Costco Wholesale (COST) DEF 14ADefinitive proxy

Our 2023 Annual Shareholders' Meeting will be held in a virtual format only and shareholders can participate from any geographic location with Internet connectivity. We believe this is an important step to enhancing accessibility to our Annual Meeting and reducing the carbon footprint of our activities. Shareholders may view a live webcast of the Annual Meeting and submit questions digitally prior to and during the meeting at www.virtualshareholdermeeting.com/COST2023. Please refer to the "Participating in the Annual Meeting" section of the Proxy Statement for more details.

Shareholders can vote their shares before the meeting online at www.proxyvote.com, by calling 1-800-690-6903, by mailing a completed proxy card, or by mobile device by scanning the QR code on the proxy card or Notice of Internet Availability of Proxy Materials. Shareholders may also vote online during the virtual meeting at www.virtualshareholdermeeting.com/COST2023.

Only shareholders of record at the close of business on November 11, 2022, are entitled to notice of and to vote at the meeting. All shareholders are requested to be present virtually or by proxy. Any shareholder giving a proxy, may revoke it at any time before it is voted.

Voting by the Internet or telephone is fast and convenient, and your vote is immediately confirmed and tabulated. If you receive a paper copy of the proxy materials, you may also vote by completing, signing, dating and returning the accompanying proxy card in the enclosed return envelope furnished for that purpose. By using the Internet or telephone you help the Company reduce postage and proxy tabulation costs.

    Proxies in the form furnished are solicited by the Board of Directors of the Company to be voted at the Annual Meeting of Shareholders to be held on January 19, 2023, or any adjournments (the “Annual Meeting”). The individuals named as proxy are Hamilton E. James and W. Craig Jelinek. A Notice of Internet Availability of Proxy Materials was first sent to shareholders and the accompanying notice of meeting, this Proxy Statement and the form of proxy are first being made available to shareholders on or about December 6, 2022.

    All shares represented by proxies received will be voted in accordance with instructions contained in the proxies. The Board of Directors unanimously recommends a vote:

    In the absence of voting instructions to the contrary, shares represented by validly executed proxies will be voted in accordance with the foregoing recommendations. A shareholder giving a proxy has the power to revoke it any time before it is voted by providing written notice to the Secretary of the Company, by delivering a later-dated proxy, or by voting virtually at the Annual Meeting.

    Only shareholders of record at the close of business on November 11, 2022 (the "Record Date") will be entitled to vote at the Annual Meeting. At the close of business on the Record Date, there were 443,864,342 shares of common stock outstanding, which represent all of the voting securities of the Company. Each share of common stock is entitled to one vote. Shareholders do not have cumulative voting rights in the election of directors.

    A majority of the common stock entitled to vote at the Annual Meeting, present either virtually or by proxy, will constitute a quorum. Shareholders who abstain from voting on any or all proposals will be included in the number of shareholders present at the meeting for purposes of determining the presence of a quorum. Abstentions and broker non-votes will not be included in the total of votes cast and will not affect the outcome of the vote on proposals 1 through 5.

    With respect to proposal 1, the Company’s bylaws provide that, in an uncontested election for directors as at this meeting, a director nominee will be elected if the number of votes cast for the nominee's election exceeds the number of votes cast against the nominee's election. An incumbent director nominee who fails to receive the requisite votes for election will not be elected but will continue to serve as a director until the earliest of: (i) 90 days from the date on which the voting results of the election are determined; (ii) the date on which an individual is selected by the Board to fill the position held by such director; or (iii) the date of the director's resignation. With respect to proposals 2, 3, and 5, to approve each proposal the votes that shareholders cast “for” must exceed the votes cast “against.” With respect to proposal 4, the alternative receiving the greatest number of votes--every year, every two years or every three years--will be deemed the frequency that shareholders approve.

    In addition to mailing the Notice of Internet Availability of Proxy Materials to shareholders, the Company has asked banks and brokers to forward copies of the notice, and upon request, paper copies of the proxy materials to persons for whom they hold stock of the Company and to request authority for execution of the proxies. The Company will reimburse banks and brokers for their reasonable out-of-pocket expenses in doing so. Officers and employees of the Company may, without being additionally compensated, solicit proxies by mail, telephone, email or personal contact. All proxy-soliciting expenses will be paid by the Company in connection with the solicitation of votes for the Annual Meeting. Alliance Advisors may solicit proxies at a cost we anticipate will not exceed $13,000.

We are conducting a virtual Annual Meeting so our shareholders can participate from any geographic location with Internet connectivity. Participation opportunities are better than those provided at the in-person portion of our past meetings.

    Certain statements in this Proxy Statement, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, statements regarding our environmental and other sustainability plans and goals, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may appear throughout this Proxy Statement. They generally are identified by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” "likely," “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Such statements involve risks and uncertainties that may cause actual events, results, or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, inflation or deflation, the effects of competition and regulation, uncertainties in the financial markets, consumer and small business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including health-care costs), energy and certain commodities, geopolitical conditions (including tariffs and the Ukraine conflict), the ability to maintain effective internal control over financial reporting, regulatory and other impacts related to climate change, and COVID-19 related factors and challenges, and other risks identified from time to time in the Company’s public statements and reports filed with the Securities and Exchange Commission ("SEC"). A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” in our Form 10-K and 10-Q. Forward-looking statements speak only as of the date they are made, and we do not undertake to update these statements, except as required by law.

experiences, including senior leadership positions, in the areas of telecommunications, retail, media, healthcare, and technology.

    The Board has determined that each member of the Audit, Compensation and Nominating and Governance Committees meets Nasdaq listing standards regarding independence, including committee independence requirements. Each committee has a written charter, which may be viewed at https://investor.costco.com. Directors deemed independent are Mmes. Decker, Jewell and Wilderotter and Messrs. Denman, James, Munger, Raikes and Stanton, who constitute a majority of the Board. The non-executive directors of the Company met in executive session presided over by the non-executive Chairman at four meetings in fiscal 2022.

    The members of the committee are Messrs. Munger (chair) and Denman (vice chair) and Mmes. Decker and Jewell. The Board has determined that Messrs. Munger and Denman are “audit committee financial experts” as defined by the rules of the SEC. To ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the external auditors. In conjunction with the mandated rotation of the external auditor's lead engagement partner, the Audit Committee and its chairperson are directly involved in the selection of the new lead engagement partner. The Board and the Audit Committee periodically review with members of management of the Company issues and developments relating to information security, fraud, data security and cybersecurity risk, including controls to monitor and mitigate the related risks. The Audit Committee met eight times during fiscal 2022. A report of the Audit Committee is set forth below.

    The Committee will consider shareholder recommendations for candidates to serve on the Board. In accordance with section 2.1 of our bylaws, which may be viewed at https://investor.costco.com, the name of any recommended candidate, together with pertinent biographical information, a document indicating the candidate’s willingness to serve if elected, and evidence of the nominating shareholder’s ownership of Company stock should be sent to the Secretary of the Company. The Company may require additional information, as described in our bylaws. Our Corporate Governance Guidelines provide that nominees for director will be selected on the basis of, among other things, knowledge, experience, skills, expertise, integrity, diversity, ability to make independent analytical inquiries, and understanding of the Company’s business environment, all in the context of an assessment of the perceived needs of the Board at the time. Nominees should also be willing to devote adequate time and effort to Board responsibilities. The Nominating and Governance Committee does not set specific, minimum qualifications that nominees must meet in order for the committee to recommend them to the Board, but rather believes that each nominee should be evaluated based on individual merit, taking into account the needs of the Company and the composition of the Board.

    We believe that the Company benefits from having directors with a diversity of viewpoints, backgrounds, and experiences. Currently, of the eleven directors on the Board, three are women and one is African American. In addition, as discussed above, our directors bring a diversity of viewpoints and experiences as established leaders in important areas of business, government and non-profit service that we believe strengthens the Board’s ability to guide our Company. The Nominating and Governance Committee oversees a self-assessment of the Board’s or its committees performance every year. The assessment seeks to identify specific areas, if any, in need of improvement or strengthening, including with respect to the diversity of our Board in terms of viewpoints, backgrounds and experiences. Since 2014, the Board, led by the Nominating and Governance Committee, has been engaged in a process to refresh its membership; seven members have retired or passed away and four new independent directors have been added.

    Our bylaws provide for proxy access shareholder nominations for director candidates by eligible shareholders. Shareholder nominations require compliance with section 2.1 of the bylaws. A shareholder who wishes to formally nominate a candidate, whether for inclusion in the Company's proxy statement or not, must follow the procedures described in our bylaws and, where applicable, SEC Rule 14a-19. There is otherwise no formal process prescribed for identifying and evaluating nominees, except as described in the Corporate Governance Guidelines, which may be viewed at https://investor.costco.com.

    For most of fiscal 2022, each non-employee director earned $30,000 per year for serving on the Board and $1,000 for each Board and committee meeting attended. In July 2022, the Board approved eliminating cash meeting fees and increasing the annual retainer for non-executive directors to $37,000. Directors are reimbursed for travel expenses incurred in connection with their duties. In fiscal 2022, each non-employee director received a grant of restricted stock units (“RSUs”), with a target value of $270,000. Based on the closing share price at the time of grant, each director received a grant of 561 restricted stock units. RSUs vest one-third annually, beginning on the first anniversary of the date of grant and are subject to accelerated vesting upon the director’s retirement: 50% and 100% after five and ten years of service, respectively. Stock ownership requirements, which have been met by all directors, mandate that within five years of joining the Board a non-executive board member shall own and retain shares of Company common stock worth at least $1 million based on the value at the time of acquisition.

    Shareholders may contact an individual director, the Board as a group, or a specified Board committee or group, including the non-employee directors as a group, at the following address: Corporate Secretary, Costco Wholesale Corporation, 999 Lake Drive, Issaquah, WA 98027 Attn: Board of Directors. The Company will receive and process communications before forwarding them to the addressee. Directors generally will not be forwarded shareholder communications that are primarily commercial in nature, relate to improper or irrelevant topics, or request general information about the Company.

    During the Company’s last fiscal year, the Board met four times. Each member of the Board attended all of the Board meetings and meetings of the committees on which he or she served with the exception of Mrs. Wilderotter, who missed one Nominating and Governance Committee meeting out of five. As set forth in our Corporate Governance Guidelines, directors are encouraged to attend meetings of shareholders. All directors attended the meeting in 2022.

    Following is a discussion and analysis of our compensation programs as they apply to our Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated individuals who served as executive officers in fiscal 2022. These individuals are referred to as the “Named Executive Officers" and include: W. Craig Jelinek, Chief Executive Officer; Ron M. Vachris, President and Chief Operating Officer; Richard A. Galanti, Executive Vice President, Chief Financial Officer; Russ D. Miller, Senior Executive Vice President, Chief Operating Officer, U.S. Operations; and James P. Murphy, Executive Vice President, COO-International Division.

    Our compensation programs are designed to motivate our executives and employees and enable them to participate in the growth of our business. The Company believes it has been very successful in attracting and retaining quality employees, generally achieving low turnover in our executive, staff and warehouse management ranks. In addition, in the judgment of the Compensation Committee, the programs have contributed to the financial and competitive success of the Company. Accordingly, the Committee believes it is desirable to continue these programs.

    At the 2022 Annual Meeting, the advisory shareholder vote on executive compensation was 95.57% in favor. The Committee did not determine to make any changes to the compensation programs as a result of the vote. Compensation levels approved by the Committee for the Named Executive Officers for fiscal 2022 did not materially change from those approved for the prior year. Discussions by certain directors and management with a number of shareholders since the 2022 Annual Meeting have not revealed significant concerns about the structure or operation of the Company's compensation programs.

    The Committee determines the amounts and elements of compensation for our Chief Executive Officer. For other executive officers, it reviews the recommendations of the Chief Executive Officer, with which it generally agrees. The Committee’s function is more fully described under “Committees of the Board — Compensation Committee.”

    During fiscal 2022, the Committee consisted of Mr. Stanton (chair), and Mmes. Jewell and Wilderotter. The Committee has authority under its charter to engage compensation consultants but has not used any. The Committee’s primary activity occurs in the fall, following the close of the fiscal year, when the Committee: (i) approves grants of RSUs, including performance targets for RSUs granted to executive officers for the current fiscal year; (ii) determines whether performance targets have been satisfied for RSUs granted during the prior fiscal year; (iii) approves total compensation levels for executive officers for the fiscal year just concluded, including any salary increases and cash bonuses; and (iv) approves the executive officer cash-bonus program for the current fiscal year.

    The components of our executive compensation programs are equity compensation (consisting generally of performance-based RSUs), base salary, cash bonuses, and other benefits (primarily consisting of health plans, a 401(k) plan and a deferred compensation plan). The Committee believes that these components are appropriate and are consistent with the Company’s long-standing approach to executive compensation, which has made equity awards the most significant form of compensation. The Committee did not reevaluate this year whether there is an optimal mix of equity, salary, bonus and other compensation components for each executive officer. Rather, it relied upon the fact that the current structure has been utilized successfully in years past and gave more particular attention to the incremental changes in the components of the mix and the value of the total compensation packages.

    Executive base salaries and cash bonuses and the value of all equity-related awards are, in the Committee’s view, generally lower than those at other companies in our peer group, described below under “Peer Companies.”

    These components of compensation mix incentives that are intended to reward shorter-term (twelve months) and longer-term performance (five years and beyond). Shorter-term incentives come primarily from the initial award of RSUs being subject to achievement of a one-year performance metric and, to a significantly lesser extent, cash bonuses that are subject to one-year performance metrics. Longer-term incentives come primarily from the RSU award vesting of up to five years, and, to a lesser extent, share ownership requirements for executive officers and vesting elements in certain benefit plans (such as the deferred compensation and 401(k) plan matches).

    The Committee believes that these elements do not promote unreasonable risk-taking behavior. The value of shorter-term incentives (including cash bonus awards and performance conditions for awards of RSUs) is substantially exceeded by longer-term incentives (including equity awards that vest over up to five years) and share ownership requirements, which the Committee believes reward sustained performance that is aligned with shareholder interests. In addition, the Company’s Corporate Governance Guidelines give the Committee the power to require the return of incentive compensation earned by improper means.

    For fiscal 2022, the Committee primarily considered executive compensation data obtained from proxy statements for the following peer companies: Walmart Inc., The Home Depot, Inc., Lowe’s Companies, Inc., The TJX Companies, Inc., Target Corporation, The Kroger Company, Walgreens Boots Alliance, Inc., Best Buy Inc., BJ's Wholesale Club Holdings, Inc., PriceSmart, Inc., Wesfarmers Ltd., and Carrefour SA. The peer companies were selected because they are recognized as successful retailers and three of them operate membership clubs. The Committee took into account that the current market capitalization of two of the companies is substantially larger than the Company. The Committee did not use the comparable company data to set mid-points or other specific quantitative comparisons of executive compensation; it used them only for general reference.

    If fully earned based upon the achievement of performance targets and fully vested, equity compensation is the largest component of compensation for executive officers. RSU grants to executive officers are generally performance-based, with performance-vesting over a one-year period, time-vesting over five years, and vesting for long service contingent upon maintaining employment status at the vest date. The Board and the Committee believe that vesting over up to five years helps to foster motivation over the longer term. Following satisfaction of performance targets, RSUs become time-vested RSUs that, subject to accelerated vesting for long service (described below) vest 20% upon the first anniversary of the grant date (following the determination by the Committee that the performance criteria have been satisfied) and 20% vest over each of the ensuing four years. (Vesting of RSUs awarded to non-executive officers and employees is not performance-based.) To the extent accelerated or time-vesting requirements are met, RSUs are settled and paid in shares of common stock (net of shares withheld for taxes). Recipients are not entitled to vote or receive dividends on unvested and undelivered RSUs.

    All officers and employees who receive RSU grants (except as noted below with respect to the chief executive officer) receive accelerated vesting prior to termination if they have achieved long service with the Company (33% vesting credited on the first anniversary of the date of grant after 25 years of service, 66% vesting after 30 years of service, and 100% vesting after 35 years of service, with any remainder vesting ratably over the remaining vesting period). This accelerated vesting, following satisfaction of the performance conditions as to executive officers, entitles individuals to receive shares within ten business days of the anniversary of the grant date or of the initial grant date if the years of service requirement has been met prior to the grant date. In the case of the chief executive officer, the fiscal 2022 and 2021 awards are not subject to accelerated vesting prior to termination for long service and instead vest under the normal five-year vesting schedule. For awards vested on October 22, 2021, all other Named Executive Officers received 100% long-service vesting except one, who received 66% vesting. 

    The criteria for the fiscal 2022 performance-based grants were (versus fiscal 2021) a 4% increase in total sales or a 3% increase in pre-tax income (both based on local currencies). The Committee determined that both goals were exceeded. Accordingly, the executive officers who received performance-based grants earned all of the RSUs granted, subject to time-based and long-service vesting. All recipients received accelerated vesting for long service for these RSUs, with a further time-based vesting occurring on the first anniversary of the grant for the officer not fully vested at the time the RSUs were deemed earned.

    The Board adopted in July 2008 a fixed date of October 22 for RSU grants, with exceptions as approved in advance by the Committee. For fiscal 2022, RSU grants were made on October 22, 2021, and the performance criteria for the grants were established in November 2021. All grants in fiscal 2022 were made under the Company’s 2019 Incentive Plan, approved by the Company’s shareholders in January 2019.

    The Company provides the Named Executive Officers with benefits of a type offered to all other employees in most respects. The value of these benefits constitutes a small percentage of each executive’s total compensation. Key benefits include paid vacation, premiums for long-term disability insurance, a matching contribution and a discretionary 401(k) plan contribution, and premiums for health insurance and basic life insurance. In addition, the Company maintains a non-qualified deferred-compensation plan for the benefit of approximately 1,000 employees, including the Named Executive Officers. The plan provides that the first $10,000 of an employee’s contributions may be matched 50% by the Company, subject to certain limitations. This match vests over time. The Company does not maintain a pension plan or post-retirement medical plan for any employee. There are Company matching contributions, which are capped, for charitable contributions by many employees, including the Named Executive Officers. The Committee believes the benefits are modest and consistent with its overall objective of attracting and retaining highly-qualified executive officers.

    In addition to considering the Company’s compensation policies generally, the Committee reviews executive compensation and concentrates on the compensation packages for the Chief Executive Officer. Near the end of calendar 2021, the Committee approved the renewal of the written employment contract with Mr. Jelinek, related to service during calendar 2022, providing for: a salary increase to $1,100,000 for calendar 2022, an increase of $100,000 from the prior fiscal year; a cash bonus of up to $500,000, an increase of $100,000 from the prior fiscal year, determined by the Board or the Committee, and an RSU award determined by the Board or the Committee. For fiscal 2022, Mr. Jelinek also received $148,000 in vacation payout (which was required of U.S. employees). Apart from the change-in-control provision in the Company’s equity plan applicable to all grantees (described below under “Potential Payments Upon Termination or Change-in-Control”), none of Mr. Jelinek or any other employee has or had any change-in-control arrangement with the Company.

    For fiscal 2022, the Committee granted 16,080 performance-based RSUs to Mr. Jelinek, a 7% increase from fiscal 2021, based on the closing share price at the time of the grant. The Committee determined after the end of the fiscal year that the performance criteria were exceeded, and all of the RSUs granted were earned.

    For fiscal 2022, the bonus amount and structure changed. The bonus amount for Mr. Jelinek was determined by the Committee under a new formula set in November 2021: (i) 40% of bonus eligibility was determined by the Company's attainment of its pre-tax income goal, which was exceeded in fiscal 2022 (the goal was $7.7 billion, on a generally accepted accounting principles basis; actual pre-tax income, adjusted for changes in foreign currencies, as provided for in the plan, was $7.9 billion); (ii) 40% of bonus eligibility was determined based on sales (the goal was $216.5 billion; actual sales, adjusted for changes in foreign currencies, as provided for in the plan, were $224.5 billion); and (iii) eligibility for the remaining 20% was determined by environmental and social objectives for achievement of quantitative performance metrics (including metrics concerning diversity equity and inclusion, resource consumption, and other environmental-related areas). The potential payment attributable to the first two performance measures was from zero to up to 120%, based on the level of achievement. The potential payment attributable to the third performance measure was all or nothing, depending on whether a majority of the quantitative metrics was achieved. For fiscal 2022, the sales and pre-tax income components of the bonus earned were $450,000, based on the Company's achieving 104% of the sales target and 103% of the pre-tax profit target. Although a majority of the quantitative environmental and social targets were met, entitling Mr. Jelinek to $100,000, he requested that the Committee award him $50,000. His request was honored.

    The most significant component of the compensation in fiscal 2022 was performance-based RSUs. RSU amounts awarded to Messrs. Vachris, Galanti, Miller, and Murphy were 12,042, 8,723, 7,893, and 7,893. This is a 59% increase for Mr. Vachris (due to his promotion to president), a 15% increase for Messrs. Galanti and Miller, and a 4% increase for Mr. Murphy over the prior year, based on the closing share price at the time of the grant. The amounts awarded were based on the recommendations of Mr. Jelinek and approved by the Compensation Committee before the grants. The performance criteria were, as noted above, exceeded and the Named Executive Officers earned all of the RSUs granted, with accelerated-vesting for long service and further time-based vesting.

    Salaries for other Named Executive Officers were based upon the recommendation of Mr. Jelinek, who focused on the amount of increase deserved over the prior year’s salary level. Base salary levels for these officers increased between 1% and 13% with the exception of a 24% increase for Mr. Vachris over the previous fiscal year.

    The Named Executive Officers (other than Mr. Jelinek) received cash bonuses of $217,600, except for Mr. Vachris who received $247,729, based on his service as President for a portion of the fiscal year. The amounts are higher year-over-year because the bonus structure changed in fiscal 2022. The potential bonus amounts increased from $80,000 to $200,000 ($227,692 for Mr. Vachris). This amount includes $80,000 based on the achievement of specified targets relating to sales and $80,000 based on the achievement of specified targets relating to pre-tax income. The potential payment attributable to each of these performance goals was from zero up to 120% of the award target amount, based on the level of achievement. Up to $40,000 in potential related to environmental and social objectives: $24,000 relating to achievement of quantitative performance metrics (including metrics concerning diversity equity and inclusion, resource consumption, and other environmental-related areas) on an all or nothing basis depending upon whether a majority of the quantitative metrics were satisfied; and up to $16,000 based on discretionary assessment by the Chief Executive Officer of the officer's environmental and social achievements (including, without limitation, progress in controlling emissions).

After the close of the fiscal year, Mr. Jelinek recommended bonus amounts to the Committee for the Named Executive Officers for the individual bonus amounts of up to approximately 109% of the eligible amounts and to increase Mr. Vachris' potential bonus amount from $200,000 to $227,692, due to his appointment to President during the year. Based on Mr. Jelinek's recommendation, the Committee determined to award 120% of the potential sales bonus, 105% of the potential pre-tax income bonus, and 94% of the environmental and social objective bonus, which included 100% of the achievement of quantitative performance metrics and 85% of the discretionary amount, as recommended by Mr. Jelinek.

    The Corporate Governance Guidelines provide that the Company will seek to recover, at the direction of the Committee after it has considered the costs and benefits, incentive compensation (including bonus, incentive payment, and equity award) awarded or paid to an officer for a fiscal period if the result of a performance measure upon which the award was based or paid is subsequently restated or otherwise adjusted in a manner that would reduce the size of the award or payment. Where the incentive compensation is not awarded or paid on a formulaic basis, the Committee may determine in its discretion the amount, if any, by which the payment or award should be reduced. In addition, if an officer engaged in intentional misconduct (as determined by the Committee in its sole discretion) that contributed to the award or payment of incentive compensation to the officer that is greater than would have been paid or awarded in the absence of the misconduct, the Company may take other remedial and recovery action, as determined by the Committee. In addition, any incentive compensation awarded or paid to an officer will be subject to any recoupment policies adopted by the Company pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other law or the listing requirements of any national securities exchange on which Company common stock is listed.

    Executive officers are required by the end of each calendar year to own and retain shares of Company common stock representing in value at least three times (seven times for the Chief Executive Officer) the base salary of the officer in effect at the beginning of the fiscal year. Newly-promoted officers have twenty-four months to achieve compliance. The Nominating and Governance Committee may authorize an extension should the timing present an undue burden. All executive officers were in compliance at the end of calendar 2021.

    The Corporate Governance Guidelines, prohibit transactions involving hedging of the Company's equity securities by directors, officers, and employees and prohibit pledging of the Company's equity securities by directors and executive officers. The prohibition on transactions involving hedging includes any instrument or transaction, including put options and forward-sale contracts, through which an individual offsets or reduces exposure to the risk of price fluctuations in a corresponding equity security. Equity securities include common stock, voting preferred stock and options and other securities exercisable for, or convertible into, settled in, or measured by reference to, any other equity security determined on an as-exercised and as-converted basis. The equity securities attributable to a director or executive officer for these purposes are those attributable under either Section 13 or Section 16 of the Securities Exchange Act of 1934. All directors and executive officers are in compliance with this policy.

    The Committee believes that each element of compensation and the total compensation provided to each of the Named Executive Officers is reasonable and appropriate. The compensation of the Named Executive Officers is significantly tied to the Company’s performance and the return to shareholders. The Committee believes that its compensation programs will allow the Company to continue to attract and retain a top-performing management team.

    The Compensation Committee of the Company’s Board of Directors has submitted the following report for inclusion in this Proxy Statement:

    The Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on the review and discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2022, for filing with the SEC.

    The amounts shown assume that a change in control or termination was effective as of the last business day of fiscal 2022 and that the price of Costco common stock on which the calculations were based was the closing price on August 26, 2022 ($531.82). They are estimates of the incremental amounts that would be received upon a change in control or termination of employment; the actual amount could be determined only at the time of any actual change in control or termination of employment. In the event of a termination other than for cause: (i) proportional vesting (measured on a quarterly basis) occurs for the time period between termination and the grant date or grant date anniversary; and (ii) accelerated vesting for long service occurs based on years of service. For purposes of the foregoing, the vesting formula for long service is: 33% for 25 or more years of service; 66% for 30 or more years of service; and 100% for 35 or more years of service. RSUs also provide for accelerated vesting for long service prior to termination. There is no accelerated vesting in the event of a termination for cause.

    “Good reason” is defined in the agreement as a material diminution in Mr. Jelinek's salary or target bonus, in authority, duties or responsibilities, or in the budget over which he retains authority, causing him to report to anyone other than the Board, a material change in geographic location at which he must perform services, or any breach by the Company of the employment agreement.

    “Cause” is defined in the agreement as an intentional tort causing substantial loss, damage or injury to the Company, any serious crime or intentional, material act of fraud or dishonesty against the Company, the commission of a felony that results in other than immaterial harm to the Company’s business or to the reputation of the Company or Mr. Jelinek; habitual neglect of reasonable duties, disregard of written, material policies of the Company that causes other than immaterial loss, damage or injury to the property or reputation of the Company, or any material breach of Mr. Jelinek's obligation to not disclose confidential information or to assign intellectual property developed during employment.

    Under the terms of Mr. Jelinek’s fiscal 2022 RSU award, in the event of termination of his employment for any reason other than cause, if the Compensation Committee of the Board determines that the performance goals established for the award have been met, Mr. Jelinek will receive the award, subject to the long service and quarterly vesting provisions generally applied for terminations in connection with RSU awards as described above. The table above shows the estimated incremental amounts Mr. Jelinek would receive in respect of his fiscal 2022 award in connection with a hypothetical termination of employment at December 31, 2022.

    No member of the Compensation Committee is an executive officer or former officer of the Company. No executive officer of the Company served on the board of directors of any entity whose executive officers included a director of the Company.

    As required by SEC rules, we are reporting the ratio of the annual total compensation of our CEO to the annual total compensation of our “median employee.” The latter is an estimate calculated consistent with SEC rules, based on our payroll and employment records and the methodology described below. SEC rules allow a variety of methodologies and exclusions and permit reasonable estimates and assumptions.

    The year to date period ended July 3, 2022, was utilized to determine the median employee. At that date, we had approximately 300,000 employees worldwide, of which approximately 198,000 were located in the United States and its territories. As permitted by SEC rules, we excluded employees in China, France, Iceland, Spain, and Taiwan. As a result, the “considered population” for identifying the median employee was approximately 289,000. The pool included full-time, part-time, seasonal, and temporary employees. For determining the median employee, to the extent received, we used a combination of salary, bonus, equity compensation, and other measurable benefits. Non-U.S. employees’ compensation was converted to U.S. dollars using an average exchange-rate for the year to date period. For fiscal 2022, the median employee in the considered population had a total compensation of $45,450.

    Approximately 41% of the “considered population” were part-time, seasonal or temporary workers, which significantly impacts the ratio shown above. We believe it is appropriate to present a supplemental calculation using the same methodology as above except that it includes only workers who are full-time. Using this methodology, the median employee has a total compensation of $58,425, resulting in a pay ratio calculation of 170:1.

    Richard Galanti, Chief Financial Officer of the Company, has a niece who was employed by the Company during fiscal year 2022 at an annual salary of $94,000 and received a bonus of $20,906 and a grant of 235 RSUs. She also participated in benefit plans generally available to employees in comparable positions under similar terms and conditions.

    This relationship and related transactions were approved by the Audit Committee. The charter of the Audit Committee requires the Committee to review and approve all related-person transactions that are required to be disclosed under Item 404(a) of Regulation S-K. There were no transactions required to be reported in this Proxy Statement since the beginning of fiscal 2022 where this policy did not require review, approval or ratification or where this policy was not followed.

    No family members of executive officers or directors are executive officers of the Company.

October 18, 2022

To the Board of Directors:

    We reviewed and discussed with management the Company’s audited consolidated financial statements as of and for the fiscal year ended August 28, 2022. We discussed with the independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the Securities and Exchange Commission and the matters required to be reported to the Audit Committee by the independent registered public accounting firm pursuant to SEC Regulation S-X, Rule 2.07.

    We received the written disclosures and the letter from the independent auditors required by the PCAOB regarding the independent auditors’ communications with this Committee concerning independence and have discussed with the auditors their independence. Based on the reviews and discussions referred to above, we recommended to the Board that the audited consolidated financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2022.

    KPMG has served as our independent auditors since May 13, 2002. Upon recommendation of the Audit Committee, the Board has appointed KPMG as our independent auditors for fiscal 2023.

KPMG was paid fees for the following types of services during fiscal 2022:

    All services to be performed for the Company by KPMG must be pre-approved by the Audit Committee or a designated member of the Audit Committee, as provided in the committee’s written policies. All services provided by KPMG in fiscal 2022 were properly pre-approved.

    The Audit Committee has determined that the provision by KPMG of non-audit services to the Company in fiscal 2022 is compatible with KPMG’s maintaining its independence.

    Subject to ratification by the shareholders at the Annual Meeting, the Board, upon recommendation of the Audit Committee, has selected KPMG to audit the consolidated financial statements of the Company and its subsidiaries for the fiscal year ending September 3, 2023. KPMG has issued its reports, included in the Company’s Form 10-K, on the audited consolidated financial statements of the Company and internal control over financial reporting for the fiscal year ended August 28, 2022. Representatives of KPMG are expected to be present at the Annual Meeting, will have the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.

    The affirmative vote of a majority of the votes cast on this proposal will constitute ratification of the appointment of KPMG.

    Neither the Board nor management intends to bring before the Annual Meeting any business other than the matters referred to in the Notice of Meeting and this Proxy Statement. If any other business should properly come before the Annual Meeting, or any adjournment thereof, the persons named in the proxy will vote on such matters according to their judgment.

    For a shareholder proposal to be included in the proxy statement for the 2024 annual meeting, it must comply with SEC Rule 14a-8 and be received by the Secretary of the Company at the address below no later than August 8, 2023.

    To be properly brought before the 2024 annual meeting of shareholders, a notice of a proxy access nomination under section 2.1 of our bylaws must be received by the Secretary of the Company at the address below no earlier than July 9, 2023, and no later than the close of business (5:30 p.m. Pacific Time) on August 8, 2023. Any such notice must meet the other requirements set forth in our bylaws.

    A shareholder who intends to present a proposal at the Company’s 2024 annual meeting other than pursuant to Rule 14a-8 or a proxy access director nomination must comply with our bylaws, which provide that the notice of such intentions must be received by the Secretary of the Company at the address set forth below no earlier than September 21, 2023, and no later than October 21, 2023, and such proposal must be a proper matter for shareholder action under Washington law, or management of the Company will have discretionary voting authority at the 2024 annual meeting with respect to any such proposal without discussion of the matter in the Company’s proxy statement.

Shareholders who intend to solicit proxies in reliance on the SEC's universal proxy rule for director nominees submitted under the advance notice requirements of our bylaws must comply with the additional requirements of Rule 14a-19(b).

    Notices of intention to present proposals or nominate directors at the 2024 annual meeting, and all supporting materials required by our bylaws, must be submitted by mail to Secretary, Costco Wholesale Corporation, 999 Lake Drive, Issaquah, Washington 98027.

    The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal or nomination that does not comply with these and other applicable requirements. The submission of a shareholder proposal or proxy access or other director nomination does not guarantee that it will be included in our proxy statement.