Gayathiri Murugesan

969397646

Target corporation
As an investor, I wish to primarily focus on three issues of Corporate Governance,
before deciding on stock purchase.1) Composition of audit committee 2) Incentive
compensation, fair or biased? 3) Ownership, management must have adequate
ownership.
For Target corporation, there happened two mishaps - data breach in 2013 and
Canadian exit in 2015. All Board members of audit committee were re-elected after
the incident and they didnt take responsibility for lack of risk oversight. This is quite
fishy. The chair of the Audit committee looks rotated among the members of the
audit committee. And, Chair of Audit committee must also have expertise in risk
mitigation.
Incentive Compensation - The Human Resources and Compensation Committee
retains an independent compensation consultant to advise on the executive
compensation program and practices. Almost 90% of the executive salary is based
on performance of the company and 10% base salary. This seems impressive but
there is no defined rule for executives salary hike. If Targets performance is not
good for a year, then the performance based compensation is reduced while salary
is increased for the executives. Though they look transparent in their goals with the
pessimistic and optimistic goal percentages, they are not.
Ownership: Management has adequate ownership guidelines which says CEO must
have 7x base salary and NEOs 3x base salary. Most of the company compensation is
awarded as stock options and will vest after 3 years, this likely increases the
ownership percentage. I recommend Target to increase the stock vesting from 3
years to 5 years because it ties closely to the long-term goal of the company and
avoid short term bumps in the stock price.
So out of 3 measures, they havent qualified w.r.t Corporate governance. Regarding
shareholder return policy, they have dividends plan, stock repurchase program in
place. But their sales show a downward trend because of the growing competition
from Amazon and Walmart. Target need to work on digital sale too, after the data
breach Digital sales dropped a lot and they havent catch with the sales.
Insider trades shows a lot of buys for the company rather than sell. I am not able to
quantify the reason for lot of buys but something is going on. Maybe they wish to
boost their stock price as the company sales is not quite appreciable.
Having said all, I would not invest my retirement portfolio in Target Corporation.