Abercrombie & Fitch 2012 Annual Report Download - page 10

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Table of Contents
We Considered Last Year's "Say or Pay" Vote and Made Changes for Fiscal 2012, including an Amendment of the CEO's Employment Agreement
After last year's Annual Meeting of Stockholders, the Compensation Committee and the Board reviewed the results of the 2011 "say on pay" vote related to
Fiscal 2010 compensation actions and decisions and took those results into account in changing the design of certain elements of our executive compensation
program and negotiating revisions in the CEO's employment agreement.
In connection with last year's Annual Meeting of Stockholders, and recognizing that the CEO's employment agreement was entered into in 2008, we made a
commitment to our largest stockholder at the time (and now), FMR LLC (Fidelity), to recommend to our Compensation Committee that it review the
employment agreement of our CEO in light of the current landscape and current practices. We also agreed to consider adding objective criteria in determining
whether equity awards would be made to our other executive officers.
After last year's Annual Meeting of Stockholders, we continued our ongoing dialogue with our stakeholders. We have engaged in further discussions with
Fidelity and communicated with other stakeholders who have corresponded with the Company. Recognizing that the use of performance-based vesting in
compensation programs is increasing, the Compensation Committee determined it was appropriate to consider whether performance-based vesting triggers
that would apply to future semi-annual equity grants to our CEO should be established and negotiated an amendment to his employment agreement that
incorporates such triggers.
Responding to its dialogue with investors both before and after last year's Annual Meeting of Stockholders as well as evolving compensation practices, the
Compensation Committee made several changes to the design of our executive compensation program for Fiscal 2012, including:
• Negotiating an amendment to our CEO's employment agreement to provide that 80% of the total fair value of any semi-annual equity grants
earned during the remaining term of his employment agreement will be awarded in the form of SARs or stock options1 and 20% will be awarded
in the form of restricted stock or restricted stock units.2 The restricted stock units will be subject to the same target and threshold adjusted
earnings per share performance levels that apply to the performance shares granted to our Executive Vice Presidents (described below), as well as
the time-based vesting requirements specified in our CEO's employment agreement.
• Under this amendment to our CEO's employment agreement, 100% of the restricted stock units will be eligible to vest if the target adjusted
earnings per share performance level is achieved or exceeded. Only 50% of the restricted stock units will be eligible to vest if the threshold
adjusted earnings per share performance level is achieved and 50% of the restricted stock units will be forfeited. Interpolation will be used to
determine the percentage of the restricted stock units that will be eligible to vest if adjusted earnings per share are between the threshold and
target performance levels. If actual adjusted earnings per share are less than the threshold adjusted earnings per share performance level, the CEO
will forfeit 100% of the restricted stock units.
• Adding performance shares to the mix of long-term incentives granted to the Executive Vice Presidents with awards vesting only if earnings per
share growth targets are achieved. During Fiscal 2011, we had granted Executive Vice Presidents time-vested SARs and performance-based
restricted stock units that will vest over a four-year period, only if our adjusted non-GAAP net income is positive. In Fiscal 2012, we added
performance shares as a third component to the long-term incentive program.
• Implementing objective criteria used to adjust the number of SARs and performance-based restricted stock units that would be granted under our
fixed share guidelines, including an assessment by the Compensation Committee of our prior year's performance with respect to earnings per
share growth and total sales growth as compared to long-term targets and the Company's relative performance versus the performance of our peer
retail companies with respect to such metrics.
1 Unless the context otherwise makes it clear, references in any discussion of the Fiscal 2012 amendment to our CEO's employment agreement within this Proxy Statement to "SARs" shall be
deemed to include both SARs and stock options.
2 Unless the context otherwise makes it clear, references in any discussion of the Fiscal 2012 amendment to our CEO's employment agreement within this Proxy Statement to "restricted stock
units" shall be deemed to include both restricted stock and restricted stock units.
7