Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Performance Share Units As part of the acquisition, we created a Value Creation Plan (“VCP”) to incentivize Trunk Club employees to increase the value of the Trunk  Club business. The VCP has three payout scenarios that are determined based on the Trunk Club business meeting minimum or exceeding  maximum fiscal 2018 sales and earnings metrics. If the minimum is not met, the payout is $0 (“Outcome A”); if the maximum is met, the  payout is $100 (“Outcome B”). If the sales and earnings metrics surpass the minimum but do not reach the maximum, the payout is based on  the incremental value growth of the Trunk Club business since acquisition, and will be between $0 and $100 (“Outcome C”).  We estimate the grant date fair value for each outcome and recognize expense based upon Outcome C, deemed most probable. If at any  time it becomes probable that another outcome will be achieved, compensation expense will be cumulatively adjusted based on the grant  date fair value associated with that outcome.  The final payout amount will be determined at the end of fiscal 2018 and settled in fiscal 2019 at our discretion in either cash or stock. We  intend to settle the VCP in stock. As of the fiscal year ended January 31, 2015, based on the payout scenario we believe is probable, we estimated the grant date fair value of  $10 per unit using the Black-Scholes valuation model. Stock-based compensation expense will be recognized on an accelerated basis due to  the performance criteria and graded vesting features of the VCP. In 2014, we recognized $3 in stock-based compensation expense  associated with the VCP.  As of January 31, 2015, we have granted 0.8 of the 1.0 units available for grant. Total unrecognized stock-based compensation expense  related to nonvested VCP units was $6, which we expect to recognize over the next 43 months. We generally grant performance share units to executive officers as one of the ways to align compensation with shareholder interests.  Performance share units are earned after a three-year performance cycle only when our total shareholder return (reflecting daily stock price  appreciation and compounded reinvestment of dividends) outperforms companies in a defined group of competitors determined by the  Compensation Committee of our Board of Directors. Performance share units granted in 2012 and 2013 also require the total shareholder  return to be positive for any payout. The percentage of units that are earned depends on our relative position at the end of the performance  cycle and can range from 0% to 175% of the number of units granted. Because performance share units are payable in either cash or stock as elected by the employee, they are classified as a liability award. The  liability is remeasured, with a corresponding adjustment to earnings, at each fiscal quarter-end during the performance cycle. The  performance share unit liability is remeasured using the estimated percentage of units earned multiplied by the closing market price of our  common stock on the current period-end date and is pro-rated based on the amount of time that has passed in the vesting period. The price  used to determine the amount of cash received for the performance share units upon vesting is the closing market price of our common stock  on the last day of the performance cycle. The following is a summary of performance share unit activity: 1  Assumes performance share units at 100% of the number of units granted. 2  On February 13, 2015, the Compensation Committee of our Board of Directors approved the vesting of 48,229 performance share units that were granted in 2012 and  outstanding as of January 31, 2015. Those units were earned and vested at 75% based on the defined performance criteria above. For purposes of this footnote only,  performance share units are stated in exact units instead of millions.  No performance share units were earned and vested in 2014. As of January 31, 2015, our current and non-current other liabilities included a  total of $8 for performance share units. As of January 31, 2015, the remaining unrecognized stock-based compensation expense for  unvested performance share units was $6, which is expected to be recognized over a weighted-average period of 21 months. Fiscal year 2014 1 Outstanding units, beginning of year 0.2 Granted 0.1 Vested — Forfeited or cancelled (0.1) Outstanding units, end of year 2 0.2 Nordstrom, Inc. and subsidiaries 59