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Elisa D. Garcia
Secretary

PROXY SUMMARY

This summary highlights certain information contained elsewhere in our proxy statement. This summary does not contain all of the information you should consider. You should read the entire proxy statement carefully before voting.

ANNUAL MEETING OF SHAREHOLDERS

VOTING MATTERS

CORPORATE GOVERNANCE HIGHLIGHTS

NOMINEES FOR DIRECTOR (page 5)

Our director nominees provide an effective mix of experience and fresh ideas, as well as gender, age and ethnic diversity.

​	TENURE (# years)										​
​	<5	​	​	5 to <10	​	​	10 to <20	​	​	≥20	​
​	Blake	​	​	Varga	​	​	Connelly	​	​	Levinson	​
​	Bryant	​	​	​	​	​	Roché	​	​	Whittington	​
​	Gennette	​	​	​	​	​	​	​	​	​	​
​	Hale	​	​	​	​	​	​	​	​	​	​
​	Lenehan	​	​	​	​	​	​	​	​	​	​

​	AGES (# years)										​
​	<50	​	​	50 to <60	​	​	60 to <70	​	​	≥70	​
​	Hale	​	​	Bryant	​	​	Blake	​	​	Roché	​
​	Lenehan	​	​	Connelly	​	​	Levinson	​	​	Whittington	​
​	​	​	​	Gennette	​	​	​	​	​	​	​
​	​	​	​	Varga	​	​	​	​	​	​	​

   

​	ETHNIC DIVERSITY				​
​	African-American:	​	​	2	​
​	Hispanic:	​	​	1	​

​	GENDER				​
​	Female	​	​	Male	​
​	5	​	​	5	​

EXECUTIVE COMPENSATION PROGRAM

Pay-for-Performance Compensation Mix (page 40)

Pay-for-Performance Alignment

In accordance with the recommendation of the Nominating and Corporate Governance (“NCG”) Committee, the Board has nominated the following individuals for election as directors. Each nominee is currently a member of the Board. If elected, each nominee will serve for a one-year term that will expire at our annual meeting of shareholders in 2019 or until his or her successor is duly elected and qualified.

Information regarding the director nominees is set forth below. Ages are as of March 23, 2018. The criteria considered and process undertaken by the NCG

Committee in recommending qualified director candidates is described under “Further Information Concerning the Board of Directors – Director Nomination and Qualifications.”

Each nominee has agreed to serve if elected. If any nominee becomes unavailable to serve before the annual meeting, the Board may designate a substitute nominee and the persons named as proxies may, in their discretion, vote your shares for the substitute nominee. Alternatively, the Board may reduce the number of directors to be elected at the annual meeting.

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The Board held seven meetings during fiscal 2017. All directors attended more than 75% of the total number of meetings of the Board and Board Committees on which the director served.

We expect our directors to make reasonable efforts to attend the annual meetings of shareholders. All individuals then serving as a Company director attended our most recent annual meeting of shareholders held in May 2017.

You may communicate with the full Board, the Audit Committee, the lead independent director, the other Non-Employee Directors, or any individual director by communicating through our Internet website at www.macysinc.com/for-investors/corporate-governance or by mailing the communications to Macy’s, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202, Attn: Chief

Legal Officer. Please indicate to whom the communications are addressed. Communications we receive that relate to accounting, internal accounting controls or auditing matters will be referred to the Audit Committee unless the communication is otherwise addressed. You may communicate anonymously and/or confidentially.

We communicate regularly with our investors to ensure that both management and the Board understand and consider the issues that matter most to our shareholders. We conducted many outreach programs over the last year, including several investor conferences and analyst meetings as well as other meetings with the investor community, one-on-one or small group meetings, and telephone calls to discuss the Company’s strategy and performance, governance and business matters and other topics. These discussions involved members of

senior management and, as appropriate, our lead independent director. We offer shareholders a variety of avenues to communicate with the Company and members of the Board, including through our investor relations website, our quarterly earnings webcasts, and our annual shareholders meeting. We value dialogue with our shareholders and believe such communications help ensure that we understand the perspectives of our many stakeholders.

Our Corporate Governance Principles require that a majority of the Board consist of directors who the Board has determined do not have any material relationship with Macy’s and are independent. The Board has adopted Standards for Director Independence to assist the Board in determining director independence. These standards, disclosed on our website at www.macysinc.com/for-investors/corporate-governance, are as follows:

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The director may not be (and may not have been within the preceding 36 months) an employee and no member of the director’s immediate family may be (and may not have been within the preceding 36 months) an executive officer of Macy’s or any of its subsidiaries. For purposes of these standards, “immediate family” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home.

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Neither the director nor any member of his or her immediate family receives, or has received during any 12-month period within the preceding 36 months, direct compensation of more than $120,000 per year from Macy’s or any of its subsidiaries (other than director and committee fees and pension or other forms of deferred compensation for prior service that is not contingent on continued service or, in the case of an immediate family member, compensation for service as a non-executive employee).

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(A) The director is not a current partner or employee of a firm that is Macy’s internal or external auditor; (B) no member of the director’s immediate family is a current partner of such a firm; (C) no member of the director’s immediate family is an employee of such a firm and personally works on Macy’s audit; or (D) neither the director nor any member of his or her immediate family was within the last three years a partner or employee of such a firm and personally worked on Macy’s audit within that time.

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The director is not a current employee and no member of his or her immediate family is a current executive officer of a company that makes payments to, or receives payments from, Macy’s for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

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The director does not serve as an executive officer of a charitable or non-profit organization to which Macy’s has made contributions that, in any of the last three fiscal years, exceed the greater of $1 million or 2% of the charitable or non-profit organization’s consolidated gross revenues.

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Neither the director nor a member of the director’s immediate family is employed as an executive officer (and has not been so employed for the preceding 36 months) by another company where any of Macy’s present executive officers at the same time serves or served on that company’s compensation committee.

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The Board has determined that each of the following Non-Employee Director nominees qualifies as independent under New York Stock Exchange (“NYSE”) rules and satisfies our Standards for Director Independence: Francis Blake, John Bryant, Deirdre

Connelly, Leslie Hale, William Lenehan, Sara Levinson, Joyce Roché, Paul Varga and Marna Whittington.

To assist the Board in making that determination, the NCG Committee reviewed, among other things, each director’s employment status and other board commitments and, where applicable, each director’s (and his or her immediate family members’) affiliation with consultants, service providers or suppliers of the Company. With respect to each Non-Employee Director, the NCG Committee determined that either the director was not providing goods or services to the Company or that the amounts involved fell below the monetary thresholds set forth in the Standards for Director Independence.

Annie Young-Scrivner served as a Director until her resignation in August 2017. Ms. Young-Scrivner accepted the position of Chief Executive Officer of Godiva Chocolatier, Inc. effective September 2017. In accordance with Macy’s Board policy, she was required to offer to resign from the Board following the change in her employment status. The NCG Committee determined that she would no longer be independent under our Standards for Director Independence based on her employment with Godiva Chocolatier and recommended to the Board that it accept her resignation.

Our Corporate Governance Principles provide that the Board is free to elect its Chairman and the Chief Executive Officer (CEO) in the manner the Board considers in the best interests of the Company at any given point in time and that these positions may be held by one individual or by two different individuals. Our Corporate Governance Principles also provide that when the Chairman is not an independent director, the Board will designate a lead independent director.

Our Chairman and CEO functions have historically been performed by a single individual. In March 2017 the Board elected Mr. Gennette as Chief Executive Officer and determined that Mr. Lundgren, who had served as Chairman and CEO until his retirement as CEO in March 2017, would retain the Chairman of the Board title as part of the Board’s succession plan that included Mr. Gennette’s election as President in 2014. This structure enabled Mr. Gennette to focus on executing the corporate strategies and provided him with the continued counsel of Mr. Lundgren. Mr. Lundgren retired from the Board of Directors effective January 31, 2018 and the Board appointed Mr. Gennette to the additional position of Chairman of the Board. The Board believes that this combined leadership model has worked well in the past and, when combined with the current composition of the Board, the use of a lead independent director and the other elements of our corporate governance structure,

strikes an appropriate balance between strong and consistent leadership and independent and effective oversight of our business and affairs.

Mr. Gennette is an experienced retail executive and long-time employee with several years of board experience. As CEO of the Company he bears the primary responsibility of developing corporate strategy and managing our day-to-day business operations. As a board member, he understands the responsibilities and duties of a director and is well positioned to chair regular Board meetings, provide direction to management regarding the needs, interests and opinions of the Board and help ensure that key business issues and shareholder matters are brought to the attention of the Board. Having Mr. Gennette serve as both CEO and Chairman promotes unified leadership and direction for the Board and management. We have strong corporate governance structures and processes that are intended to ensure that our independent directors will continue to effectively oversee management and key issues such as strategy, risk and integrity. Each of the committees of the Board is comprised solely of independent directors. Consequently, independent directors oversee such critical matters as the integrity of our financial statements, the compensation of management executives, including the CEO, financial commitments for capital projects, the selection and annual evaluation of

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directors, and the development and implementation of corporate governance programs.

The Board and each Board committee has complete and open access to any member of management and the authority to retain independent legal, financial and other advisors as they deem appropriate. The Non-Employee

Directors, all of whom are independent, meet in executive session without management either before or after all regularly scheduled Board and Board committee meetings to discuss various issues and matters of concern to the Board and/or Board committee, including the effectiveness of management, our performance and our strategic plans.

In December 2015, the Board determined to transition from a presiding director structure to a lead independent director, with significantly greater duties and responsibilities than the presiding director. Marna

Whittington, who was our presiding director, has been designated as the lead independent director for a term ending in May 2019.

The lead independent director is selected from among the Non-Employee Directors. The chair of the NCG Committee and management discuss candidates for the lead independent director position, taking into account the same types of criteria considered when discussing candidates for the chair of Board committees (including,

among other things, tenure, previous service as a Board committee chair, diverse experience, participation in and contributions to activities of the Board and time commitment). The chair of the NCG Committee recommends for consideration by the NCG Committee a nominee for lead independent director every two years at

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its regularly scheduled meeting in May (or as otherwise required to address any vacancy in the position). If the NCG Committee approves the nominee, it will

recommend that the Board elect the nominee as lead independent director at its next regularly scheduled meeting.

We have an enterprise risk management program pursuant to which enterprise risks are identified and prioritized. At committee and Board meetings throughout the year, management discusses the risk exposures identified as being most significant to the Company and actions that management may take to monitor the exposures. The Audit Committee, in particular, discusses with management the risk assessments and risk management policies relating to a variety of risks, including certain financial, operational, IT and

compliance risks. The chairman of the Audit Committee updates the full Board on these discussions.

The Audit Committee, and the full Board when appropriate, receives regular updates from management on IT security, internal and external security reviews, data protection, risk assessments, breach preparedness and response plans in overseeing our cybersecurity risk management program.

The CMD Committee considers risks associated with our compensation programs. As part of its ongoing advisory role to the CMD Committee, the CMD Committee’s independent executive compensation consultant, Frederic W. Cook & Co., Inc., referred to as FW Cook, continually evaluates the potential for unintended risk associated with the design of our executive compensation program.

At the direction of the CMD Committee, FW Cook completed a comprehensive review of our compensation programs in fiscal 2010, as well as updated assessments every year thereafter, to determine whether potential risk existed and whether there were design factors that mitigated potential risk areas. Following each review, including the review carried out in fiscal 2017, FW Cook concluded that our compensation programs are well-designed and do not encourage behaviors that could create material risk for the Company. FW Cook also noted that there are a number of features in our programs that mitigate risk and protect against perverse behavior and the potential for unintended consequences.

In reaching this conclusion, FW Cook noted the following features of our compensation programs:

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Pay philosophy, peer group and market positioning are appropriate in light of our business model and size relative to our peer group of companies.

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The programs have an appropriate degree of balance with respect to the mix of cash and equity

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compensation and measure performance against both annual and multi-year standards.

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Performance goals are set at levels that are sufficiently high to encourage strong performances and support the resulting compensation expense, but within reasonably attainable parameters to discourage pursuit of excessively risky business strategies.

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The performance metrics focus participants on profitable growth, asset efficiency and sustainable long-term shareholder value creation, thereby holding management accountable to achievement of key operational and strategic priorities that support our short- and long-term strategic objectives.

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The CMD Committee has the ability to reduce amounts earned under the annual incentive program to reflect a subjective evaluation of the quality of earnings, individual performance and other factors that should influence earned compensation.

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Meaningful risk mitigators are in place, including substantial stock ownership guidelines, the three-year relative TSR performance goal in the performance share program, compensation clawback provisions, anti-hedging/pledging policies, independent CMD Committee oversight, and the engagement of an independent consultant that does no other work for the Company or management.

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Our By-Laws provide that director nominations may be made by or at the direction of the Board. The NCG Committee is charged with identifying individuals qualified to become Board members and recommending such individuals to the Board for its consideration. The NCG Committee is authorized to employ third-party search firms to identify potential candidates. In evaluating potential candidates, the NCG Committee considers, among other things:

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personal qualities and characteristics, accomplishments and reputation in the business community;

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knowledge of the retail industry or other industries relevant to our business;

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relevant experience and background that would benefit the Company;

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ability and willingness to commit adequate time to Board and committee matters;

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the fit of the individual’s skills and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to our needs; and

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diversity of viewpoints, background, experience and demographics.

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The NCG Committee also takes into consideration whether particular individuals satisfy the independence criteria set forth in the NYSE listing standards and our Standards for Director Independence, together with any special criteria applicable to service on various standing committees of the Board. The NCG Committee does not have a formal policy with respect to diversity; however, the Board and the NCG Committee believe that it is desirable that Board members represent diversity of gender, race and national origin as well as diversity of viewpoints, background, experience and demographics.

Since 2006, the NCG Committee has retained an independent director search firm, Heidrick & Struggles,

to identify and evaluate potential director candidates. The firm provides background information on potential candidates and, if so directed by the NCG Committee, makes initial contact with potential candidates to assess their interest in becoming a director of Macy’s. The NCG Committee members, the CEO and, at times, other members of the Board and/or senior management meet with and interview the potential candidates.

The NCG Committee generally identifies nominees by first determining whether the current members of the Board continue to provide the appropriate mix of knowledge, skills, judgment, experience, differing viewpoints and other qualities necessary to the Board’s ability to oversee and direct the business and affairs of the Company. The Board generally nominates for re-election current members of the Board who are willing to continue in service, collectively satisfy the criteria listed above and are available to devote sufficient time and attention to the affairs of the Company. When the NCG Committee seeks new candidates for director, it seeks individuals with qualifications that will complement the experience, skills and perspectives of the other members of the Board. The full Board (a) considers candidates that the NCG Committee recommends, (b) considers the optimum size of the Board, (c) determines how to address any vacancies on the Board, and (d) determines the composition of all Board committees.

Below we identify and describe the key experience, qualifications and skills the NCG Committee and Board consider in concluding a director is qualified to serve as a director of the Company. The experience, qualifications, attributes and skills that the Board considered in the re-nomination of our directors are reflected in their individual biographies beginning on page 5 and the skills matrix beginning on page 20. The matrix is a summary; it does not include all of the skills, experiences and qualifications that each director nominee offers, and the fact that a particular experience, skill or qualification is not listed does not mean that a director does not possess it.

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The NCG Committee will consider candidates for nomination recommended by shareholders of Macy’s and will evaluate such candidates using the same criteria discussed above that it uses to evaluate director candidates identified by the NCG Committee. Shareholders who wish to recommend a candidate for a director nomination should write to the Nominating and Corporate Governance Committee, c/o Elisa D. Garcia, Secretary, Macy’s, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202. The recommendation should include the full name and address of the proposed candidate, a description of the proposed candidate’s qualifications and other relevant biographical information.

Advance Notice By-Law. The advance notice provision of our By-Laws requires that shareholders intending to nominate candidates for election as directors deliver written notice thereof to the Secretary of Macy’s not less than 60 days prior to the meeting of shareholders. However, in the event that the date of the meeting is not publicly announced by the Company by inclusion in a report filed with the SEC, furnished to shareholders, or in a press release more than 75 days prior to the meeting, for notice by the shareholder to be timely, it must be delivered to the Secretary of Macy’s not later than the close of business on the tenth day following the day on which such announcement of the date of the meeting was so communicated. The advance notice provision requires the nominating shareholder to submit specified information concerning itself and the proposed nominee, including ownership information, name and address, and appropriate biographical information about and qualifications of the proposed nominee.

The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with these requirements. Similar procedures prescribed by the By-Laws are applicable to shareholders desiring to bring any other business before an annual meeting of the shareholders. See “Submission of Future Shareholder Proposals.”

Proxy Access By-Law. The proxy access provision in our By-Laws allows an eligible shareholder or group of no more than 20 eligible shareholders that has maintained continuous ownership of 3% or more of our common stock for at least three years to include in our proxy materials for an annual meeting of shareholders a

number of director nominees up to the greater of two or 20% of the directors then in office. An eligible shareholder must maintain the 3% beneficial ownership requirement at least until the annual meeting at which the proponent’s nominee will be considered. Proxy access nominees who withdraw or who do not receive at least a 25% vote in favor of election will be ineligible as a nominee for the following two years. If any shareholder proposes a director nominee under our advance notice provision, we are not required to include any proxy access nominee in our proxy statement for the annual meeting.

The proponent is required to provide the information about itself and the proposed nominee(s) that is specified in the proxy access provision of our By-Laws. The required information must be in writing and delivered by personal delivery, overnight express courier or U.S. mail, postage pre-paid, addressed to the Secretary of Macy’s and received not earlier than the close of business on the 150th calendar day and not later than the close of business on the 120th calendar day prior to the one-year anniversary of the mailing date of the previous year’s proxy statement. If the scheduled annual meeting date differs from the anniversary date of the prior year’s annual meeting by more than 30 calendar days, the required information must be in writing and provided to the Secretary of Macy’s not earlier than the close of business on the 120th calendar day prior to the date of the annual meeting and not later than the close of business on the 60th calendar day prior to the annual meeting or, in the event that public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, notice must be received not later than the close of business on the tenth calendar day following the day on which public announcement is first made. For purposes of this By-Law, “close of business” shall mean 5:00 p.m. Eastern Time, on any calendar day, whether or not the day is a business day, and the “principal executive offices” of the Company shall mean 7 West Seventh Street, Cincinnati, Ohio 45202.

We are not required to include any proxy access nominee in our proxy statement if the nomination does not comply with the proxy access requirements of our By-Laws.

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The Board does not believe that a Non-Employee Director who retires or experiences an employment position change since becoming a member of the Board should necessarily leave the Board. The Board requires, however, that promptly following such an event, the director notify the NCG Committee in writing and tender his or her resignation to the Committee for consideration.

Upon receipt of the notification of a change in status, the NCG Committee reviews the continued appropriateness of the affected director remaining on the Board under the circumstances and recommends to the full Board whether or not to accept the resignation based on its assessment of what is best for the Company and its shareholders.

Our Corporate Governance Principles, Non-Employee Director Code of Business Conduct and Ethics, and Code of Conduct, that is applicable to our principal executive officer, principal financial officer and principal accounting officer, are available on our website at www.macysinc.com/for-investors/corporate-governance.

Shareholders may obtain copies of these documents and the charters for the Board committees, without charge, by sending a written request to: Secretary, Macy’s, Inc., 7 West Seventh Street, Cincinnati, Ohio 45202.

A Non-Employee Director may elect to defer all or a portion of his or her cash compensation into either stock credits or cash credits under the Director Deferred Compensation Plan. Those amounts are not paid to him or her until service on the Board ends. Stock credits are calculated monthly and shares of Macy’s common stock associated with the stock credits are transferred quarterly to a rabbi trust for the benefit of the participating Non-Employee Director. Dividend equivalents on the amounts deferred as stock credits are “reinvested” in additional stock credits. Compensation deferred as cash credits earns interest each year at a rate equal to the yield (percent per annum) on 30-Year Treasury Bonds as of December 31 of the prior plan year.

On the date of the 2017 annual meeting, Non-Employee Directors received a grant of restricted stock units with a market value of approximately $140,000. The restricted stock units vest at the earlier of  (i) the first anniversary of

the grant or (ii) the next annual meeting of shareholders. Upon vesting, receipt of the restricted stock units is automatically deferred as stock credits under the Director Deferred Compensation Plan. Dividend equivalents on these restricted stock units will be “reinvested” in additional stock credits. The stock credits will be paid out in shares of Macy’s common stock six months after the director’s service on the Board ends.

Non-Employee Directors and retired Non-Employee Directors may participate in the Company’s philanthropic matching gift program on the same terms as all company employees. Macy’s matches up to a total of  $1,000 of gifts made by the director to qualifying charities in any calendar year.

Each Non-Employee Director and his or her spouse and eligible dependents receive the same merchandise discount on merchandise purchased at our stores that is available to all regular employees. This benefit remains available to them following retirement from the Board.

We terminated our retirement plan for Non-Employee Directors on a prospective basis effective May 16, 1997 (the “Plan Termination Date”). Persons who first become Non-Employee Directors after the Plan Termination Date are not entitled to receive any benefit from the plan.

Persons who were Non-Employee Directors as of the Plan Termination Date are entitled to receive retirement benefits accrued as of the Plan Termination Date. They are entitled to receive an annual payment equal to the amount of the annual Board retainer earned immediately

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prior to retirement, payable in monthly installments, commencing at retirement and continuing for the lesser of the person’s remaining life or a number of years equal to the person’s years of Board service prior to the Plan Termination Date. There are no survivor benefits under the terms of the retirement plan.

Ms. Whittington is the only current Non-Employee Director that participates in the plan. If she had retired on December 31, 2017, she would have been entitled to a $70,000 annual payment for a maximum of four years.

During fiscal 2017, the NCG Committee engaged FW Cook to review the design and competitiveness of our compensation program for Non-Employee Directors. FW Cook looked at current overall trends in director compensation and analyzed the competitiveness of the current compensation program for Non-Employee Directors using the following 12-company peer group, which is identical to the peer group that the CMD Committee uses in connection with its review of the compensation of the Named Executive Officers: Bed, Bath & Beyond, Dillard’s, Gap, J.C. Penney, Kohl’s, L Brands, Nordstrom, Ross Stores, Sears Holdings, Target, TJX Companies and Walmart.

FW Cook determined that the structure of the Non-Employee Director compensation program continues to be aligned with peer group policy and

contemporary investor preferences and, therefore, did not recommend changes to the design of the program. It also determined that the value of our Non-Employee Director total compensation (both cash and equity compensation) is between the 25th percentile and median of the peer group. To keep pace with expected market movement, FW Cook recommended that Non-Employee Director total compensation be increased by $25,000 for fiscal 2018, split 40% cash and 60% equity. Non-Employee Director compensation has been at current levels since fiscal 2014.

Upon the recommendation of the NCG Committee, the Board approved an increase of the annual Board retainer from $70,000 to $80,000 and an increase of the annual restricted stock unit award from $140,000 to $155,000, effective as of the beginning of fiscal 2018.

The following table reflects the compensation earned by each Non-Employee Director for fiscal 2017.

Messrs. Lundgren and Gennette did not receive separate compensation for their service as Directors.

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The Board adopted stock ownership guidelines for Non-Employee Directors. Under these guidelines, Non-Employee Directors are required to own Macy’s common stock equal in value to five times the annual Board retainer and maintain that ownership level for their tenure on the Board. As of fiscal 2018, the annual Board retainer is $80,000, so the guideline currently is $400,000 worth of our common stock. Shares counted toward this requirement include:

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any shares beneficially owned by the director or immediate family members of the director;

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time-based restricted stock or restricted stock units, whether or not vested; and

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stock credits or other stock units credited to a director’s account.

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Stock subject to unvested or unexercised stock options granted to Non-Employee Directors does not count toward the ownership requirement. Non-Employee Directors must comply with these guidelines within five years from the date the director’s Board service commenced. Each Non-Employee Director who has reached his or her ownership guideline date has satisfied the ownership requirement. In addition to these stock ownership guidelines, the restricted stock units granted to Non-Employee Directors each year are automatically deferred upon vesting under the Director Deferred Compensation Plan until six months after termination of Board service.

The Non-Employee Directors are covered by our policy which prohibits directors, officers and other participants in our long-term incentive plan from engaging in hedging and pledging transactions. The policy is described in greater detail on page 54.

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The Audit Committee has appointed KPMG LLP, an independent registered public accounting firm, to audit Macy’s financial statements for the fiscal year ending February 2, 2019. KPMG LLP and its predecessors have served as our independent registered public accounting firm since 1988. Representatives of KPMG LLP are expected to be present at the annual meeting and will

have the opportunity to make a statement if they desire to do so. It is also expected that they will be available at the annual meeting to respond to appropriate questions. The Audit Committee has asked the Board to submit to shareholders a proposal to ratify the appointment of KPMG LLP.

Audit fees represent fees for professional services rendered for the audit of our annual financial statements, the audit of our internal controls over financial reporting and the reviews of the interim financial statements included in our Forms 10-Q.

Audit-related fees represent professional services principally related to the audits of financial statements of employee benefit plans, audits of financial statements of certain subsidiaries and certain agreed upon procedures reports.

Tax fees represent professional services related to tax compliance and consulting services.

The Audit Committee has adopted policies and procedures for the pre-approval of all permitted non-audit services provided by our independent registered public accounting firm. All permitted non-audit services were pre-approved pursuant to this policy. A description of such policies and procedures is attached as Appendix A to this proxy statement and incorporated herein by reference.

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The Board has adopted a written Audit Committee Charter. All members of the Audit Committee are independent, as defined in Sections 303A.06 and 303A.07 of the NYSE’s listing standards.

The Audit Committee has reviewed and discussed with Macy’s management and KPMG LLP the audited financial statements contained in Macy’s Annual Report for fiscal 2017. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed by the applicable Public Company Accounting Oversight Board and Securities and Exchange Commission requirements.

The Audit Committee has received and reviewed the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG

LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP their independence.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in Macy’s Annual Report on Form 10-K for fiscal 2017 filed with the United States Securities and Exchange Commission.

Respectfully submitted,

John A. Bryant, Chairperson
Leslie D. Hale
William H. Lenehan
Joyce M. Roché
Marna C. Whittington

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We are asking shareholders to approve, on an advisory basis, the compensation of our named executive officers (the “Named Executive Officers” or “NEOs”), as disclosed pursuant to Securities and Exchange Commission rules, including in the Compensation Discussion & Analysis, the executive compensation tables and related material included in this proxy statement. This proposal, commonly known as a say-on-pay proposal, gives shareholders the opportunity to express their views on our executive compensation program and policies. The vote is not intended to address any specific item of compensation, but rather to address our overall approach to the compensation of our Named Executive Officers described in this proxy statement. In 2017, our say-on-pay proposal received a FOR vote of 93.7%.

The text of the resolution setting forth the proposal is as follows:

RESOLVED, that the shareholders of Macy’s, Inc. approve the compensation of the Company’s named executive officers as disclosed in the proxy statement for the Company’s 2018 annual meeting of shareholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion & Analysis section and the 2017 Summary Compensation Table and related compensation tables and narrative discussion.

We urge you to read the Compensation Discussion & Analysis, which begins on page 40 and discusses how our compensation policies and procedures implement our pay-for-performance compensation philosophy.

We have designed our executive compensation structure to attract, motivate, and retain executives with the skills required to formulate and implement our strategic business objectives and deliver on our commitment to build long-term shareholder value. We believe that our executive compensation program is competitive, strongly focused on pay-for-performance principles and appropriately balanced between risk and rewards.

The vote regarding the compensation of the Named Executive Officers is being provided pursuant to Section 14A of the Securities Exchange Act. The vote is advisory and not binding on the Company, the CMD Committee or the Board of Directors. Although the vote is non-binding, the Board of Directors and the CMD Committee value the opinions that shareholders express in their votes and will take the voting results into consideration when making future compensation decisions as they deem appropriate.

If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote “FOR” the approval of the compensation of the Named Executive Officers as disclosed in this proxy statement and described in this Item 3.

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We are asking stockholders to approve the Macy’s Inc. 2018 Equity and Incentive Compensation Plan (the “2018 Plan”). On March 23, 2018, upon recommendation by the Compensation and Management Development (“CMD”) Committee, the Board unanimously approved and adopted, subject to the approval of the Company’s stockholders at the Annual Meeting, the 2018 Plan to replace our 2009 Omnibus Incentive Compensation Plan, as amended or amended and restated (the “2009 Plan”). We sometimes refer to the 2009 Plan, plus our 1995 Executive Equity Incentive Plan, as amended or amended and restated, plus our 1994 Stock Incentive Plan, as amended or amended and restated, as the “Predecessor Plans.”

The Board is recommending that the Company’s stockholders vote in favor of the 2018 Plan, which will succeed the 2009 Plan. The 2018 Plan will continue to afford the CMD Committee the ability to design compensatory awards that are responsive to the Company’s needs and includes authorization for a variety of awards designed to advance the interests and long-term success of the Company by encouraging stock ownership among officers and other employees of the Company and its subsidiaries, certain consultants to

the Company and its subsidiaries, and non-employee directors of the Company. You are being asked to approve the 2018 Plan.

Stockholder approval of the 2018 Plan would constitute approval of up to an additional 24,600,000 shares of Common Stock, par value $0.01 per share, available for awards under the 2018 Plan, as described below and in the 2018 Plan. The Board recommends that you vote to approve the 2018 Plan. If the 2018 Plan is approved by stockholders, it will be effective as of the day of the Annual Meeting, and no further grants will be made on or after such date under the 2009 Plan. Outstanding awards under the 2009 Plan, however, will continue in effect in accordance with their terms. If the 2018 Plan is not approved by our stockholders, no awards will be made under the 2018 Plan, and the 2009 Plan will remain in effect.

The actual text of the 2018 Plan is attached to this proxy statement as Appendix B. The following description of the 2018 Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text as set forth in Appendix B.

The 2018 Plan authorizes the CMD Committee to provide cash awards and equity-based compensation in the form of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, shares of Common Stock, for the purpose of providing our non-employee directors, officers and other employees of the Company and its subsidiaries, and certain consultants of the Company and its subsidiaries, incentives and rewards for service and/or performance. Some of the key features of the 2018 Plan that reflect our commitment to effective management of equity and incentive compensation are set forth below in this subsection.

We believe our future success depends in part on our ability to attract, motivate, and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the 2018 Plan is critical to achieving this success. We would

be at a severe competitive disadvantage if we could not use share-based awards to recruit and compensate our employees and directors. The use of Common Stock as part of our compensation program is also important because equity-based awards are an essential component of our compensation program for key employees, as they help link compensation with long-term stockholder value creation and reward participants based on service and/or performance.

As of February 3, 2018, 12,544,554 shares of Common Stock remained available for issuance under the 2009 Plan. If the 2018 Plan is not approved, we may be compelled to increase significantly the cash component of our employee and director compensation, which approach may not necessarily align employee and director compensation interests with the investment interests of our stockholders. Replacing equity awards with cash also would increase cash compensation expense and use cash that could be better utilized if reinvested in our business or returned to our stockholders.

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The following provides additional information on total equity awards outstanding and total grants made in the last three fiscal years.

Overhang. The following table provides certain additional information regarding total awards outstanding at February 3, 2018 (fiscal year-end):

(1)

Outstanding full-value awards include dividend equivalents. Outstanding options and time-based restricted stock awards do not provide for dividend equivalents.

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The following table provides certain additional information regarding shares that will be available under the 2018 Plan, assuming approval of the 2018 Plan by the Company’s stockholders, as of February 3, 2018:

In determining the number of shares to request for approval under the 2018 Plan, our management team worked with Frederic W. Cook & Co., Inc. and the CMD Committee to evaluate a number of factors, including our recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the 2018 Plan.

If the 2018 Plan is approved, we intend to utilize the shares authorized under the 2018 Plan to continue our practice of incentivizing key individuals through equity grants. We currently anticipate that the shares requested in connection with the approval of the 2018 Plan will last for about five years, based on our historic grant rates and the approximate current share price, but could last for a shorter period of time if actual practice does not match recent rates or our share price changes materially. As noted below, our CMD Committee retains full discretion

under the 2018 Plan to determine the number and amount of awards to be granted under the 2018 Plan, subject to the terms of the 2018 Plan, and future benefits that may be received by participants under the 2018 Plan are not determinable at this time.

We believe that we have demonstrated a commitment to sound equity compensation practices in recent years. We recognize that equity compensation awards dilute stockholders’ equity, so we have carefully managed our equity incentive compensation. Our equity compensation practices are intended to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of stockholder interests, as described above.

In evaluating this proposal, stockholders should consider all of the information in this proposal.

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Below are certain highlights of the 2018 Plan. These features of the 2018 Plan are designed to reinforce alignment between equity compensation arrangements awarded pursuant to the 2018 Plan with stockholders’ interests, consistent with sound corporate governance practices:

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Reasonable 2018 Plan Limits. Awards under the 2018 Plan are limited to 24,600,000 shares minus (1) one share for every share subject to an award of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date of the 2018 Plan, and minus (2) 1.75 shares for every one share subject to an award other than of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date.

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Fungible Share Counting. The aggregate number of shares of Common Stock available under the 2018 Plan will be reduced by (1) one share of Common Stock for every one share of Common Stock subject to an award of stock options or SARs granted under the 2018 Plan, and (2) 1.75 shares of Common Stock for every one share of Common Stock subject to an award other than of stock options or SARs granted under the 2018 Plan, subject to add backs at the same ratios for any awards granted under the Predecessor Plans that are canceled or forfeited, expire, are settled in cash, or are unearned.

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Other Limits. The 2018 Plan also provides that, subject as applicable to adjustment and the applicable Common Stock counting provisions as described in the 2018 Plan:

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the aggregate number of shares of Common Stock actually issued or transferred upon the exercise of Incentive Stock Options (as defined below) will not exceed 13,300,000 shares of Common Stock; and

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a non-employee director will not be granted, in any one calendar year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of  $600,000.

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Limited Share Recycling Provisions. Subject to certain exceptions described in the 2018 Plan, if any award granted under the 2018 Plan is canceled or forfeited, expires, is settled for cash (in whole or in part), or is unearned (in whole or in part), the shares of Common Stock subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be

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available under the 2018 Plan at a rate of one share for every one share subject to stock option or SAR awards and 1.75 shares for every one share subject to awards other than stock options or SARs.

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The following shares of Common Stock will not be added (or added back, as applicable) to the aggregate share limit under the 2018 Plan: (1) shares of Common Stock withheld by us, tendered or otherwise used in payment of the exercise price of a stock option granted under the 2018 Plan, and (2) shares of Common Stock reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options granted under the 2018 Plan.

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Further, all shares of Common Stock covered by stock-settled SARs that are exercised and settled in shares, whether or not all shares of Common Stock covered by the SARs are actually issued to the participant upon exercise, will not be added back to the aggregate number of shares available under the 2018 Plan. In addition, shares of Common Stock withheld by us or tendered or otherwise used to satisfy tax withholding will not be added (or added back, as applicable) to the aggregate share limit under the 2018 Plan.

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If a participant elects to give up the right to receive compensation in exchange for shares of Common Stock based on fair market value, such shares of Common Stock will not count against the aggregate number of shares available under the 2018 Plan.

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No Repricing Without Stockholder Approval. Outside of certain corporate transactions or adjustment events described in the 2018 Plan or in connection with a “change in control”, the exercise or base price of stock options and SARs cannot be reduced, nor can “underwater” stock options or SARs be cancelled in exchange for cash or replaced with other awards with a lower exercise or base price, without stockholder approval.

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Dividend Equivalents Limited. Dividend equivalents or other distributions on awards are deferred until and paid contingent upon vesting. Dividends and dividend equivalents are not paid on stock options or stock appreciation rights.

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Change in Control Definition. The 2018 Plan includes a non-liberal definition of  “change in control,” which is described below.

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Exercise or Base Price Limitation. The 2018 Plan also provides that, except with respect to certain converted, assumed or substituted awards as

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described in the 2018 Plan, no stock options or SARs will be granted with an exercise or base price less than the fair market value of a share of Common Stock on the date of grant.

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No Minimum Vesting Periods. The 2018 Plan does not provide for any minimum vesting periods.

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Administration: The 2018 Plan will generally be administered by the CMD Committee (or its successor), or any other committee of the Board designated by the Board to administer the 2018 Plan. References to the “Committee” in this proposal refer to the CMD Committee or such other committee designated by the Board, as applicable. The Committee may from time to time delegate all or any part of its authority under the 2018 Plan to a subcommittee. Any interpretation, construction and determination by the Committee of any provision of the 2018 Plan, or of any agreement, notification or document evidencing the grant of awards under the 2018 Plan, will be final and conclusive. To the extent permitted by applicable law, the Committee may delegate to one or more of its members or to one or more officers, or to one or more agents or advisors of the Company, such administrative duties or powers as it deems advisable. In addition, the Committee may by resolution, subject to certain restrictions set forth in the 2018 Plan, authorize one or more officers of the Company to (1) designate employees to be recipients of awards under the 2018 Plan, and (2) determine the size of such awards. However, the Committee may not delegate such responsibilities to officers for awards granted to non-employee directors or certain employees who are subject to the reporting requirements of Section 16 of the Exchange Act. The Committee is authorized to take appropriate action under the 2018 Plan subject to the express limitations contained in the 2018 Plan.

Eligibility: Any person who is selected by the Committee to receive benefits under the 2018 Plan and who is at that time an officer or other employee of the Company or any of its subsidiaries (including a person who has agreed to commence serving in such capacity within 90 days of the date of grant) is eligible to participate in the 2018 Plan. In addition, certain persons (including consultants) who provide services to the Company or any of its subsidiaries that are equivalent to those typically provided by an employee (provided that such persons satisfy the Form S-8 definition of  “employee”), and non-employee directors of the Company, may also be selected by the Committee to participate in the 2018 Plan. As of March 23, 2018, there were approximately 13,000 employees and nine non-employee directors of the Company eligible to participate in the 2018 Plan. The basis for participation in the 2018 Plan by eligible persons is the selection of such persons by the Committee in its discretion.

Shares Available for Awards under the 2018 Plan: Subject to adjustment as described in the 2018 Plan and the 2018 Plan share counting rules, the number of shares of Common Stock available under the 2018 Plan for awards of:

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stock options or SARs;

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restricted stock;

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RSUs;

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performance shares or performance units;

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other stock-based awards under the 2018 Plan; or

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dividend equivalents paid with respect to awards under the 2018 Plan;

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will not exceed, in the aggregate, 24,600,000 shares of Common Stock minus (1) as of the effective date of the 2018 Plan, one share for every one share subject to an award of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date, and minus (2) as of the effective date of the 2018 Plan, 1.75 shares for every one share subject to an award other than of stock options or stock appreciation rights granted under the Predecessor Plans between February 3, 2018 and the effective date, plus any shares of Common Stock that become available under the 2018 Plan as a result of forfeiture, cancellation, expiration, cash settlement or less-than-maximum earning of awards.

Share Counting: The aggregate number of shares of Common Stock available under the 2018 Plan will be reduced by (1) one share of Common Stock for every one share of Common Stock subject to an award of stock options or SARs granted under the 2018 Plan, and (2) 1.75 shares of Common Stock for every one share of Common Stock subject to an award other than of stock options or SARs granted under the 2018 Plan. Additionally, if, after February 3, 2018, any shares of Common Stock subject to an award granted under the Predecessor Plans are forfeited, or an award granted under the Predecessor Plans is canceled or forfeited, expires, is settled in cash (in whole or in part), or is unearned (in whole or in part), the shares of Common Stock subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the 2018 Plan at a rate of one share for every one share subject to stock option or stock appreciation rights

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awards and 1.75 shares for every one share subject to awards other than stock options or stock appreciation rights.

Types of Awards Under the 2018 Plan: Pursuant to the 2018 Plan, the Company may grant cash awards and stock options (including stock options intended to be “incentive stock options” as defined in Section 422 of the Code (“Incentive Stock Options”)), SARs, restricted stock, RSUs, performance shares, performance units, cash incentive awards, and certain other awards based on or related to shares of our Common Stock.

Generally, each grant of an award under the 2018 Plan will be evidenced by an award agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee (an “Evidence of Award”), which will contain such terms and provisions as the Committee may determine, consistent with the 2018 Plan. A brief description of the types of awards which may be granted under the 2018 Plan is set forth below.

Stock Options: A stock option is a right to purchase shares of Common Stock upon exercise of the stock option. Stock options granted to an employee under the 2018 Plan may consist of either an Incentive Stock Option, a non-qualified stock option that is not intended to be an “incentive stock option” under Section 422 of the Code, or a combination of both. Incentive Stock Options may only be granted to employees of the Company or certain of our related corporations. Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of stock options held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, Incentive Stock Options and non-qualified stock options must have an exercise price per share that is not less than the fair market value of a share of Common Stock on the date of grant. The term of a stock option may not extend more than 10 years from the date of grant. The Committee may provide in an Evidence of Award for the automatic exercise of a stock option.

Each grant of a stock option will specify the applicable terms of the stock option, including the number of shares of Common Stock subject to the stock option and the required period or periods of the participant’s continuous service, if any, before any stock option or portion of a stock option will become exercisable. Stock options may provide for continued vesting or the earlier exercise of the stock options, including in the event of retirement, death or disability of the participant or in the event of a change in control.

Any grant of stock options may specify management objectives that must be achieved as a condition to the exercise of the stock options. Each grant will specify whether the consideration to be paid in satisfaction of the exercise price will be payable: (1) in cash, by check acceptable to the Company, or by wire transfer of

immediately available funds; (2) by the actual or constructive transfer to the Company of shares of Common Stock owned by the participant with a value at the time of exercise that is equal to the total exercise price; (3) subject to any conditions or limitations established by the Committee, by a net exercise arrangement pursuant to which the Company will withhold shares of Common Stock otherwise issuable upon exercise of a stock option; (4) by a combination of the foregoing methods; or (5) by such other methods as may be approved by the Committee. To the extent permitted by law, any grant may provide for deferred payment of the exercise price from the proceeds of a sale through a bank or broker of some or all of the shares to which the exercise relates. Stock options granted under the 2018 Plan may not provide for dividends or dividend equivalents.

Appreciation Rights: The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of SARs. A SAR is a right to receive from us an amount equal to 100%, or such lesser percentage as the Committee may determine, of the spread between the base price and the value of shares of our Common Stock on the date of exercise.

Each grant of a SAR will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such other terms and provisions, consistent with the 2018 Plan, as the Committee may approve. Each grant of SARs will specify the period or periods of continuous service, if any, by the participant with the Company or any subsidiary that is necessary before the SARs or installments of such SARs will become exercisable. SARs may provide for continued vesting or earlier exercise, including in the case of retirement, death or disability of the participant or in the event of a change in control. Any grant of SARs may specify management objectives that must be achieved as a condition of the exercise of such SARs. A SAR may be paid in cash, shares of Common Stock or any combination of the two.

Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of SARs held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, the base price of a SAR may not be less than the fair market value of a share of Common Stock on the date of grant. The term of a SAR may not extend more than 10 years from the date of grant. The Committee may provide in an Evidence of Award for the automatic exercise of a SAR. SARs granted under the 2018 Plan may not provide for dividends or dividend equivalents.

Restricted Stock: Restricted stock constitutes an immediate transfer of the ownership of shares of Common Stock to the participant in consideration of the

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performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Committee for a period of time determined by the Committee or until certain management objectives specified by the Committee are achieved. Each such grant or sale of restricted stock may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per share of Common Stock on the date of grant.

Any grant of restricted stock may specify management objectives that, if achieved, will result in termination or early termination of the restrictions applicable to the restricted stock. Any grant of restricted stock will require that any and all dividends or distributions paid on restricted stock that remain subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted stock, which will be subject to the same restrictions as the underlying restricted stock. Any such dividends or other distributions on restricted stock will be deferred until, and paid contingent upon, the vesting of such restricted stock. Restricted stock may provide for continued vesting or the earlier termination of restrictions on such restricted stock, including in the event of retirement, death or disability of the participant or in the event of a change in control. Each grant of restricted stock will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such terms and provisions, consistent with the 2018 Plan, as the Committee may approve.

RSUs: RSUs awarded under the 2018 Plan constitute an agreement by the Company to deliver shares of Common Stock, cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include the achievement of management objectives) during the restriction period as the Committee may specify. Each grant or sale of RSUs may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value of shares of our Common Stock on the date of grant.

RSUs may provide for continued vesting or the earlier lapse or other modification of the restriction period, including in the event of retirement, death or disability of the participant or in the event of a change in control. During the restriction period applicable to RSUs, the participant will have no right to transfer any rights under the award and will have no rights of ownership in the shares of Common Stock underlying the RSUs and no right to vote them. Rights to dividend equivalents may be extended to and made part of any RSU award at the discretion of and on the terms determined by the Committee, on a deferred and contingent basis, either in

cash or in additional shares of Common Stock, but dividend equivalents or other distributions on shares of Common Stock under the RSUs will be deferred until and paid contingent upon vesting of such RSUs. Each grant or sale of RSUs will specify the time and manner of payment of the RSUs that have been earned. A RSU may be paid in cash, shares of Common Stock or any combination of the two.

Each grant of a RSU award will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such terms and provisions, consistent with the 2018 Plan, as the Committee may approve.

Cash Incentive Awards, Performance Shares, and Performance Units: Performance shares, performance units and cash incentive awards may also be granted to participants under the 2018 Plan. A performance share is a bookkeeping entry that records the equivalent of one share of Common Stock, and a performance unit is a bookkeeping entry that records a unit equivalent to $1.00 or such other value as determined by the Committee. Each grant will specify the number or amount of performance shares or performance units, or the amount payable with respect to a cash incentive award being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other factors.

These awards, when granted under the 2018 Plan, generally become payable to participants based on the achievement of specified management objectives and upon such terms and conditions as the Committee determines at the time of grant. Each grant may specify with respect to the management objectives a minimum acceptable level or levels of achievement and may set forth a formula for determining the number of performance shares or performance units, or the amount payable with respect to a cash incentive award, that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels but falls short of maximum achievement. Each grant will specify the time and manner of payment of a cash incentive award, performance shares or performance units that have been earned. Any grant may specify that the amount payable with respect to such grant may be paid by the Company in cash, in shares of Common Stock, in restricted stock or RSUs, or in any combination thereof.

Any grant of performance shares or performance units may provide for the payment of dividend equivalents in cash or in additional shares of Common Stock, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the performance shares or performance units, as applicable, with respect to which such dividend equivalents are paid.

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The performance period with respect to each cash incentive award or grant of performance shares or performance units will be a period of time determined by the Committee and within which the management objectives relating to such award are to be achieved. The performance period may be subject to continued vesting or earlier lapse or modification, including in the event of retirement, death or disability of the participant or in the event of a change in control. Each grant of performance shares, performance units or a cash incentive award will be evidenced by an Evidence of Award. Each Evidence of Award will be subject to the 2018 Plan and will contain such other terms and provisions of such award, consistent with the 2018 Plan, as the Committee may approve.

Other Awards: Subject to applicable law and applicable share limits under the 2018 Plan, the Committee may grant to any participant shares of Common Stock or such other awards (“Other Awards”) that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock or factors that may influence the value of such shares of Common Stock, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Common Stock, purchase rights for shares of Common Stock, awards with value and payment contingent upon performance of the Company or specified subsidiaries, affiliates or other business units or any other factors designated by the Committee, and awards valued by reference to the book value of the shares of Common Stock or the value of securities of, or the performance of the subsidiaries, affiliates or other business units of the Company. The terms and conditions of any such awards will be determined by the Committee. Shares of Common Stock delivered under an award in the nature of a purchase right granted under the 2018 Plan will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, shares of Common Stock, other awards, notes or other property, as the Committee determines.

In addition, the Committee may grant cash awards, as an element of or supplement to any other awards granted under the 2018 Plan. The Committee may also authorize the grant of shares of Common Stock as a bonus, or may authorize the grant of other awards in lieu of obligations of the Company or a subsidiary to pay cash or deliver other property under the 2018 Plan or under other plans or compensatory arrangements, subject to terms determined by the Committee in a manner that complies with Section 409A of the Code.

Other Awards may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the event of the retirement, death, or disability of the participant or in the event of a change in control. The Committee may provide for the payment of

dividends or dividend equivalents on Other Awards in cash or in additional shares of Common Stock, subject to deferral and payment on a contingent basis based on the participant’s earning and vesting of the Other Awards with respect to which such dividends or dividend equivalents are paid.

Change in Control: The 2018 Plan includes a definition of  “change in control.” In general, except as may be otherwise prescribed by the Committee in an Evidence of Award, a change in control will be deemed to have occurred if, in general (subject to certain limitations and as further described in the 2018 Plan): (1) a person or group becomes the beneficial owner of 30% or more of the voting power of the then-outstanding securities of the Company that can vote generally in the election of directors (“Voting Stock”); (2) individuals who constituted the Board cease for any reason to constitute at least a majority of the Board, unless their replacements are approved as described in the 2018 Plan (subject to certain exceptions); (3) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of its assets as further described in the 2018 Plan (subject to certain exceptions); or (4) the Company’s stockholders approve a complete liquidation or dissolution of the Company. Certain additional terms or limitations apply under this definition with respect to awards that are “non-qualified deferred compensation” for purposes of Code Section 409A, and except with respect to stockholder approval of a complete liquidation or dissolution of the Company, no definition of change in control under an Evidence of Award may provide that a change in control will occur solely upon the announcement, commencement, stockholder approval or other potential occurrence of any event or transaction (rather than its consummation), and/or an unapproved change in less than a majority of the Board, and/or (except as described above) acquisition of 15% or less of the Voting Stock, and/or announcement or commencement of a tender or exchange offer.

Management Objectives: The 2018 Plan provides that any of the awards set forth above may be granted subject to the achievement of specified management objectives. Management objectives are defined as the measurable performance objective or objectives established pursuant to the 2018 Plan for participants who have received grants of performance shares, performance units or cash incentive awards or, when so determined by the Committee, stock options, SARs, restricted stock, RSUs, dividend equivalents or Other Awards, all as determined by the Committee. The following is a non-exhaustive list of the potential management objectives that may be used for awards under the 2018 Plan (including ratios or other relationships between one or more, or a combination, of the following examples of management objectives): sales; comparable sales; sales per square foot; owned

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sales plus licensed sales or comparable owned sales plus licensed sales; pre-tax income; gross margin; operating or other expenses; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization (“EBITDA”); EBITDA margin; net income; earnings per share (either basic or diluted); cash flow or net cash flow (as provided by or used in one or more of operating activities, investing activities and financing activities or any combination thereof); return on investment (determined with reference to one or more categories of income or cash flow and one or more categories of assets, capital or equity, including return on net assets, return on sales, return on equity and return on invested capital); stock price (appreciation, fair market value); operating income; revenue; total shareowner return; customer satisfaction; gross margin return on investment; gross margin return on inventory; inventory turn; market share; leverage ratio; coverage ratio; employee engagement; employee turnover; strategic business objectives; strategic plan implementation; and individual performance.

Additionally, if the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the management objectives unsuitable, the Committee may in its discretion modify such management objectives or the acceptable levels of achievement, in whole or in part, as the Committee deems appropriate and equitable.

Transferability of Awards: Except as otherwise provided by the Committee, and subject to the terms of the 2018 Plan with respect to Code Section 409A, no stock option, SAR, restricted stock, RSU, performance share, performance unit, cash incentive award, Other Award or dividend equivalents paid with respect to awards made under the 2018 Plan will be transferrable by a participant except by will or the laws of descent and distribution. In no event will any such award granted under the 2018 Plan be transferred for value. Except as otherwise determined by the Committee, stock options and SARs will be exercisable during the participant’s lifetime only by him or her or, in the event of the participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the participant in a fiduciary capacity under state law or court supervision.

The Committee may specify on the grant date that all or part of the shares of Common Stock that are subject to awards under the 2018 Plan will be subject to further restrictions on transfer.

Adjustments; Corporate Transactions: The Committee will make or provide for such adjustments in: (1) the number of and kind of shares of Common Stock covered by outstanding stock options, SARs, restricted stock, RSUs, performance shares and performance units granted under the 2018 Plan; (2) if applicable, the

number of and kind of shares of Common Stock covered by Other Awards granted pursuant to the 2018 Plan; (3) the exercise price or base price provided in outstanding stock options and SARs, respectively; (4) cash incentive awards; and (5) other award terms, as the Committee in its sole discretion, exercised in good faith determines to be equitably required in order to prevent dilution or enlargement of the rights of participants that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company; (b) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities; or (c) any other corporate transaction or event having an effect similar to any of the foregoing.

In the event of any such transaction or event, or in the event of a change in control of the Company, the Committee may provide in substitution for any or all outstanding awards under the 2018 Plan such alternative consideration (including cash), if any, as it may in good faith determine to be equitable under the circumstances and will require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each stock option or SAR with an exercise price or base price, respectively, greater than the consideration offered in connection with any such transaction or event or change in control of the Company, the Committee may in its discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR. The Committee will make or provide for such adjustments to the numbers of shares of Common Stock available under the 2018 Plan and the share limits of the 2018 Plan as the Committee in its sole discretion may in good faith determine to be appropriate in connection with such transaction or event. However, any adjustment to the limit on the number of shares of Common Stock that may be issued upon exercise of Incentive Stock Options will be made only if and to the extent such adjustment would not cause any option intended to qualify as an Incentive Stock Option to fail to so qualify.

Prohibition on Repricing: Except in connection with certain corporate transactions or changes in the capital structure of the Company or in connection with a change in control, the terms of outstanding awards may not be amended to (1) reduce the exercise price or base price of outstanding stock options or SARs, respectively, or (2) cancel outstanding “underwater” stock options or SARs in exchange for cash, other awards or stock options or SARs with an exercise price or base price, as applicable, that is less than the exercise price or base price of the original stock options or SARs, as applicable, without stockholder approval. The 2018 Plan

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specifically provides that this provision is intended to prohibit the repricing of  “underwater” stock options and SARs and that it may not be amended without approval by our stockholders.

Detrimental Activity and Recapture: Any Evidence of Award may reference a clawback policy of the Company or provide for the cancellation or forfeiture and repayment to us of any award or gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if any participant, either during employment or other service with us or a subsidiary or within a specified period after such employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award or such clawback policy. In addition, any Evidence of Award or such clawback policy may provide for cancellation or forfeiture of an award or the forfeiture and repayment of any shares of Common Stock issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules and regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the shares of Common Stock may be traded.

Grants to Non-U.S. Based Participants: In order to facilitate the making of any grant or combination of grants under the 2018 Plan, the Committee may provide for such special terms for awards to participants who are foreign nationals, who are employed by the Company or any of its subsidiaries outside of the United States of America or who provide services to the Company or any of its subsidiaries under an agreement with a foreign nation or agency, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. The Committee may approve such supplements to, or amendments, restatements or alternative versions of, the 2018 Plan (including sub-plans) as it may consider necessary or appropriate for such purposes, provided that no such special terms, supplements, amendments or restatements will include any provisions that are inconsistent with the terms of the 2018 Plan as then in effect unless the 2018 Plan could have been amended to eliminate such inconsistency without further approval by our stockholders.

Withholding: To the extent the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a participant or other person under the 2018 Plan, and the amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such

benefit that the participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements, in the discretion of the Committee, may include relinquishment of a portion of such benefit. If a participant’s benefit is to be received in the form of shares of Common Stock, and such participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, we will withhold shares of Common Stock having a value equal to the amount required to be withheld. When a participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax or other laws, the participant may elect, unless otherwise determined by the Committee, to satisfy the obligation, in whole or in part, by having withheld, from the shares required to be delivered to the participant, shares of Common Stock having a value equal to the amount required to be withheld or by delivering to us other shares of Common Stock held by such participant. The shares used for tax or other withholding will be valued at an amount equal to the fair market value of such shares of Common Stock on the date the benefit is to be included in participant’s income. In no event will the fair market value of the shares of Common Stock to be withheld and delivered pursuant to the 2018 Plan exceed the minimum amount required to be withheld, unless (i) an additional amount can be withheld and not result in adverse accounting consequences, (ii) such additional withholding amount is authorized by the Committee, and (iii) the total amount withheld does not exceed the participant’s estimated tax obligations attributable to the applicable transaction. Participants will also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of shares of Common Stock acquired upon the exercise of stock options.

No Right to Continued Employment: The 2018 Plan does not confer upon any participant any right with respect to continuance of employment or service with the Company or any of its subsidiaries.

Effective Date of the 2018 Plan: The 2018 Plan will become effective on the date it is approved by the Company’s stockholders. No grants will be made under the Predecessor Plans on or after the date on which our stockholders approve the 2018 Plan, provided that outstanding awards granted under the Predecessor Plans will continue unaffected following such date.

Amendment and Termination of the 2018 Plan: The Board generally may amend the 2018 Plan from time to time in whole or in part. However, if any amendment, for purposes of applicable stock exchange rules (and except as permitted under the adjustment provisions of the 2018 Plan) (1) would materially increase the benefits accruing to participants under the 2018 Plan, (2) would

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materially increase the number of shares which may be issued under the 2018 Plan, (3) would materially modify the requirements for participation in the 2018 Plan, or (4) must otherwise be approved by our stockholders in order to comply with applicable law or the rules of the New York Stock Exchange, all as determined by the Board, then such amendment will be subject to stockholder approval and will not be effective unless and until such approval has been obtained.

Further, subject to the 2018 Plan’s prohibition on repricing, the Committee generally may amend the terms of any award prospectively or retroactively. Except in the case of certain adjustments permitted under the 2018 Plan, no such amendment may be made that would materially impair the rights of any participant without his or her consent. If permitted by Section 409A of the Code and subject to certain other limitations set forth in the 2018 Plan, including in the case of termination of employment or service, or in the case of unforeseeable emergency or other circumstances or in the event of a change in control, the Committee may provide for continued vesting or accelerate the vesting of certain awards granted under the 2018 Plan.

The Board may, in its discretion, terminate the 2018 Plan at any time. Termination of the 2018 Plan will not affect the rights of participants or their successors under any

awards outstanding and not exercised in full on the date of termination. No grant will be made under the 2018 Plan more than 10 years after the effective date of the 2018 Plan, but all grants made on or prior to such date will continue in effect thereafter subject to their terms and the terms of the 2018 Plan.

Allowances for Conversion Awards and Assumed Plans. Shares of Common Stock issued or transferred under awards granted under the 2018 Plan in substitution for or conversion of, or in connection with an assumption of, stock options, SARs, restricted stock, RSUs, or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against (or be added to) the aggregate share limit or other 2018 Plan limits described above. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the 2018 Plan, under circumstances further described in the 2018 Plan, but will not count against the aggregate share limit or other 2018 Plan limits described above.

It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the 2018 Plan because the grant and actual settlement

of awards under the 2018 Plan are subject to the discretion of the plan administrator.

The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the 2018 Plan based on Federal income tax laws in effect. This summary, which is presented for the information of stockholders considering how to vote on this proposal and not for 2018 Plan participants, is not intended to be complete and does not describe Federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.

Tax Consequences to Participants

Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the recipient for such restricted stock) at such time as the shares of restricted stock are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair

market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.

Performance Shares, Performance Units and Cash Incentive Awards. No income generally will be recognized upon the grant of performance shares, performance units or cash incentive awards. Upon payment in respect of the earn-out of performance shares, performance units or cash incentive awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted shares of Common Stock received.

Nonqualified Stock Options. In general:

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no income will be recognized by an optionee at the time a non-qualified stock option is granted;

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at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and

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at the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

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Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an Incentive Stock Option. If shares of Common Stock are issued to the optionee pursuant to the exercise of an Incentive Stock Option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

If shares of Common Stock acquired upon the exercise of an Incentive Stock Option are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain

(or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

SARs. No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted shares of Common Stock received on the exercise.

RSUs. No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted shares of Common Stock on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.

Tax Consequences to the Company or its Subsidiaries

To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

Section 162(m) of the Code generally disallows a deduction for certain compensation paid to certain executive officers (and, beginning in 2018, certain former executive officers) to the extent that compensation to a covered employee exceeds $1 million for such year. Compensation qualifying for a performance-based exception as “qualified performance-based compensation” under Section 162(m) of the Code has historically not been subject to the deduction limit if the compensation satisfies the requirements of Section 162(m) of the Code. This exception has now been

repealed, effective for taxable years beginning after December 31, 2017, unless certain transition relief for certain compensation arrangements in place as of November 2, 2017 is available. To be clear, stockholders are not being asked to approve the 2018 Plan (or any of its provisions) for purposes of Section 162(m) of the Code or the performance-based exception. Currently, the Company does not anticipate that it would be able to make any future grants under the 2018 Plan that will be intended to qualify for the performance-based exception.

We intend to file a Registration Statement on Form S-8 relating to the issuance of shares of Common Stock under the 2018 Plan with the Securities and Exchange

Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2018 Plan by our stockholders.

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The affirmative vote of a majority of votes cast in person or by proxy is required for approval of the 2018 Plan. Abstentions will have the effect of a vote against the proposal.

Broker non-votes will not be counted.

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Macy’s successfully completed a leadership transition in 2017 that was carefully planned over a multi-year period and resulted in the retirement of Terry J. Lundgren as CEO and Chairman of the Board and the promotion of Jeff Gennette as his successor. Other important leadership changes also occurred, as discussed below, as Mr. Gennette identified the need for new skills and experiences to better support the execution of the Company’s North Star Strategy, which he introduced in 2017. Under the leadership of the new team, which represents a mix of Macy’s veterans and new hires, the Company delivered strong financial and operational performance that culminated in positive comparable

sales growth in the critical fourth quarter, thereby reversing the negative trend of the prior 11 quarters, a 21% improvement in non-GAAP diluted earnings per share, and a significant improvement in our return on invested capital from 18.5% to 20.8%.

2017 was a year in which we built momentum. Our variable compensation programs are designed with a pay for performance philosophy which only reward executives when appropriate levels of achievement are reached. For a discussion of our short and long-term achievement see pages 49 and 51.

We seek to provide competitive and reasonable compensation opportunities, focus on results and strategic objectives, foster a pay-for-performance culture,

attract and retain key executives, and balance risk and reward to ensure accountability to shareholders.

At our 2017 annual meeting, shareholders representing 93% of votes cast approved our “say-on-pay” proposal in support of our executive compensation program, the sixth consecutive year of shareholder support in excess of 90%.

We value the opinions that shareholders express in their votes and dialog regarding our executive compensation program. We communicate regularly with our investors to ensure that our Board, Board Committees and management understand and consider the issues that matter most to our shareholders.

Because our executive officers have the ability to directly influence our overall performance, the largest portion of NEOs’ compensation is variable, at risk pay. Based on a combination of annual performance-based incentive awards and long-term performance based equity incentive awards, 87% of our CEO’s targeted total direct compensation for fiscal 2017 and 75% of our other

NEOs’ targeted total direct compensation for fiscal 2017 was delivered through variable incentives in which payout is tied to changes in stock price and predetermined performance objectives. Performance-based restricted stock units and stock options represent the largest element of pay for our NEOs.

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We continued implementation of our North Star Strategy, a five-point strategy to transform our retail business and focus on key growth areas, embrace customer centricity, and optimize value in our real estate portfolio. Our focus in fiscal 2017 was growth of our mobile and digital business, stabilization of our store businesses at Macy’s and Bloomingdale’s and establishment of a foundation for future growth. Key steps taken at Macy’s included re-engineering of Macy’s marketing strategy to revitalize customer brand engagement, better understand our customers, improve marketing efficiency and strengthen media mix; rollout of a new customer loyalty program; focus on private label and exclusive merchandise brands; expansion of Macy’s Backstage off-price option in existing stores; and growth of digital initiatives such as mobile app use in store and buy online pickup in store (BOPS) transactions. Early in the year, we reorganized the field structure supporting our stores and restructured central operations to focus on strategic priorities and reduce expense. In 2017, we restructured our marketing department and consolidated our merchandising, planning and private brands teams into a single merchandising function. We also closed 83 of the approximately 100 store closures we announced in

August 2016. In January 2018, we announced actions to continue improvements in organizational efficiency and to allocate resources to support our growth strategy, including staffing adjustments across the stores organization with reductions in some stores and increases in others and the closure of 11 stores in early 2018. We are focused on accelerating the growth of our beauty products at Macy’s and Bloomingdale’s and through spa retailer, bluemercury, by opening additional freestanding bluemercury stores in urban and suburban markets, enhancing its online capabilities and adding bluemercury products and sections to Macy’s stores.

In 2017, we continued to execute our real estate value creation strategy that has three key components:

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Review of our flagship properties

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Monetization of assets that are not strategically critical to our business

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Evaluation of selected properties for development potential under our strategic alliance with Brookfield Asset Management.

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In total, we realized $411 million in asset sales proceeds in 2017, which was in line with what we anticipated when setting our short-term incentive targets. This compares to $673 million in 2016 which included the sale of the Men’s building in Union Square, San Francisco for approximately $250 million.

We exceeded our cash flow target in large part due to improved inventory management throughout the year, which resulted in more cash, improved margins and, importantly, higher quality year-end inventory.

See pages 49 and 51 for information on payouts based on performance under our annual incentive and long-term incentive plans.

See Macy’s Annual Report on Form 10-K for important information regarding the above non-GAAP financial measures.

In making decisions regarding the compensation opportunities and amounts earned by the NEOs in fiscal 2017, the CMD Committee took into account competitive

pay practices in the industry, the economic climate, our performance against fiscal 2017 internal goals, and our relative performance against industry competitors.

The CMD Committee, with support from FW Cook, our independent executive compensation consultant, established target compensation levels for our CEO,

Executive Chairman, and President for fiscal 2017 consistent with our multi-year leadership strategy.

The CMD Committee established and the Board approved for Mr. Gennette, in his initial year as CEO, a target total compensation package comprised of a base salary of  $1,250,000, target annual incentive opportunity

of 170% of base salary and long-term incentive target of $6,500,000. In establishing this package, the CMD Committee took into consideration numerous factors including the target compensation of CEOs at our peer

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companies; the compensation paid to newly promoted CEOs relative to the prior CEO based on a large sample of comparable situations; the CMD Committee’s historic philosophy regarding the positioning of CEO and other senior officer target compensation levels versus market rates; Mr. Gennette’s then-inexperience as CEO of a public company; and the continued role of Mr. Lundgren

as Executive Chairman and Chairman of the Board. Mr. Gennette’s fiscal 2017 target total compensation of $9,875,000 was between the 25th percentile and median of CEO peer group compensation, providing room for increases and movement toward peer group median assuming strong performance.

The CMD Committee established and the Board approved for Mr. Lundgren, in his new role as Executive Chairman, a reduced target total compensation package comprised of a base salary of  $1,000,000 (reduced from $1,600,000 as CEO), target annual incentive opportunity of 150% of base salary (reduced from 170%) and long-term incentive target of  $4,750,000 (reduced from $10,000,000). In setting Mr. Lundgren’s target compensation, the CMD Committee considered the

critical role he continued to serve, including as an advisor to Mr. Gennette and leadership of our real estate and China strategies. The CMD Committee also considered the compensation paid at other companies that have implemented similar leadership transitions in which the prior CEO assumes an ongoing role as Executive Chairman and Chairman of the Board. Mr. Lundgren’s fiscal 2017 target total compensation was reduced by approximately 50% from fiscal 2016.

Mr. Lawton joined the Company in September 2017 as President, bringing expertise in retailing and technology, most recently as a senior executive at eBay, Inc. and Home Depot, Inc. The CMD Committee established and approved for Mr. Lawton a competitive target compensation package consisting of a base salary of $1,000,000, target annual incentive opportunity of 125% of base salary, and a fiscal 2018 target annual equity grant with a grant date fair value of  $4,000,000 in a combination of performance-based restricted stock units

and stock options, weighted 60% to 40%, respectively. In determining Mr. Lawton’s target annual compensation opportunity, the CMD Committee considered market data for comparable positions at our peer group companies, as well as Mr. Lawton’s combined experience in retail and technology, diverse business background and the Company’s omnichannel strategy. Mr. Lawton’s total direct compensation opportunity approximated peer group median.

Ms. Kirgan joined the Company in October 2017 as Chief Human Resources Officer. She has more than 20 years of experience in a variety of human resources roles across a diverse range of businesses, most recently as Senior Vice President, People, at American Airlines. The CMD Committee established and approved for Ms. Kirgan a target compensation package comprised of a base salary of  $750,000, target annual incentive

opportunity of 75% of base salary, and a fiscal 2018 target annual equity grant with a grant date fair value of $1,200,000. In determining Ms. Kirgan’s target annual compensation opportunity, the CMD Committee considered market data for comparable positions at our peer group companies. Ms. Kirgan’s total direct compensation opportunity was near the median of CHRO peer group compensation.

To attract Mr. Lawton to Macy’s, Mr. Lawton received a sign-on bonus of  $5,500,000. The sign-on bonus was designed to offset amounts Mr. Lawton was required to repay, and bonus, options, time-based and performance-based equity awards he forfeited, upon his departure from his previous employer. The sign-on bonus, payable $2,000,000 upon hire and $3,500,000 in March 2018, is subject to a repayment agreement that provides for 100% repayment during the first 12 months and 50% repayment during months 13 to 24 in the event of a voluntary termination. Mr. Lawton received a sign-on equity grant of stock options, time-based restricted stock units and performance-based restricted stock units with grant date values of  $4,000,000, $3,500,000 and

$3,000,000, respectively, to replace forfeited equity awards. Mr. Lawton’s position required relocation to New York City and the Company provided relocation benefits to assist with his move.

Ms. Kirgan received a sign-on bonus of  $500,000, payable $300,000 upon hire and $200,000 in April 2018, subject to a repayment agreement on the same terms as Mr. Lawton. Ms. Kirgan also received a new hire equity grant of stock options in November 2017 with a grant date value of  $500,000. The Company provided relocation benefits to Ms. Kirgan to assist with her move to New York City.

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In August 2017, we announced the restructuring of our merchandising operations, including the consolidation of merchandising, planning and private brands into a single merchandising function to be led by Jeffery A. Kantor. In recognition of the importance of this role and his

increased job responsibilities, the CMD Committee approved a grant of time-based restricted stock units with a grant date value of  $500,000 to Mr. Kantor, vesting on the third anniversary of the grant date.

The CMD Committee took the following other specific actions with respect to the compensation of NEOs for fiscal 2017:

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Determined base salaries would remain at 2016 levels, with the exception of Mr. Gennette and Mr. Lundgren in connection with their leadership succession and Mr. Kantor in connection with his job change;

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Added strategic goals to the annual incentive plan for 2017, in addition to financial goals, to focus participants on key priorities that are viewed as drivers of long-term value and are directly within the control of participants;

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Based on levels of achievement against pre-determined goals for EBIT, Sales, Cash Flow and Strategic Initiatives, made annual incentive award payments of approximately 141% of the target incentive opportunities to the NEOs;

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Based on failure to achieve pre-determined goals for average EBITDA margin, average ROIC and relative TSR over the three-year (fiscal 2015 – 2017) performance period, made no payouts of performance-based restricted stock units because the required threshold levels of performance were not achieved;

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Granted performance-based restricted stock units and stock options to the NEOs, with a mix of 60% performance-based restricted stock units and 40% stock options; and

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Approved a special performance-based restricted stock unit award for Ms. Hoguet for the performance period 2017 – 2019 with a grant date fair value of $1,000,000.
   
   

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The CMD Committee administers the executive compensation program for senior executives, overseeing our annual incentive and long-term incentive plans, our benefit plans and policies, and ensuring that appropriate succession plans are in place for the CEO and other key executive positions. When making decisions regarding our executive compensation program, the CMD Committee considers, among other things:

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our compensation philosophy,

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our financial, operating and total shareholder return performance,

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compensation policies and practices for our employees generally, and

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practices and executive compensation levels within peer companies.

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The CMD Committee’s primary goals are to support organizational objectives and shareholder interests, emphasize the pay-for-performance linkage of our executive compensation program and ensure that our executive compensation programs are competitive.

Since 2008, the CMD Committee has engaged FW Cook to assist with executive compensation matters. FW Cook provides no services to the Company other than those provided directly to or on behalf of the CMD Committee, and to or on behalf of the Nominating and Corporate Governance Committee with respect to director compensation. The CMD Committee has assessed the independence of FW Cook pursuant to the New York Stock Exchange listing standards and SEC rules and is not aware of any conflict of interest that would prevent FW Cook from providing independent advice to the CMD Committee.

FW Cook attends CMD Committee meetings at the request of the Committee, meets with the Committee in executive session without management and frequently communicates with the Committee chairman regarding emerging issues and other matters considered by the CMD Committee. The services provided by FW Cook include review and advice relating to:

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design of our annual and long-term incentive plans, including the degree to which the incentive plans

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support our business strategy and balance risk-taking with potential reward;

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setting performance objectives;

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peer group pay and performance comparisons;

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competitiveness of our key executives’ compensation;

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changes to the NEOs’ compensation levels;

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design of other compensation and benefits programs; and

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preparation of public filings related to executive compensation, including this CD&A and the accompanying tables and footnotes.

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The CMD Committee also seeks input from the CEO and senior executives in our human resources, legal and finance departments to develop the design, operation, objectives and values of the various compensation components. These executives may attend and contribute to Committee meetings as requested by the Committee or its chairman. Our human resources department engages a compensation consultant, Korn Ferry Hay Group, to provide calculations, comparator group and general market data to be used by management in its compensation-related analyses.

Our CEO also participates in the executive compensation process. At the beginning of a fiscal year, our CEO meets with each of his direct reports, including the other NEOs, to set their individual performance

objectives for the year, such as meeting key financial and other business goals and effectively managing their business unit or corporate function. Following the end of the fiscal year, our CEO reviews the performance of each direct report against Company and individual performance objectives and the individual’s contribution to our performance. Our CEO takes an active part in CMD Committee discussions of compensation involving his direct reports. He provides input on individual performance and the size, scope and complexity of their positions and recommendations with respect to the amount and composition of their compensation opportunities. Human resources executives, with the assistance of FW Cook, provide the CMD Committee with data and analyses and annually prepare information to help the CMD Committee in its consideration of such

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recommendations. Mr. Gennette and Mr. Lundgren did not participate in the CMD Committee or Board meetings during which their compensation is discussed.

   

The CMD Committee annually reviews NEO base salary, annual incentive award payments and equity awards at its March meeting. At that time, all financial and other performance results for the prior fiscal year are available and individual and Company performance against applicable targets can be measured.

The targeted total direct compensation of the NEOs other than Mr. Gennette is generally intended to approximate the median of the 12-company peer group of retailers listed below, which is the level the CMD Committee has determined is aligned with the market. Actual positioning of targeted compensation may be above or below the median based on the executive’s experience, skill set, scope of responsibilities, tenure and other factors. For fiscal 2017, the NEOs’ targeted total direct compensation (base salary, target annual incentive and grant date value of long-term incentive awards), other than Mr. Gennette, fell within median

range of the peer group practice, reflecting a combination of median to 75th percentile base salaries, 25th percentile target annual incentive, and near median long-term incentive awards. Actual total direct compensation realized will vary from targeted compensation based upon the level of achievement of short- and long-term operating performance objectives, stock price performance and the Company’s total shareholder return relative to the peer companies. The CMD Committee reviews the compensation of other senior executives to ensure that the compensation of the NEOs is internally consistent and equitable.

The targeted total direct compensation for Mr. Gennette was set between the 25th percentile and median of the peer group, reflecting his first year in the CEO role, with the expectation that targeted total direct compensation will move towards median over time, assuming strong performance.

The CMD Committee uses comparative compensation data of the following peer group of 12 publicly-traded retail companies to assess the competitiveness of our executive compensation levels and opportunities, and in determining individual components of compensation, compensation practices, and the relative proportions of each component of compensation:

We selected this peer group in 2013 with input from FW Cook, taking into consideration a variety of factors, including revenue, market capitalization, total assets, number of employees, Global Industry Classification Standard, business model, product and customer base, and whether the company competes with Macy’s with respect to product, customers and/or executive talent. We review our peer group annually.

At October 31, 2017, we ranked at or above the 75th percentile of the peer group in revenue, total assets and number of employees, near median in net income, and between the 25th percentile and median in market cap.

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As part of the fiscal 2017 compensation planning process, the CMD Committee asked FW Cook to review the design of our annual and long-term incentive programs and prepare a competitive analysis of the compensation of the NEOs. The materials prepared by FW Cook included:

(i)

an analysis of the design of our annual incentive and long-term incentive programs in relation to our financial and strategic priorities, human resources objectives and market practice to determine whether changes were appropriate,

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(ii)

a competitive analysis of the targeted total direct compensation for the NEOs, including base salary, annual incentives and long-term incentives, and

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(iii)

a competitive assessment of our long-term incentive grant practices, including a review of share usage (shares granted in equity plans as

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a percentage of weighted-average outstanding shares), potential dilution relative to peer group practice and a fair value transfer analysis that measured the aggregate cost of long-term incentives as a percent of market capitalization and revenue.

FW Cook determined that our incentive compensation programs continue to be well designed and reward profitable growth and appreciation in shareholder value through successful execution of strategies to enhance customer engagement and financial objectives on both absolute and relative peer-to-peer bases. FW Cook noted that while overall competitive positioning of NEOs’ targeted total direct compensation is generally aligned with the CMD Committee’s strategy of peer group median, increases in base salaries, target annual incentives and long-term equity award opportunities may be appropriate based on market data, internal relative comparisons, evolving roles, performance, skill set and experience levels.

Members of senior management earn a base salary that we believe is competitive and consistent with their position, skill level, experience, knowledge and length of service with the Company. Base salary is intended to aid in the attraction and retention of talent in a competitive market and is generally aligned with market median, although actual salaries may be higher or lower as a result of various factors, including our performance results, the broad economic climate, internal pay equity and specific individual attributes and circumstances.

The CMD Committee, with input from FW Cook and management, established total target compensation for the NEOs for fiscal 2017. The Committee and the Board made no changes to base salary levels for 2017, with the

exception of Mr. Gennette and Mr. Lundgren in connection with their leadership succession and Mr. Kantor in connection with his job change.

Changes to 2017 Base Salary

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(1)

Mr. Gennette succeeded Mr. Lundgren as Chief Executive Officer in March 2017.

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(2)

Mr. Lawton joined the Company in September 2017 as President.

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(3)

Ms. Kirgan joined the Company in October 2017 as Chief Human Resources Officer.

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(4)

Mr. Baxter’s employment with the Company was terminated in September 2017.

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The NEOs participate in the Senior Executive Incentive Compensation Plan, referred to as the Incentive Plan. The Incentive Plan aligns executive compensation with our business strategy and operating performance objectives and is designed to motivate executives to meet or exceed annual corporate financial and strategic goals.

Target Annual Incentive Opportunity. Annual incentive opportunities for NEOs in the past have been tied entirely to financial metrics. To focus management on achieving the objectives of our North Star business strategy, for fiscal 2017 the CMD Committee tied 25% of target annual incentive opportunities to non-financial strategic initiatives and 75% to financial measures.

We use a two-tier funding approach (referred to as a “plan within a plan”) under which a maximum potential award is determined under the Incentive Plan and the actual award is determined by the CMD Committee through application of  “negative discretion” to adjust the maximum award.

Maximum Annual Incentive Opportunity. The NEOs become eligible for a maximum annual incentive award based on a percentage of EBIT achieved for the fiscal year. The maximum potential award for Mr. Gennette and Mr. Lundgren for fiscal 2017 is equal to 0.45% of EBIT and for each of the other NEOs is equal to 0.25% of EBIT, subject to the Incentive Plan’s per-person

maximum of  $7 million. If EBIT is positive, a portion of each dollar of EBIT is used to determine the participant’s maximum award. If EBIT is negative, no incentive awards are paid.

The CMD Committee selected EBIT as the performance metric to ensure that the maximum potential payout is determined as a percentage of controllable profit. Excluding interest and taxes ensures that profit is defined based on operating results that the executives can directly influence.

Reduction of the Maximum Annual Incentive Award. The CMD Committee has discretion to, and has in the past, paid actual incentive awards which are lower than the maximum awards. Maximum incentive awards may be reduced based on a “targeted” annual incentive award opportunity established for each NEO and our overall performance during the fiscal year measured against pre-established financial goals, or on such alternative or additional factors, as the CMD Committee deems appropriate.

Targeted annual incentive award opportunities are expressed as a percent of year-end base salary. Actual awards may range from 0% to 260% or more of the “target” award, depending upon actual performance relative to the pre-determined goals, as shown in the chart below (and on such alternative or additional factors as the CMD Committee deems appropriate).