable considering the Company’s peers.

 

Cash compensation for each named executive officer, consisting of base salary and annual bonus, and total compensation, including the value of long-term awards, were each targeted to rank between the 50^th and the 75^th percentile of the peer group based upon the assessment mentioned above.

 

Base salaries for the surveyed executive positions in fiscal 2010 averaged at the 37^th percentile of the peer group. Annual bonuses for the surveyed executive positions in fiscal 2010 averaged at the 64^th percentile for the peer group. Total annual cash compensation for the surveyed executive positions averaged at approximately the 54^th percentile of the peer group. Average long-term incentive compensation compared at the 49^th percentile of the peer group, and average total compensation matched the 44^th percentile of the peer group.

 

The Compensation Committee made adjustments to compensation, bonus and awards for fiscal 2011 in order to balance the individual elements of compensation, where possible, and the total compensation in line with the targets. The changes made by the Compensation Committee to fiscal 2011 compensation for the surveyed positions were to increase the base salary of J. Paul Raines, Chief Executive Officer, by 3% to $1,030,000 and to change Mr. Raines’ long-term incentive grant to a value of $4,000,000; to change the base salary of Tony D. Bartel, President, by 3.3% to $775,000; to change the base salary of Robert A. Lloyd, Executive Vice President and Chief Financial Officer, by 10% to $550,000 and to change the base salary of Michael K. Mauler, Executive Vice President, GameStop International, by 12.5% to $450,000.

 

Following these changes, base salaries for the surveyed executive positions averaged at the 43rd percentile of the peer group. Annual bonuses for the surveyed executive positions in fiscal 2010 averaged at the 70th percentile for the peer group. Total annual cash compensation for the surveyed executive positions averaged at approximately the 59th percentile of the peer group. Average long-term incentive compensation compared at the 50th percentile of the peer group, and average total compensation matched the 45th percentile of the peer group. Although some of the compensation components fall outside of the targeted range, the Compensation Committee considers the compensation to be reasonable based on the length of service each executive has in their position, opportunity for growth and other factors. None of the named executive officers had total compensation in excess of the 65th percentile of the comparable position within the peer group.

 

Research by Pay Governance indicates that executive compensation tied to performance measures makes up approximately 55% to 65% of the total executive compensation package within the peer group. The Company has historically had 33% or less of executive compensation tied to performance measures. Both management and the

Compensation Committee sought to increase the percentage of overall compensation tied to performance to better align compensation with the interests of stockholders. Accordingly, the Compensation Committee targeted that between 50% to 67% of each of the Company’s named executive officer’s total compensation should be tied to performance measures. Following the changes made by the Compensation Committee for fiscal 2011, 50% of the total compensation package for Messrs. Bartel, Lloyd and Mauler, 57% of Mr. Raines’ total compensation package and 59% of Mr. DeMatteo’s total compensation package are tied to performance measures.

 

Key Elements of Compensation

 

The Company has entered into employment agreements with its Chief Executive Officer, Executive Chairman, President, Executive Vice President and Chief Financial Officer and Executive Vice President of GameStop International. These employment contracts cover the key elements of the Company’s executive compensation package, which consist of base salary, annual bonus and stock options or restricted stock, and cover severance and termination benefits. The Company also has an employment agreement with its Chairman International. These employment agreements and the Company’s policies with respect to each of the key elements of its executive compensation package are discussed below. In addition, while the elements of compensation described below are considered separately, the Compensation Committee also considers and reviews the full compensation package afforded by the Company to its executive officers, including insurance and other benefits. The Compensation Committee makes its determinations after receiving and considering the recommendations of the Company’s Executive Chairman and Chief Executive Officer and after considering recommendations and research of the independent compensation consultant when such research has been performed. The Compensation Committee makes recommendations to the Board of Directors, which ultimately approves the executive compensation package for each year.

 

Base Salaries

 

A named executive officer’s base salary is determined by evaluating the responsibilities of the position held, the individual’s experience and the competitive marketplace for executive talent. The base salary is intended to be competitive with base salaries paid to executive officers with comparable qualifications, experience and responsibilities at other companies of comparable size, growth and operations.

 

The Compensation Committee met on February 1, 2011 to establish the base salaries for fiscal 2011 for Messrs. DeMatteo, Raines, Bartel and Lloyd. In setting the base salaries of these executive officers for fiscal 2011, the Compensation Committee considered the recommendations received from Pay Governance following its research, the results of the benchmarking against the peer group, the Company’s growth and significant expansion into digital businesses in fiscal 2010 and projections for fiscal 2011. The Compensation Committee also considered the recommendations of Mr. DeMatteo in setting the base salaries for Messrs. Raines, Bartel and Lloyd. The base salary for Mr. Fontaine is set at $600,000 according to the terms of his employment agreement.

 

The Board of Directors set salaries for fiscal 2011 for the named executive officers as follows:

 

 

Annual Bonuses

 

In addition to a base salary, each named executive officer is eligible for a performance-based annual cash bonus. The Company has chosen to include performance-based annual bonuses as an element in the current compensation plan as they are an accepted and expected part of most compensation plans for executives and serve to motivate individual and team performance in attaining business objectives and maximizing stockholder value.

Bonuses for the named executive officers of the Company are based upon the criteria used in, and are calculated in accordance with, the Supplemental Compensation Plan. Messrs. DeMatteo, Raines, Bartel, Lloyd and Mauler are the executive officers of the Company currently participating in the Supplemental Compensation Plan.

 

The Supplemental Compensation Plan provides that participating executive officers are entitled to a cash bonus in an amount equal to a percentage of their base salary which is pre-determined for each participating executive officer by the Compensation Committee, with input from the Executive Chairman and Chief Executive Officer, for each fiscal year. The purpose of the Supplemental Compensation Plan is to permit the Company, through awards of annual incentive compensation that satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to attract and retain management who, because of the extent of their responsibilities, can and do make significant contributions to the success of the Company by their ability, industry, loyalty and exceptional service.

 

The bonus amount is calculated after each fiscal year in accordance with a sliding scale formula based on the extent to which a pre-established performance target is attained. In general, not later than 60 days after the start of each fiscal year of the Company (and before 25% of the relevant period of service has elapsed), the Compensation Committee establishes in writing a performance target for each participating executive officer (the “Target”). Targets are typically based on budgeted operating earnings for the fiscal year. Operating earnings are generally budgeted each year based on the actual operating earnings achieved during the previous year in order to challenge the executive officers of the Company to increase revenues, control costs and find operating efficiencies and to demonstrate earnings growth. Consideration may be given in any given year to the impact on operating earnings that investments the Company may make in its strategic initiatives in order to better prepare the Company for its long-term future. Because the Target contains revenue and gross profit projections that are higher than the results attained in the previous year and because the Target is established in the first 60 days of the year, the attainment of the Target is substantially uncertain at the time the Target is established. The establishment of the Target as a measure of operating earnings for the executive officers who participate in the Supplemental Compensation Plan considers the importance of their individual roles in the overall performance and results of the Company. Individual objectives and performance are considered in the establishment of the individual pre-determined percentage of base salary for which each of the executive officers is eligible (as discussed further below). Stock price performance has not been a factor in determining Targets because the price of the Company’s stock is subject to a variety of factors outside of the Company’s control.

 

Each participating executive officer is entitled to receive a cash bonus in the amount of their pre-determined percentage of base salary (the “Target Bonus”) as follows:

 

 

The use of the scale detailed above ties the payment of short-term incentives to performance and subjects the participating executive officers to a substantial risk of non-payment if the performance targets are not achieved.

 

The Supplemental Compensation Plan limits the maximum cash bonus payable to any participating executive officer to $3,500,000 with respect to any fiscal year. No bonuses are paid until the Compensation Committee certifies the extent to which the Target has been attained. Under the terms of the Supplemental Compensation Plan, the Compensation Committee has no authority to increase the amount of a bonus that would be due upon the attainment of the Target.

Fiscal 2009 Bonuses

 

The Compensation Committee determined that the Company had not met the threshold performance goal with respect to operating earnings for fiscal 2009 and none of the individual targets were paid to any fiscal 2009 named executive officer.

 

Fiscal 2010 Bonuses

 

Target Bonuses for fiscal 2010 for the executive officers listed in the Summary Compensation Table below were as follows:

 

 

The Compensation Committee determined that the Company had met 97% of the threshold performance goal, which was operating earnings of $681,000,000 for fiscal 2010, and therefore 75% of the individual target was paid to each of the named executive officers listed in the Summary Compensation Table. The following bonuses were paid for fiscal 2010:

 

 

The bonuses for Messrs. Raines and Lloyd were prorated to reflect that Mr. Raines was promoted to the role of Chief Executive Officer and Mr. Lloyd was promoted into the role of Executive Vice President and Chief Financial Officer in June 2010.

 

Fiscal 2011 Bonus Targets

 

Target Bonuses for fiscal 2011 for the named executive officers are as follows:

 

 

Under the terms of his employment agreement, Mr. Fontaine, Chairman International, is not entitled to a bonus for fiscal 2011.

 

Discretionary Awards

 

From time to time the Compensation Committee may approve discretionary awards for executive officers and other employees in recognition of efforts that are beyond the normal requirements of their assigned duties. No such bonuses were paid in fiscal 2008, fiscal 2009 or fiscal 2010.

Long-term Incentive Awards

 

The Company chooses to grant long-term incentive awards, currently in the form of restricted stock and cash bonuses, to align the interests of the executive officers with the interests of the Company’s stockholders. Additionally, long-term awards offer executive officers an incentive for the achievement of superior performance over time and foster the retention of key management personnel. Grants of long-term awards are made to executive officers, members of the Board of Directors and all other eligible full-time employees. Fifty percent of the grants made to named executive officers beginning in February 2011 are tied to performance measures.

 

The equity component of long-term incentive awards made through February 2011 has been made under the provisions of the Company’s 2001 Incentive Plan, which provides for the grant of options to purchase shares of the Company’s Common Stock, the grant of share appreciation rights, the grant of Stock Purchase Awards and the grant of Restricted Share Awards, subject to limitation. Executive officers and directors of the Company are not eligible to receive grants of Stock Purchase Awards because of the provisions within those awards of a loan to the grantee to purchase the shares. To date, only options and restricted shares have been granted under the 2001 Incentive Plan.

 

Role of Compensation Committee in Grants.  The Compensation Committee of the Board of Directors has the responsibility to recommend long-term incentive awards and administer the 2001 Incentive Plan and is therefore responsible for authorizing all grants under that plan. Since February 2007, the Compensation Committee has granted restricted stock awards, rather than stock options, to the Company’s executives and non-employee members of the Board. In determining annual restricted stock grants to executive officers, the Compensation Committee, along with executive management, bases its decision on the individual’s performance and potential to improve stockholder value. Some factors used in determining the number of shares granted to the named executive officers include the financial performance of the Company over the preceding fiscal year, the historical amount of shares granted to each named executive officer, the current share price which affects the overall value of the grant, the amount of shares available to be granted under our 2001 Incentive Plan and the results of reviews, surveys or other information from compensation consultants, if any.

 

The Compensation Committee also considers the recommendations of the Executive Chairman and the Chief Executive Officer in granting awards to executive officers and employees other than the Executive Chairman and the Chief Executive Officer. The Compensation Committee relies upon the Chief Financial Officer for the day-to-day administration and recordkeeping of the 2001 Incentive Plan.

 

Role of Executive Officers in Grants.  The Executive Chairman and the Chief Executive Officer are responsible for recommending the grant of long-term awards to all executive officers and all other eligible full-time employees other than themselves. The Executive Chairman is responsible for recommending the grant of long-term awards to the Chief Executive Officer. The Chief Financial Officer assists the Executive Chairman and the Chief Executive Officer in this process by preparing a list of eligible employees and recommended awards for all eligible employees other than Chief Financial Officer. Consideration is given to each individual’s employment standing and those employees subject to possible termination are not deemed to be eligible. Recommended amounts are based on previous grants, individual performance and responsibilities and the individual’s contributions toward increasing stockholder value. As mentioned above, the Chief Financial Officer is also responsible, under the direction of the Compensation Committee, for the day-to-day administration of the outstanding awards and the related recordkeeping.

 

Timing of Grants.  Awards have historically been granted to executive officers and eligible full-time employees once per year. The Compensation Committee has typically met annually within the first 15 days after the start of the new fiscal year to approve the annual grant of long-term incentive awards. The Compensation Committee meets on the same date as the regularly scheduled meeting of the Board of Directors for the first quarter. The date of these Compensation Committee and Board of Directors meetings is set by the fourth quarter of the previous fiscal year. The Board of Directors and the Compensation Committee formalized the historical practice in a policy whereby the annual awards to directors, executive officers and eligible full-time employees will be approved at the first quarter’s meeting of the Compensation Committee. Grants also occasionally occur to newly hired or promoted executives. When a grant is made for a newly hired or promoted executive, it is approved by the Compensation Committee with a grant date of the date on which the executive starts his or her employment or assumes his or her new role with the Company. During fiscal 2010, Mr. Lloyd received a grant of 35,000 shares of

restricted stock and a matching grant of $21.86 per share in cash on the effective date of his promotion to Executive Vice President and Chief Financial Officer on June 2, 2010. This award is scheduled to vest in equal annual installments over three years from the date of grant.

 

There is no effort to time the meeting and the related approval of awards with the release of material non-public information. The Board of Directors and the Compensation Committee typically hold their first quarter meetings in early February. There are typically no releases of material non-public information by the Company until the latter half of March when the announcement of the earnings for the previous fiscal year is completed. The timing of grants for newly hired or promoted executives is not timed in coordination with the release of material non-public information. The Company does not grant awards based on the pending release of material non-public information and the Company does not release material non-public information for the purpose of affecting the value of executive compensation.

 

Pricing of Grants.  Under the terms of the 2001 Incentive Plan, stock options are granted with an exercise price equal to the average of the high and low prices of the Company’s Common Stock reported on the NYSE for the trading day prior to the approval of the grant by the Compensation Committee.

 

Cash Bonus Related to Vesting of Restricted Share Grants.  As a result of discussions between management and the Compensation Committee, beginning in February 2009, the Compensation Committee began recommending to the Board and the Board began approving grants of restricted shares to executive officers coupled with matching cash bonus grants. The purpose of the matching cash bonus was to preserve the pool of shares available for grant under the 2001 Incentive Plan and to use the cash bonus to satisfy any applicable withholding taxes due to the Company from the recipient with respect to the related restricted share vesting and eliminate the need for recipients to sell shares upon vest to cover withholding taxes. The net amount of such bonus, after deduction of applicable withholding taxes relating to the cash bonus and the related restricted share vesting, if any, is to be paid by the Company to the recipient in cash within one month following the date such restricted shares vest. The cash bonus award is payable only if and to the extent the related restricted share awards vest. In February 2009 and February 2010, the cash bonus awards per share were $26.00 and $20.00 per share, respectively, and were derived from the approximate average of the high and low price of the Company’s common stock the day before the grant.

 

2010 Grants.  The Compensation Committee met on February 4, 2010 and granted restricted stock and related cash bonuses for fiscal 2010 based on performance in fiscal 2009 to the named executive officers and other eligible employees. The named executive officers were granted restricted stock and cash bonuses as follows:

 

 

In addition, each non-employee member of the Board of Directors was awarded a restricted stock grant of 6,120 shares with a cash bonus award of $20 per share. Each of the above-referenced grants vests in equal annual installments over three years.

 

Catherine R. Smith resigned as the Company’s Executive Vice President and Chief Financial Officer in February 2010 and her award was forfeited. In June 2010, upon being named Executive Vice President and Chief Financial Officer, Mr. Lloyd received a grant of 35,000 shares of restricted stock and a matching cash bonus award of $21.86 per share. This award is scheduled to vest in equal annual installments over three years from the date of grant.

 

2011 Grants.  The Board met on February 2, 2011 and granted, in accordance with the recommendation of the Compensation Committee, restricted stock and related cash bonuses for fiscal 2011 based on performance in fiscal

2010 to the named executive officers and other eligible employees. The named executive officers were granted restricted stock and cash bonuses as follows:

 

 

The grant of restricted stock awards to the named executive officers above and other recipients of the restricted share grant were approximately half of the number of shares granted in February 2010 due to the limited number of shares available under the 2001 Incentive Plan. In order to grant each recipient a long-term award with an overall value similar to the grant in February 2010, the Board approved cash bonuses to Messrs. DeMatteo, Raines, Bartel, Lloyd and Mauler, as well as other recipients of the restricted share grant described above in an amount equal to $60.00 per restricted share granted, payable only if and to the extent such restricted share vests. Increasing the amount of the cash bonus to each individual offset the decline in value of the restricted share grant. The overall value of the long-term incentive awards to the named executive officers compared to the 50th percentile of the Company’s peer group. The Company does not anticipate that this ratio of cash bonus granted to restricted share value granted will recur in future annual grants.

 

Fifty percent of each of the above long-term awards made to named executive officers is tied to achievement of performance measures. The performance target for each recipient is net earnings per share for fiscal 2011 and the establishment of the target reflects growth in earnings per share from the fiscal 2010 results. Each participating executive officer is entitled to receive the target awards as follows:

 

 

The portion of the overall award earned based on fiscal 2011 earnings per share will be measured after the completion of fiscal 2011, but the amount earned will be vested in equal annual installments over three years from the date of grant.

 

In addition, each non-employee member of the Board of Directors, including R. Richard Fontaine, Chairman International, was awarded a restricted stock grant of 3,060 shares and a cash bonus grant of $183,600. Each of the above-referenced grants vests in equal annual installments over three years.

 

Severance/Change in Control Benefits

 

Each of Messrs. DeMatteo, Fontaine, Raines, Bartel and Lloyd has employment agreements as described in “Employment Agreements” below. Pursuant to these agreements, each executive’s employment may be terminated upon death or disability by GameStop with or without cause (as defined) or by the executive within twelve months of a good reason event. If an executive’s employment is terminated due to death or disability, by the Company with cause or by the executive without good reason, the executive is entitled to payment of base salary through the date of death, disability or termination of employment.

 

A good reason event is defined as a material diminution in the executive’s compensation, authority, duties or responsibilities, or a relocation of at least 50 miles. Prior to February 9, 2011, among other things, the employment agreements included a severance arrangement if the executive’s employment was terminated by GameStop without cause, by the executive by the “CIC Termination Date” (as defined) following a change in control (as defined) or by the executive for good reason, which provided each executive with his base salary through the term of the

agreement, plus the average of the last three annual bonuses, with a one year minimum, plus the continuation of medical benefits for up to 18 months. Each of the employment agreements was amended on February 9, 2011 and the change in control provisions providing for payment of salary, bonuses and medical benefits were removed.

 

The triggering events which would result in the payment of the severance amounts described above were selected because they provide employees with a guaranteed level of financial protection upon loss of employment and were considered competitive with severance provisions being offered at that time. The change in control provisions were removed as such provisions are no longer viewed as a favorable pay practice.

 

The estimated minimum payments upon termination for each of the named executive officers are detailed in the table of Potential Payments upon Change in Control or Termination below. Severance payments due to a named executive officer may be due either in installments or in a lump sum, to be negotiated between the Company and the executive.

 

Employment Agreements

 

GameStop has entered into employment agreements with Messrs. DeMatteo, Fontaine, Raines, Bartel, Lloyd and Mauler. The terms of the employment agreements with Messrs. DeMatteo and Fontaine commenced on April 11, 2005 and were renewed in April 2010 with expiration dates of March 3, 2013. The term of the employment agreement for Mr. Raines commenced on September 7, 2008. The term of the employment agreement for Mr. Bartel commenced on October 24, 2008. The term of the employment agreement for Mr. Lloyd commenced on June 2, 2010 and continues for a period of three years thereafter. The term of the employment agreement for Mr. Mauler commenced on June 2, 2010 and continues for a period of three years thereafter. Each of these employment agreements contained provisions for automatic renewals for one-year periods, however, these provisions were removed when the agreements were amended on February 9, 2011.

 

Each executive shall be entitled to all benefits afforded to key management personnel or as determined by the Board of Directors of GameStop, including, but not limited to, restricted stock and stock option benefits, insurance programs, pension plans, vacation, sick leave, expense accounts and retirement benefits. Each executive is also restricted from competing with GameStop for the later of the expiration of the term of the agreement or at least two years after termination of employment, unless the contract is terminated by GameStop without cause (as defined) or by the executive for good reason (as defined).

 

Pursuant to Mr. Raines’ employment agreement, he received a $1,000,000 cash signing bonus upon commencing his employment with the Company in September 2008. The signing bonus shall be considered earned over the original three-year term of his employment contract. Accordingly, in the event Mr. Raines’ employment with the Company is terminated prior to September 7, 2011 for cause or by Mr. Raines without good reason, then he will repay the Company the unearned portion of the signing bonus.

 

On April 5, 2010, the Company entered into amendments to the employment agreements for Messrs. Fontaine and DeMatteo. The amendment to Mr. Fontaine’s agreement provided that Mr. Fontaine would continue as Executive Chairman of the Company until March 26, 2011 at his current annual salary of $1,200,000. Effective March 27, 2011 through March 3, 2013, Mr. Fontaine would become Chairman International of the Company at an annual salary of $600,000. Mr. Fontaine’s employment will cease effective March 3, 2013. The amendment to Mr. DeMatteo’s employment agreement provided that the term of his employment shall continue through March 3, 2013 with a minimum annual salary of $1,250,000.

 

On June 2, 2010, the Company entered into amendments to the employment agreements for Messrs. DeMatteo, Fontaine, Raines and Bartel. The amendment to Mr. DeMatteo’s employment agreement provides that he would immediately assume the role of Executive Chairman with all other terms of the amendment to his employment agreement of April 5, 2010 still in effect. The amendment to Mr. Fontaine’s agreement provided that Mr. Fontaine would immediately assume the role of Chairman International of the Company with all other terms of the amendment to his employment agreement of April 5, 2010 still in effect. The amendment to Mr. Raines’ employment agreement provides that he would immediately assume the role of Chief Executive Officer with a minimum annual salary of $1,000,000 and the term of his employment shall continue from the date of the amendment for a period of three years. The amendment to Mr. Bartel’s employment agreement provides that he

would immediately assume the role of President with a minimum annual salary of $750,000 and the term of his employment shall continue from the date of the amendment for a period of three years.

 

On February 9, 2011, the Company entered into amendments to the employment agreements for Messrs. DeMatteo, Raines, Bartel, Lloyd and Mauler. The amendments to each of these contracts removed the change in control provisions and the automatic renewal provisions that were in the original employment agreements. On the same date, the Company entered into an amendment to the employment agreement of Mr. Fontaine to remove the change in control provision that was in his original employment agreement. Mr. Fontaine’s employment agreement (as amended) did not contain an automatic renewal provision.

 

GameStop entered into an employment agreement with Ms. Smith when she was hired in August 2009 as the Company’s Chief Financial Officer. The term of the employment agreement for Ms. Smith commenced on August 24, 2009 and was to continue for a period of three years thereafter. Pursuant to Ms. Smith’s employment agreement, she received a $250,000 cash signing bonus upon commencing her employment with the Company. The signing bonus was considered earned upon commencing employment. All restricted stock and any related cash bonuses awarded to Ms. Smith were forfeited when she resigned from the Company in February 2010.

 

For a description of change in control and severance benefits included in the employment agreements, see “Severance/Change in Control Benefits” above.

 

Other Considerations

 

Relationship Among the Different Components of Compensation

 

In order to ensure that the named executive officers are held accountable for the Company’s performance and changes in stockholder value, management and the Compensation Committee generally allocate total compensation such that the portion of compensation attributable to fixed elements, such as salary and benefits, decreases with increasingly higher levels of responsibility, and the portion attributable to variable, performance-based elements increases. The portions of the total compensation for Messrs. DeMatteo, Raines, Bartel, Lloyd and Mauler that are attributable to performance-based measures are 58%, 57%, 50%, 50% and 50%, respectively.

 

Stock Ownership

 

Effective February 2, 2011, the Company adopted a stock ownership policy which requires its named executive officers and directors to be stockholders in the Company. The Compensation Committee believes that ownership of stock of the Company that is material to the income of the individuals involved is sufficient to provide the required incentive to such officers and directors and align their interests with the interests of the Company’s stockholders. For a description of the stock ownership policy, see “Equity Ownership Policy” above.

 

Recovery of Awards

 

Effective February 2, 2011, the Company adopted a formal claw-back policy to recover past compensation awards from executive officers in the event of fraud or a restatement. For a description of the claw-back policy, see “Claw-back Policy” above. The Company has not historically had any restatements or adjustments of this nature.

 

Anti-Hedging

 

Effective February 2, 2011, the Company adopted a formal anti-hedging policy prohibiting its employees and directors from entering into any form of hedging strategies or transactions using short sales, puts, calls or other types of financial instruments to protect against a loss in value of the Company’s stock. For a description of the anti-hedging policy, see “Anti-Hedging Policy” above.

 

Retirement Benefits

 

Each of the Company’s executive officers is entitled to participate in the Company’s defined contribution 401(k) plan on the same basis as all other eligible employees. The Company matches the contributions of participants, subject to certain criteria. Under the terms of the 401(k) plan, as prescribed by the Internal Revenue

Service (“IRS”), the contribution of any participating employee is limited to a maximum percentage of annual pay or a maximum dollar amount ($16,500 for 2010). Our executive officers are subject to these limitations and therefore the Company does not consider its retirement benefits to be a material portion of the compensation program for our executive officers.

 

Perquisites

 

The Company does not have a formal program providing perquisites to its executive officers. Messrs. DeMatteo, Fontaine, Raines, Bartel, Lloyd and Mauler are eligible to use the Company plane for personal use. Messrs. DeMatteo and Fontaine occasionally use the plane for personal use and reimburse the Company for costs in accordance with IRS guidelines. Amounts disclosed in the “All Other Compensation” column of the Summary Compensation Table for the personal use of the Company plane represent actual incremental costs to operate the plane in excess of the amounts reimbursed in accordance with IRS guidelines. In fiscal 2010, these amounts totaled $36,143 and $10,287 for Messrs. DeMatteo and Fontaine, respectively. In fiscal 2009, these amounts totaled $42,456 and $20,104 for Messrs. DeMatteo and Fontaine, respectively.

 

In addition, under the terms of his employment contract, Mr. Raines received $29,242 in fiscal 2009 for reimbursement of relocation costs which were calculated using the actual costs incurred. The relocation costs are included in the Summary Compensation Table under the “All Other Compensation” column. Mr. Raines was hired by the Company in September 2008 and relocated to be close to the Company’s headquarters in Grapevine, Texas.

 

None of the named executive officers receives any other compensation or benefits which would be defined as perquisites.

 

Tax and Accounting Implications

 

Impact of Section 162(m) of the Internal Revenue Code.  The Compensation Committee has considered the potential impact of Section 162(m) of the Code, adopted under the Revenue Reconciliation Act of 1993. This section disallows a tax deduction for any publicly held corporation, for individual compensation exceeding $1,000,000 in any taxable year paid to its chief executive officer or any of its three other most highly-compensated officers unless (i) the compensation is payable solely on account of the attainment of performance goals, (ii) the performance goals are determined by a committee of two or more outside directors, (iii) the material terms under which compensation is to be paid are disclosed to and approved by stockholders and (iv) the determining committee certifies that the performance goals were met. Because it is in the best interests of the Company to qualify to the maximum extent possible the compensation of its executives for deductibility under applicable tax laws, the Company obtained stockholder approval for the Supplemental Compensation Plan, which provides for the payment of compensation in compliance with the above guidelines. The Supplemental Compensation Plan was amended and restated at the 2008 annual meeting of stockholders to increase the maximum amount of cash bonus payable under the Supplemental Compensation Plan to $3,500,000.

 

Accounting for Stock-Based Compensation.  The Company records share-based compensation expense in earnings based on the grant-date fair value of options or restricted stock granted.

Executive Compensation

 

The following table (the “Summary Compensation Table”) sets forth the compensation earned during the fiscal years indicated by our chief executive officer, chief financial officer, former chief financial officer and our three other most highly compensated executive officers.

 

 

 

 

Grants of Plan-Based Awards in Last Fiscal Year

 

The following table shows all grants of plan-based awards, which consisted of grants of restricted shares of our Common Stock and grants of annual performance-based bonuses under the Supplemental Compensation Plan, granted to the executive officers named in the Summary Compensation Table for fiscal 2010. The grant of share-based awards on February 4, 2010 was based on performance for fiscal 2009. The grant of awards on June 2, 2010 was tied to promotions for Messrs. Raines, Bartel and Lloyd.

 

 

 

 

Additional Material Factors

 

The Company has employment agreements with R. Richard Fontaine, Daniel A. DeMatteo, J. Paul Raines, Tony D. Bartel and Robert A. Lloyd. The terms of the employment agreements for each of these executive officers extend beyond the fiscal year ended January 29, 2011 and provide for minimum annual salaries as follows:

 

 

Annual bonus compensation will be based on the formula and targets established under and in accordance with the Company’s Supplemental Compensation Plan. The Targets specified in the “Non-Equity Incentive Plan” column of the Grants of Plan-Based Awards table above were achieved at the targeted amount for fiscal 2008 and at 75% of the targeted amount in fiscal 2010 and are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The Target for fiscal 2009 was not achieved, therefore no amounts

are reflected under fiscal 2009 in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table with the exception of Robert A. Lloyd who was not a named executive officer in fiscal 2009.

 

Under the terms of their employment agreements, each executive shall be entitled to all benefits afforded to key management personnel or as determined by the Board of Directors, including, but not limited to, restricted stock and stock option benefits, insurance programs, pension plans, vacation, sick leave, expense accounts and retirement benefits.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information for the executive officers named in the Summary Compensation Table regarding outstanding equity awards held as of January 29, 2011 by those executive officers. The year-end values in the table for the market value of shares that have not vested have been calculated based on the $20.98 per share closing price of our Common Stock on January 28, 2011 (the last trading date of the fiscal year).

 

 

 

 

Option Exercises and Stock Vested

 

The following table provides information for the executive officers named in the Summary Compensation Table regarding exercises of options to purchase shares of our Common Stock and shares acquired upon vesting of stock awards during fiscal 2010 by those executive officers. The values realized upon exercise or vesting in the table have been calculated using the stock price at the time of exercise or vesting.

 

 

Pension Plans

 

None of the Company’s named executive officers participate in the Company’s pension plans; therefore, we have omitted the Pension Benefits Table.

 

Nonqualified Deferred Compensation

 

None of the Company’s named executive officers participate in the Company’s nonqualified deferred compensation plan; therefore, we have omitted the Nonqualified Deferred Compensation Table.

 

Employment Agreements and Potential Payments upon Change in Control or Termination

 

GameStop entered into employment agreements with Daniel A. DeMatteo, R. Richard Fontaine, J. Paul Raines, Tony D. Bartel, and Robert A. Lloyd. See “Compensation Discussion and Analysis — Employment Agreements” above for a description of the terms of these employment agreements.

 

Pursuant to the employment agreements, each executive’s employment may be terminated upon death or disability, by GameStop with or without cause (as defined) or by the executive within 12 months of a good reason event. If an executive’s employment is terminated due to death or disability, by the Company with cause or by the executive without good reason, the executive is entitled to payment of base salary through the date of death, disability or termination of employment. A good reason event is defined as a material diminution in the executive’s compensation, authority, duties or responsibilities, or a relocation of at least 50 miles. Among other things, as of January 29, 2011, each employment agreement included a severance arrangement if the executive’s employment is terminated by GameStop without cause, by the executive by the “CIC Termination Date” (as defined) following a change in control (as defined) or by the executive for good reason, which provides each executive with the greater of his base salary through the term of the agreement or one year, plus the average of the last three annual bonuses times the greater of one or the number of years remaining on the agreement, plus the continuation of medical benefits for 18 months and the release of all stock option restrictions. Amounts owed to the executive officers upon termination

or a change in control assuming a triggering event took place on January 29, 2011, the last business day of the Company’s last completed fiscal year, are presented below:

 

 

 

 

Director Compensation

 

The following table provides information regarding compensation earned by the non-employee directors during fiscal 2010:

 

 

 

 

Directors who are not employees of the Company will receive compensation of $55,000 per annum in fiscal 2011. In addition, we reimburse our directors for expenses in connection with attendance at Board and committee meetings. Other than with respect to reimbursement of expenses, directors who are our employees do not receive additional compensation for their services as directors.

 

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with members of the Company’s management. Based on such review and discussions and relying thereon, we have recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis set forth above be included in the Company’s 2010 Form 10-K and in this Proxy Statement.

 

Compensation Committee

 

Gerald R. Szczepanski, Chair

Stephanie M. Shern

Edward A. Volkwein

 

ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

PROPOSAL 2

 

The Dodd-Frank Act was enacted on July 21, 2010. As required by the Dodd-Frank Act, the Company seeks a non-binding advisory vote from our stockholders on the compensation of our named executive officers as described in this Proxy Statement. We believe that it is appropriate to solicit the views of our stockholders related to the compensation of our named executive officers.

 

As discussed more fully in the “Compensation Discussion and Analysis” in this Proxy Statement, the Compensation Committee believes the Company’s named executive officers should be compensated commensurate with their success in maintaining the growth and high level of performance necessary for the Company to produce ongoing and sustained value for our stockholders. The Company’s executive officer compensation program is based on the following guiding principles:

 

1. Total compensation provided by the Company to its named executive officers should be competitive and allow the Company to attract and retain individuals whose skills are critical to the long-term success of the Company.

 

2. The compensation offered by the Company should reward and motivate individual and team performance in attaining business objectives and maximizing stockholder value, while avoiding the encouragement of unnecessary or excessive risk-taking.

 

3. Compensation awards should be based on the fundamental principle of aligning the long-term interests of GameStop’s employees with those of GameStop’s stockholders. Therefore, a meaningful portion of most management employees’ compensation will be in the form of long-term equity compensation. All of the short-term incentive, in the form of annual cash bonuses, and a large portion of equity compensation for named executive officers are tied to performance measures, and may include situational bonuses, as appropriate, in recognition of meeting unique, time-sensitive performance challenges that may arise.

 

4. The overall value of the incentive and total compensation opportunities are designed to be consistent with the level of the Company’s operational performance over time and the level of returns provided to stockholders.

 

This is an advisory vote and is not binding upon the Company, the Compensation Committee or our Board of Directors. Therefore, stockholders are not ultimately voting for the approval or disapproval of the Board of Directors’ recommendation on this proposal. The result of the vote will not impact any compensation that has already been paid or awarded to the executive officers. However, because we value the views of our stockholders, our Compensation Committee, which is responsible for, among other things, designing and administering the Company’s executive compensation program, will review and consider the results of this advisory vote when considering future decisions with respect to executive compensation.

We strongly encourage stockholders to read the “Compensation Discussion and Analysis”, the compensation tables and the accompanying narrative disclosures in this Proxy Statement which discuss in greater detail the compensation of our executive officers, the Company’s compensation philosophy and the factors that the Compensation Committee considered in making compensation decisions.

 

Accordingly, the Board of Directors recommends that stockholders vote FOR the following resolution:

 

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2010 Summary Compensation Table and the other related tables and disclosure.”

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL, ON A NON-BINDING ADVISORY BASIS, OF THE RESOLUTION ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. PROXIES SOLICITED BY THIS PROXY STATEMENT WILL BE VOTED FOR THE PROPOSAL ABOVE UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY INDICATED.

 

ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON EXECUTIVE
COMPENSATION

 

PROPOSAL 3

 

In addition to providing stockholders the opportunity to cast a non-binding advisory vote on the compensation of our named executive officers, the Dodd-Frank Act requires that the Company provide stockholders with the opportunity to cast a non-binding advisory vote on the frequency of the advisory vote on the compensation of our named executive officers. Under this proposal, stockholders may vote to have this vote every year, every two years, every three years, or abstain. Based on the result of the vote on this proposal, we are prepared to operate under any of the three alternatives offered under this proposal. The Board of Directors is not making a recommendation as to its preferred alternative.

 

This is an advisory vote and is not binding upon the Company, the Compensation Committee or our Board of Directors. However, because we value the views of our stockholders, the Board of Directors will give careful consideration to the results of the vote on this proposal when considering the frequency of the advisory vote on the compensation of our named executive officers. Because the Board of Directors is not making a recommendation on its preferred alternative under this proposal, shares will not be voted on this proposal unless stockholders specifically indicate their preference among the alternatives presented.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE, ON A NON-BINDING ADVISORY BASIS, ON THE FREQUENCY OF THE ADVISORY VOTE ON EXECUTIVE COMPENSATION. PROXIES SOLICITED BY THIS PROXY STATEMENT WILL NOT BE VOTED FOR THE PROPOSAL ABOVE UNLESS A VOTE FOR ONE OF THE ALTERNATIVES PRESENTED IS SPECIFICALLY INDICATED.

 

APPROVAL OF THE
GAMESTOP CORP. 2011 INCENTIVE PLAN

 

PROPOSAL 4

 

On February 2, 2011, the Board of Directors approved, subject to the approval of the Company’s stockholders at the Annual Meeting, the 2011 Incentive Plan. The 2011 Incentive Plan, if approved, will replace the 2001 Incentive Plan which is currently scheduled to terminate on August 21, 2011 except as to equity awards then outstanding under the 2001 Incentive Plan. The 2011 Incentive Plan, like the 2001 Incentive Plan, provides for the grant of equity awards to key officers, employees, consultants, advisors and directors of the Company, our subsidiaries and affiliates selected from time to time by our Compensation Committee. No awards will be made

under the 2011 Incentive Plan until stockholders approve this proposal. Upon approval of this proposal, any shares remaining available for grant under the 2001 Incentive Plan will no longer be available for grant.

 

The following is a summary of the 2011 Incentive Plan. This summary is qualified in all respects by reference to the full text of the 2011 Incentive Plan included herein as Appendix A. Stockholders are urged to review the 2011 Incentive Plan before determining how to vote on this proposal. Stockholders are being asked to approve the 2011 Incentive Plan, including the performance criteria described below and the issuance of shares of our common stock to eligible participants in accordance with the 2011 Incentive Plan, in order to assist the Company in accomplishing the purpose set forth below and to ensure that “performance based compensation” awards meet the requirements of Section 162(m) of the Code and therefore will not be disallowed as a deduction to the Company for federal income tax purposes.

 

General.  The 2011 Incentive Plan provides for the grant of equity awards to key officers, employees, consultants, advisors and directors of the Company, our subsidiaries and affiliates selected from time to time by our Compensation Committee. The purpose of the 2011 Incentive Plan is to assist the Company in attracting and retaining selected individuals to serve as directors, officers, consultants, advisors and employees who will contribute to our success and to achieve long-term objectives that will inure to the benefit of all our stockholders through the additional incentive created by ownership of our common stock. Awards under the 2011 Incentive Plan may take the form of stock options, including corresponding stock appreciation rights (SARs), restricted stock awards, performance awards and other share-based awards.

 

Shares available.  Subject to the adjustment provisions discussed below under “Antidilution Provisions,” the total number of shares that may be issued under the 2011 Incentive Plan is 9,250,000. Subject to the adjustment provisions discussed below under “Antidilution Provisions,” the total number of shares with respect to which awards may be granted under the 2011 Incentive Plan to any employee during any fiscal year of the Company is 1,000,000 shares. Immediately upon the effective date of the 2011 Incentive Plan, any shares remaining available for grant under any other incentive plan of the Company (other than with respect to awards then outstanding under any such incentive plan) will no longer be available for grant. Shares that are counted against the maximum number of authorized shares include all shares (i) issued or issuable pursuant to options that have been or may be exercised; (ii) issued as, or subject to issuance as, a restricted stock award; and (iii) issued or issuable under any other award granted under the terms of the 2011 Incentive Plan. Thus, shares which terminate by expiration, forfeiture, cancellation, or otherwise, are settled in cash in lieu of shares, or are exchanged for awards not involving shares, shall again be available for grant (other than grants of options that are intended to be incentive stock options). Also, if the option price or tax withholding requirements of any award are satisfied by tendering shares (or by having shares withheld or netted out of an award), such shares are not available for future awards under the 2011 Incentive Plan.

 

2011 Incentive Plan Administration.  Our Compensation Committee administers the 2001 Incentive Plan and will administer the 2011 Incentive Plan, if it is approved by the stockholders at the Meeting. Subject to the provisions of the 2011 Incentive Plan, the Compensation Committee has authority, in its sole discretion, to grant awards under the 2011 Incentive Plan, to interpret the provisions of the 2011 Incentive Plan and, subject to the requirements of applicable law, to prescribe, amend, and rescind rules and regulations relating to the 2011 Incentive Plan or any award thereunder as it may deem necessary or advisable. The Compensation Committee may alter, amend, suspend or terminate the 2011 Incentive Plan as it deems advisable, subject to any requirement for stockholder approval imposed by applicable law, including Sections 162(m) and 422 of the Code, or any rule of any stock exchange or quotation system on which shares of the Company are listed or quoted; provided that the Compensation Committee may not amend the 2011 Incentive Plan to increase the number of shares that may be the subject of options under the 2011 Incentive Plan without the approval of our stockholders. In addition, except to the extent necessary to avoid the imposition of additional tax or interest under Section 409A of the Code, no amendment to, or termination of, the 2011 Incentive Plan shall in any way impair the rights of an optionee or a participant under any award previously granted without such optionee’s or participant’s consent. The 2011 Incentive Plan limits the terms of certain awards to make sure those awards comply with Section 409A of the Code.

 

Options.  The 2011 Incentive Plan permits the granting of “incentive stock options” meeting the requirements of Section 422 of the Code, and “nonqualified stock options” that do not meet such requirements. The term of each

option is determined by the Compensation Committee and shall not exceed ten years after the date of grant unless approved by the Company’s stockholders. Options may also be subject to restrictions on exercise, such as exercise in periodic installments, as determined by the Compensation Committee. In general, the per share exercise price for options must be at least equal to 100% of the fair market value (as defined in the 2011 Incentive Plan) of the shares on the date of the grant. The 2011 Incentive Plan requires the fair market value to be the closing price of the shares for the date of which the fair market value is being determined, as reported on the principle securities exchange on which the Company’s common stock is traded (or, if such date is not a trading day, the closing price for the most recently preceding trading day). The exercise price can be paid in cash, or if approved by the Compensation Committee, by tendering shares owned by the participant, by delivery of a promissory note (for participants other than the executive officers named in the summary compensation table or directors), or any combination of the foregoing. Options are not transferable except by will or the laws of descent and distribution and may be exercised during the life of the participant only by the participant or the participant’s guardian or legal representative; provided, however, a participant may, under certain circumstances and with the consent of the Compensation Committee, transfer or assign an option (other than an incentive stock option) to family members and/or trusts, partnerships or companies established for the benefit of the participant’s family members.

 

Stock Appreciation Rights.  The 2011 Incentive Plan provides that the Compensation Committee may grant SARs. The Compensation Committee will determine any vesting schedules and the terms and conditions of each grant, provided, however, the term of a SAR shall not exceed ten years. Upon the exercise of a SAR, the recipient is entitled to receive from the Company an amount in cash or shares of Company common stock based on a per share price (for purposes of determining appreciation of the SAR) of not less than 100% of the fair market value of the shares on the date of the grant of the SAR, unless otherwise approved by the stockholders of the Company. SARs can be either freestanding or tandem (meaning they are associated with a specific option and must be granted at the time of grant of such option). A tandem SAR is exercisable only to the extent the related option is exercisable. Upon the exercise of a tandem SAR, the related option, or the portion thereof in respect of which such SAR is exercised, will terminate. Upon the exercise of an option granted in tandem with a SAR, such tandem SAR will terminate.

 

Restricted Stock.  The Compensation Committee may award restricted stock under the 2011 Incentive Plan. Restricted stock gives a participant the right to receive stock subject to a risk of forfeiture based upon certain conditions. The forfeiture restrictions on the shares may be based upon performance standards, length of service or other criteria as the Compensation Committee may determine. Until all restrictions are satisfied, lapsed or waived, we will maintain custody over the restricted stock but the participant will be able to vote the shares and will be entitled to all distributions paid with respect to the shares, as provided by the Compensation Committee. However, subject to compliance with Section 409A of the Code, the Compensation Committee may require that any dividends otherwise payable with respect to a restricted stock award shall not be paid currently but shall be accumulated until the applicable restricted stock has vested. During such period in which shares are restricted, the restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered. Upon termination of employment, the participant forfeits the right to the stock to the extent the applicable performance standards, length of service requirements, or other measurement criteria have not been met.

 

Performance Awards.  The Compensation Committee may grant, independently of or concurrently with the award of any other award granted under the 2011 Incentive Plan, awards that are contingent upon the achievement of performance criteria during a specified time period (“Performance Awards”), both of which must be determined by the Compensation Committee at the time of the grant of the award. The performance criteria will be determined by the Compensation Committee. Performance Awards may be paid in cash, shares, other property or any combination thereof and may be paid in a lump sum or in installments following the close of the applicable performance period or, in accordance with procedures established by the Compensation Committee, on a deferred basis.

 

Other Share-Based Awards.  The Compensation Committee may grant other share-based awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares. The Compensation Committee shall have the authority to determine the persons to whom and the time or times at which such awards will be made, the number of shares to be awarded and all other conditions of the awards, provided, however, that the aggregate amount of shares granted pursuant to other share-based award(s) shall not exceed five percent (5%) of the shares authorized for grant under the 2011 Incentive Plan. The foregoing cap will not apply to shares granted

pursuant to one or a series of related other share-based award(s) which were granted to a participant in lieu of earned cash compensation. Additionally, grants of share-based awards may be subject to such conditions, restrictions and contingencies as the Compensation Committee may determine.

 

Code Section 162(m).  Compensation of persons who are “covered employees” of the Company (generally, the chief executive officer and certain other executive officers) is subject to the tax deduction limits of Section 162(m) of the Code. Awards that qualify as “performance-based compensation” are exempt from 162(m), thus allowing the Company the full federal tax deduction otherwise permitted for such compensation. The Compensation Committee may establish for each participant who is, or is likely to be, a “covered employee,” an award intended to be exempt from the deduction limits of Section 162(m). Any such award will be subject to the achievement of one or more objective performance goals established by the Compensation Committee, which shall be based on the attainment of specified levels of the following performance criteria: (i) the attainment of certain target levels of, or a specified percentage increase in, revenues, operating earnings, income before income taxes and extraordinary items, net income, earnings before income tax, earnings before interest, taxes, depreciation and amortization, or a combination of any or all of the foregoing; (ii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax profits including that attributable to continuing and/or other operations; (iii) the attainment of certain target levels of, or a specified increase in, operational cash flow; (iv) the achievement of a certain level of, reduction of, or other specified objectives with regard to limiting the level of increase in, all or a portion of, the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of such cash balances and/or other offsets and adjustments as may be established by the Compensation Committee; (v) the attainment of a specified level of, or specified percentage increase in, earnings per share or earnings per share from continuing operations; (vi) the attainment of certain target levels of, or a specified increase in, return on capital employed or return on invested capital; (vii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax return on stockholders’ equity; (viii) the attainment of certain target levels of, or a specified increase in, economic value added targets based on a cash flow return on investment formula; (ix) the attainment of certain target levels in the fair market value of the Company’s shares and (x) the growth in the value of an investment in the Company’s shares assuming the reinvestment of dividends. For purposes of item (i) above, “extraordinary items” shall mean all items of gain, loss or expense for the fiscal year determined to be extraordinary or unusual in nature or infrequent in occurrence or related to a corporate transaction (including a disposition or acquisition) or related to a change in accounting principle, all as determined in accordance with standards established by Opinion No. 30 of the Accounting Principles Board. Such performance goals also may be based solely by reference to the Company’s performance or the performance of an affiliate, division or business unit of the Company, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Compensation Committee may also exclude the impact of an event or occurrence which the Compensation Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (b) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, or (c) a change in accounting standards required by generally accepted accounting principles. Such performance goals shall be set by the Compensation Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder. Before any payments are made with respect to any awards intended to qualify as “performance based compensation”, the Compensation Committee shall certify in writing that the performance goals relating to such payment have been met. Subject to the adjustment provisions discussed below under “Antidilution Provisions,” the maximum number of shares subject to specified performance goals intended to satisfy the requirements of Section 162(m) that may be granted as awards to any employee during any 12-month period shall be 1,000,000 shares.

 

Antidilution Provisions.  The 2011 Incentive Plan requires the Compensation Committee to (i) adjust the number and type of shares subject to future awards, (ii) the number and type of shares subject to outstanding awards and (iii) the grant or exercise price with respect to any award, in each case, to prevent dilution or enlargement of benefits intended to be made available under the 2011 Incentive Plan in the event of any corporate transaction, dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities, the issuance of warrants or other rights to purchase shares or other securities, or other similar capitalization or corporate change. However,

the Compensation Committee cannot make any adjustments that would cause an award to violate the provisions of Section 409A of the Code (pertaining to “deferred compensation”) unless otherwise agreed to by the holder of the award.

 

Limitations on Awards.  Without stockholder approval, the 2011 Incentive Plan prohibits (i) the reduction of the exercise price of outstanding options (or the reference price for SARs), (ii) the cancellation of outstanding options or SARs in exchange for cash, other awards or options or SARs with an exercise price or reference price that is less than the respective exercise price or reference price of the cancelled options or SARs and (iii) the buyout of outstanding options or SARs for cash.

 

Transferability of Awards.  Generally, awards may be transferred only by will or the laws of descent and distribution. The Compensation Committee, however, may allow for the assignment or transfer of an award (other than incentive stock options, tandem SARs and restricted stock awards) to a participant’s spouse, children and/or trusts, partnerships, or limited liability companies established for the benefit of the participant’s spouse and/or children, subject in each case to certain conditions on assignment or transfer.

 

Termination and Amendment.  The 2011 Incentive Plan will terminate by its terms and without any action by the Board of Directors ten years from the date of approval of the plan by the stockholders. No awards may be made after that date. Awards outstanding on such termination date will remain valid in accordance with their terms. The Compensation Committee may amend the 2011 Incentive Plan at any time but cannot, without the prior approval of stockholders, increase the number of shares that may be issued under the 2011 Incentive Plan; materially increase benefits accruing to participants or materially modify the requirements for participation under the 2011 Incentive Plan; or make any change to the 2011 Incentive Plan where stockholder approval is required under applicable law (including tax law) or stock exchange rules.

 

Treatment of Awards Upon a Change in Control.  One or more awards may be subject to certain terms and conditions set forth in the written agreement between the Company and a participant governing the grant of such award, which provide for different terms or provisions with respect to such awards upon a “change in control” of the Company (as the term may be defined in the 2011 Incentive Plan or such written agreements), subject to certain conditions, provided, that such written agreement may not increase the maximum amount of such awards. The determination as to the occurrence of a change in control shall be based on objective facts and is defined in the 2011 Incentive Plan to include specified changes in the ownership of the Company or a substantial portion of its assets or in the effective control of the Company. Upon the occurrence of a change in control of the Company, the Compensation Committee may, in its sole and absolute discretion, determine that, any award outstanding as of the effective date of such change in control will be cancelled in consideration for a cash payment or alternative award (whether from the Company or another entity that is a party to the change in control) or a combination thereof made to the holder of such cancelled award substantially equivalent in value to the fair market value of such cancelled award. The determination of such fair market value shall be made by the Compensation Committee in its sole and absolute discretion.

 

Treatment of Options/SARs Upon Termination of Employment.  Subject to the determination of the Compensation Committee, generally, any option or SAR granted under the 2011 Incentive Plan and not previously exercised or expired, to the extent vested on the date of termination or separation of a participant, shall be exercisable as of such termination for a period not to exceed three months after the date of termination or separation, provided that in no instance may the term of any such option or SAR, as so extended, exceed the lesser of ten years from the date of grant or the original expiration date for such option or SAR.

 

Minimum Vesting Periods.  Notwithstanding anything to the contrary to other provisions of the 2011 Incentive Plan, unless otherwise approved by the stockholders of the Company, any award which is (i) performance-based shall have a minimum vesting period of one (1) calendar year or (ii) tenured (time-based) shall have a minimum vesting period of three (3) calendar years (with ratable vesting of no more than one-third of the aggregate applicable option award per calendar year), provided that such minimum vesting period shall not apply to awards granted to new hires or awards to non-employee directors.