AutoZone 2010 Annual Report Download - page 41

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Base Salary. Salaries are determined within the context of a targeted total cash compensation level for
each position. Base salary is a fixed portion of the targeted annual cash compensation, with the specific
portion varying based on differences in the size, scope or complexity of the jobs as well as the tenure and
individual performance level of incumbents in the positions. Points are assigned to positions using a job
evaluation system developed by Hay Group, a global management and human resources consulting firm, and
AutoZone maintains salary ranges based on the job evaluations originally constructed with Hay Group’s help.
These salary ranges are usually updated annually based on broad-based survey data; in addition to Hay Group
survey data, AutoZone uses surveys published by Mercer (US) and Hewitt Associates, among others, for this
purpose, as discussed below.
The survey data used to periodically adjust salary ranges is broad-based, including data submitted by
hundreds of companies. Examples of the types of information contained in salary surveys include summary
statistics (e.g., mean, median, 25th percentile, etc.) related to:
• base salaries
• variable compensation
• total annual cash compensation
• long-term incentive compensation
• total direct compensation
The salary surveys cover both the retail industry and compensation data on a broader, more general public
company universe. Multiple salary surveys are used, so that ultimately the data represent hundreds of
companies and positions and thousands of incumbents, or people holding those positions. The surveys
generally list the participating companies, and for each position “matched”, the number of companies and
incumbents associated with the position. Subscribers cannot determine which information comes from which
company.
The salary ranges which apply to the named executive officers, including the Principal Executive Officer,
are part of the structure applicable to thousands of AutoZone’s employees. AutoZone positions are each
assigned to a salary grade. This is generally accomplished at the creation of a position, using the Hay job
evaluation method, and jobs tend to remain in the same grade as long as there are no significant job content
changes. Each grade in the current salary structure has a salary range associated with it. This range has a
midpoint, to which we compare summary market salary data (generally median pay level) of the types
discussed above.
Over time, as the median pay levels in the competitive market change, as evidenced by the salary survey
data, AutoZone will make appropriate adjustments to salary range midpoints so that on average, these
midpoints are positioned at roughly 95% of the market median value as revealed by the surveys. This
positioning relative to the market allows for competitive base salary levels, while generally leaving actual
average base pay slightly below the survey market level. This fits our stated philosophy of delivering
competitive total rewards at or above the market median through performance-based variable compensation.
In making decisions related to compensation of the named executive officers, the Compensation
Committee uses the survey data and salary ranges as context in reviewing compensation levels and approving
pay actions. Other elements that the Compensation Committee considers are individual performance, Company
performance, individual tenure, position tenure, and succession planning. The Hay Group, Mercer (US) and
Hewitt Associates surveys are utilized primarily to provide comparative data.
Annual Cash Incentive. Executive officers and certain other employees are eligible to receive annual
cash incentives each fiscal year based on the Company’s attainment of certain Company performance
objectives set by the Compensation Committee at the beginning of the fiscal year. The annual cash incentive
target for each position, expressed as a percentage of base salary, is based on both salary range and level
within the organization, and therefore does not change annually. As a general rule, as an executive’s level of
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