Costco Wholesale (COST) DEF 14ADefinitive proxy

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.  )

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TO OUR SHAREHOLDERS:

The Annual Meeting of the Shareholders of Costco Wholesale Corporation (the “Company”) will be held by live webcast, on Thursday, January 18, 2024, at 2:00 p.m. Pacific time, to:  

Our 2024 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 enhances accessibility to our Annual Meeting and reduces 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/COST2024. 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/COST2024.

Only shareholders of record at the close of business on November 10, 2023, 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.

Please do not return the enclosed paper ballot if you are

voting over the Internet or by telephone.

 

the Meeting of Shareholders to be Held on January 18, 2024

https://investor.costco.com.

    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 18, 2024, or any adjournments (the “Annual Meeting”). The individuals named as proxy are Hamilton E. James and Ron M. Vachris. 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 7, 2023.

    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 10, 2023 (the "Record Date") will be entitled to vote at the Annual Meeting. At the close of business on the Record Date, there were 443,830,261 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 4.

    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 through 4, to approve each proposal the votes that shareholders cast “for” must exceed the votes cast “against.”

    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 $14,000.

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 forward-looking 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, public-health related factors, 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.

    The candidates for election have been nominated by the Board based on the recommendation of the Nominating and Governance Committee. In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led the Board to conclude that he or she should serve as a director, the Board believes that each nominee has demonstrated: outstanding achievement in his or her professional career; relevant experience; personal and professional integrity; ability to make independent, analytical inquiries; experience with and understanding of the business environment; and willingness and ability to devote adequate time to Board duties. We also believe that our directors collectively have the skills and experience that make them well-suited to oversee the Company. They are or have been established leaders in important areas of business, government, and non-profit service. In addition, members of our Board have a great diversity of experiences and bring a wide variety of views that strengthen their ability to guide our Company.

(1) Mr. Vachris has been elected to succeed Mr. Jelinek as Chief Executive Officer effective January 1, 2024.

Inc., and LendingClub, Inc. Mr. Denman sits on the board of the University of Washington's Foster School of Business, he is the chairman of the University of Washington Foundation Board, and is a member of the Hospital Board of Trustees of Seattle Children's. Mr. Denman’s qualifications to serve on the Board include knowledge and experience from service on the boards of other public companies, and his broad-ranging experiences, including chief executive and other leadership positions, in the areas of technology and international business.

which invests in wireless-related companies, and Chairman of First Avenue Entertainment LLLP, which is the owner of the Seattle Mariners. Mr. Stanton founded and served as Chairman and Chief Executive Officer of Western Wireless Corporation, a wireless telecommunications company, from 1992 until shortly after its acquisition by ALLTEL Corporation in 2005. He was Chairman and a director of T-Mobile USA, formerly VoiceStream Wireless Corporation, a mobile telecommunications company, from 1994 to 2004, and was Chief Executive Officer from 1998 to 2003. Mr. Stanton was a director of Clearwire Corp. from 2008 to 2013, Chairman between 2011 and 2013, and interim Chief Executive Officer during 2011. He is currently a director of Trilogy International Partners and Microsoft Corporation and was previously a director of Columbia Sportswear Company. Mr. Stanton's qualifications to serve on the Board are his broad-ranging experiences, including senior leadership positions, in the areas of telecommunications and technology, and service on the boards of other companies.

    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, Foulkes, 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 2023.

    The members of the committee are Mr. Denman (chair), Mmes. Decker and Jewell, and Mr. Munger before his passing. The Board has determined that all three members of the committee 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 11 times during fiscal 2023. 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, four 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; eight members have retired or passed away and five 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 (which includes information required under 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.

such as with risks of significant new business concepts and substantial entry into new markets, risk oversight is addressed as part of the full Board’s engagement with the Chief Executive Officer and management. Board members also often discuss risk as a part of their review of the ongoing business, financial, and other activities of the Company. The Board also has overall responsibility for executive-officer succession planning. The Nominating and Governance Committee also exercises oversight regarding risks associated with corporate governance matters and certain issues relating to the Company’s ethics, environmental, social and governance (ESG), and compliance programs.

    For fiscal 2023, each non-employee director earned $37,000 per year for serving on the Board. Directors are reimbursed for travel expenses incurred in connection with their duties. In fiscal 2023, each non-employee director received a grant of restricted stock units (“RSUs”), with a value of $270,000. Based on the closing share price at the time of grant, each director received 565 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 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. All non-executive board members are in compliance.

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(1) These RSUs fully vested in connection with Mr. Munger's death in November 2023, in accordance with the agreements covering grants to non-executive directors.

    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. Each member of the Board attended all meetings of the committees on which he or she served, with the exception of Mr. Munger and Mr. Denman, who each missed one Audit Committee meeting out of eleven. As set forth in our Corporate Governance Guidelines, directors are encouraged to attend meetings of shareholders. All directors attended the meeting in 2023.

    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 2023. 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 - Warehouse Operations, U.S. and Mexico; and Pierre Riel, Executive Vice President, Chief Operating Officer - 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 2023 Annual Meeting, the advisory shareholder vote on executive compensation was 95.42% 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 2023 did not materially change from those approved for the prior year, except for Mr. Jelinek who received a substantial increase to his performance-based RSU award, as described below under "2023 Compensation of the Chief Executive Officer." Discussions by certain directors and management with a number of shareholders since the 2023 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 2023, the Committee consisted of Mr. Stanton (chair), and Mmes. Jewell and Wilderotter. The Committee has authority under its charter to engage compensation consultants but did not use 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 bonuses concerning environmental and social progress are overseen jointly with the Nominating and Governance Committee.

    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.

    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 and Rule 10D-1 Policy on Recovery of Incentive Compensation (described more fully below) require or enable the Committee to seek the return of incentive compensation improperly earned, depending on the circumstances.

    For fiscal 2023, 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. 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 Mr. Jelinek) receive accelerated vesting once 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 Mr. Jelinek, the fiscal 2023, 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, 2022, all other Named Executive Officers received 100% long-service vesting. 

    The criteria for the fiscal 2023 performance-based grants were (versus fiscal 2022) a 3% increase in net sales or a 2% increase in pre-tax income (both adjusted for changes in foreign currencies and normalized for the extra week in fiscal 2023). 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, other than Mr. Jelinek and one executive officer who has not completed 25 years of service, received accelerated vesting for long service for these RSUs.

    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 2023, RSU grants were made on October 22, 2022, and the performance criteria for the grants were established in November 2022. All grants in fiscal 2023 were made under the Company’s 2019 Incentive Plan, approved by the 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 over 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 2022, the Committee approved the renewal of the written employment contract with Mr. Jelinek, related to service during calendar 2023, providing for: a salary increase to $1,150,000 for calendar 2023, an increase of $50,000 from the prior fiscal year, excluding the one-time required vacation payout (which was required of U.S. employees) in the prior year; a target cash bonus of $600,000, 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. 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 2023, the Committee granted 31,369 performance-based RSUs to Mr. Jelinek, a 94% increase from fiscal 2022, based on the closing share price at the time of the grant. This compensation is primarily for his service as CEO during fiscal 2023 and in part as compensation for the eleven years during his service when Mr. Jelinek's compensation substantially lagged that of most peers, despite his presiding over superior performance. Even considering this increase, raising total compensation to $16.9 million, CEOs of six retail peers received higher compensation, according to their most recent proxy statements. 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 2023, the bonus amount for Mr. Jelinek was determined by the Committee in November 2022: (i) $250,000 of bonus eligibility was determined by the Company's attainment of its pre-tax income goal, which was exceeded in fiscal 2023 (the goal was $8.7 billion, on a generally accepted accounting principles basis; actual pre-tax income, adjusted for changes in foreign currencies and an unusual item, as provided for in the plan, charges of $391 million predominantly related to the discontinuation of the Company's charter shipping activities, was $8.9 billion); (ii) $250,000 of bonus eligibility was determined based on net sales adjusted for changes in foreign currencies (the goal was $246.5 billion, which was not met); and (iii) $100,000 of bonus eligibility 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 2023, the pre-tax income component of the bonus earned was $262,500, based on the Company's achieving 102% of the pre-tax profit target. The sales component of the bonus was $0, based on the Company falling short of the sales target. The quantitative environmental and social targets were met, entitling Mr. Jelinek to $100,000.

    For fiscal 2023, the Committee granted 14,639 performance-based RSUs to Mr. Vachris, a 21% increase from fiscal 2022, based on the closing share price at the time of the grant. The amount awarded was based on recommendations of Mr. Jelinek and approved by the Compensation Committee. The performance criteria were, as noted above, exceeded and Mr. Vachris earned all of the RSUs granted.

    The salary for Mr. Vachris was 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 Mr. Vachris increased 6% over the previous fiscal year, excluding the one-time required vacation payout (which was required of U.S. employees) in the prior year.

    The Named Executive Officers (other than Mr. Jelinek and Mr. Vachris) received cash bonuses of $124,000. The potential bonus amount was $232,000, which did not change from last year. This amount included $80,000 based on the achievement of targets relating to sales and $80,000 based on the achievement of 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). For fiscal 2023, the pre-tax income component of the bonus earned was $84,000, based on the Company achieving 102% of the pre-tax profit target. The sales component of the bonus was $0, based on the Company falling short of the sales target. The environmental and social objective bonus was earned, which included the achievement of quantitative performance metrics and 100% of the discretionary amount, as recommended by Mr. Jelinek.

    The Compensation Committee adopted a Rule 10D-1 Policy on Recovery of Incentive Compensation, effective October 2, 2023, in accordance with Rule 10D-1 of the Securities Exchange Act of 1934 and Nasdaq listing standards. The Rule 10D-1 Policy applies to current and former executive officers of the Company as defined in Rule 10D-1, including the Named Executive Officers, and will be administered by the Compensation Committee. In the event the Company is required to prepare an accounting restatement to correct material noncompliance with any financial reporting requirement under U.S. federal securities laws, including restatements that correct an error in previously issued financial statements that is material to the previously issued financial statements or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, it is the Company's policy to recover erroneously awarded incentive-based compensation received by its executive officers. The recovery of such compensation applies regardless of whether an executive officer engaged in misconduct or otherwise cause or contributed to the requirement for a restatement.

    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 2022.

    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 September 3, 2023, for filing with the SEC.

John W. Stanton, Chair

Sally Jewell

Mary Agnes (Maggie) Wilderotter

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(1) Reflects adjustments for special dividends.

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    The amounts shown assume that a change in control or termination was effective as of the last business day of fiscal 2023 and that the price of Costco common stock on which the calculations were based was the closing price on September 1, 2023 ($544.25). 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 2023 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 2023 award in connection with a hypothetical termination of employment at December 31, 2023.

    The Company’s Seventh Restated 2002 Incentive Plan and its predecessor plans provide that in connection with a “change in control,” the Board may take any one or more of the following actions: (i) arrange for the substitution of options or other compensatory awards of equity securities other than shares (including, if appropriate, equity securities of an entity other than the Company) in exchange for stock awards; (ii) accelerate the vesting and termination of outstanding stock awards so that stock awards can be exercised in full before or otherwise in connection with the closing or completion of the transaction or event, but then terminate; or (iii) cancel stock awards in exchange for cash payments to participants. The plan requires that in the event of a “fundamental transaction” the Board shall do one or more of the foregoing, contingent on the closing or completion of the fundamental transaction.

    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.

    As permitted by the SEC rules, we selected a median employee who had compensation similar to our 2022 median employee because our 2022 median employee was subsequently promoted resulting in a change to his or her compensation. There has been no change in our employee population or compensation arrangements that would result in a significant change to our pay ratio disclosure. Last year, 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 2023, the median employee in the considered population had a total compensation of $50,202.

Ratio

Supplemental Ratio

    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 $66,783, resulting in a pay ratio calculation of 253:1.

As required by Item 402(v) of Regulation S-K, this section describes the relationship between compensation actually paid and certain financial performance measures of the Company. For information about the philosophy, objectives and criteria of executive pay as they pertain to the Company's performance, refer to the Compensation Discussion and Analysis Section.

The charts below reflect the relationship among compensation actually paid compared to the Company's TSR and peer group TSR, net income and net sales adjusted for changes in foreign currencies over the past three fiscal years. Compensation actually paid reflects the value of outstanding performance-based grants at specified fiscal year ends and does not have a direct comparison to performance trends. For fiscal 2023, Mr. Jelinek received a substantial increase to his performance-based RSU award. Despite this increase, we believe that Mr. Jelinek's compensation is appropriate when considering the compensation of the PEOs at peer companies and the performance of the Company under Mr. Jelinek's leadership.

The following chart shows the relationship among compensation actually paid to our PEO, the average compensation actually paid to our Non-PEO NEOs, and TSR for fiscal 2023, 2022, and 2021. Our peer group TSR is also included. Refer to footnote 3 and 4 in the table above for TSR methodology for Costco and the peer group.

The following chart shows the relationship among compensation actually paid to our PEO, the average compensation actually paid to our Non-PEO NEOs, and net income for fiscal 2023, 2022, and 2021.

The following chart shows the relationship among compensation actually paid to our PEO, the average compensation actually paid to our Non-PEO NEOs, and net sales adjusted for changes in foreign currencies for fiscal 2023, 2022, and 2021.

The following list represents the most important metrics used to link Company performance to compensation actually paid for the most recently completed fiscal year. Only two measures are identified because they are the only measures used by the Company to link executive compensation to Company performance.

    Jim Klauer, Executive Vice President, Chief Operating Officer, Northern Division, has a daughter-in-law who was employed by the Company during fiscal 2023, with an annual salary of $178,857 and bonus of $15,000. 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 2023 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 16, 2023

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 September 3, 2023. 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 September 3, 2023.

    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 2024.

KPMG was paid fees for the following types of services during fiscal 2023:

    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 2023 were properly pre-approved.

    The Audit Committee has determined that the provision by KPMG of non-audit services to the Company in fiscal 2023 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 1, 2024. 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 September 3, 2023. 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.

Under the oversight of the Board of Directors and the Nominating & Governance Committee, the Company has developed and implemented a comprehensive and measured approach to reducing the carbon emissions of the Company and its suppliers. This approach, reflected in the Climate Action Plan, balances the responsibility to mitigate the harms from global warming with protecting the interests of the Company's direct stakeholders: its suppliers, employees, members, and shareholders. The Plan, which has been the subject of extensive discussions with the Company's largest shareholders, does not adhere to the dictates of any organization or interest group; rather, it is specifically tailored to accomplishments that the Company believes are substantial yet achievable. The Company has been transparent in its approach to climate change, and the topic has been the subject of competing resolutions from shareholders. The complexities that have been aired in prior disclosures and dialogues show that there is no need for further reports; only for continued focus on implementing and optimizing the Company's plan.

In December 2020, the Company announced its Climate Action Plan, part of a comprehensive approach to enhancing progress in the broader area of environmental and social progress:

"Doing the right thing—for our members, employees, investors, and the health of our global community -- is a driving force for continuous improvement at Costco. At today’s rate of growth of global carbon dioxide equivalent (CO2e) emissions, the negative effects of climate change (e.g., extreme weather events, ocean acidification, wildfires, sea level rise, resource scarcity, forced migration, racial injustice, economic inequality, etc.) will likely cause the greatest disruption to life in human history. We recognize that proportional action to address Costco’s environmental and social impact is both a business imperative and the right thing to do. We are assessing the materiality of United Nations Sustainable Development Goals (SDGs) to Costco’s business in order to commit to high-priority, specific, actionable SDGs and metrics as our overarching plan."

Over the last three years the Plan has evolved. https://www.costco.com/sustainability-climate-action-plan.html Its key pillars today are:

With respect to Scope 1 and 2 emissions, achieve a 39% cumulative absolute CO2e reduction by 2030. Our plan focuses on seven areas: energy supply, energy efficiency, refrigeration, electrification, design and site selection, oversight and employee education.

With respect to Scope 3 emissions, the company has set a reduction intensity target of 20% by 2030. Because the majority of our carbon footprint lies within our supply chain — Category 1 (Purchased Goods and Services) and Category 11 (Use of Sold Product) represent 96% of our Scope 3 emissions — we are committed to working with our suppliers, other stakeholders in the supply chain, and others to reduce the supply chains’ overall carbon footprint. The Scope 3 action plan consists of five focus areas: supplier energy transition, regenerative and deforestation-free agriculture, sustainable livestock, energy efficient items, and sustainable packaging. Additionally, underpinning these focus areas will be an emphasis on supplier engagement, buyer education, and IT system development for data monitoring and collection.

There are many challenges to be faced in achieving these goals, most notably that significant progress on reducing Scope 3 emissions depends upon advances by our suppliers, who number in the thousands. The presence of these and other hurdles does not, however, dictate that no effort be made at all. The Plan adopts a balanced approach, specifically recognizing that "our transition to a low carbon business model also should represent a just transition for our employees, members, suppliers and the communities we serve." The

commitments in the Plan are substantial; they do not, however, include a requirement for "net-zero emissions by 2050 or sooner." Some elements of the Plan have the benefit of lowering costs for the Company while reducing emissions. Reducing energy usage and enhancing refrigeration efficiency, for example, enhance the Company's profitability. The Board and the Company are fully cognizant, however, that reducing emissions will not occur without costs; continuing implementation of the Plan will occur with monitoring and evaluation of those costs, with the objective of achieving a just transition.

The Board and the Company also have noted that the Plan, and others like it, will not now prevent the impacts of global warming, which every day are more evident. The world is now instead in a state of attempting to mitigate and adapt to these impacts. That reality, however, means that efforts should be enhanced – not abandoned.

    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 2025 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 9, 2024.

    To be properly brought before the 2025 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 10, 2024, and no later than the close of business (5:30 p.m. Pacific Time) on August 9, 2024. 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 2025 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 20, 2024, and no later than October 20, 2024, 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 2025 annual meeting with respect to any such proposal without discussion of the matter in the Company’s proxy statement.

    Notices of intention to present proposals or nominate directors at the 2025 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.

The Compensation Committee uses net sales adjusted for changes in foreign currencies, which is a non-GAAP financial measure, as a performance target for RSUs and for a portion of the bonuses granted to executive officers. Management believes that this provides a fairer measure (as compared to U.S. dollars) of performance subject to the Company's control. Non-GAAP financial measures are not intended to be used as an alternative to direct comparable measures in accordance with GAAP and may not be comparable to similar measures reported by other companies.

In the discussion of net sales adjusted for changes in foreign currencies, we refer to the impact of changes in foreign currencies relative to the U.S. dollar, which are differences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies into U.S. dollars. This impact of foreign-exchange rate changes is calculated based on the difference between the current and prior fiscal year currency exchange rates.

The following table reflects the calculation of net sales adjusted for changes in foreign currencies: