AutoZone 2010 Annual Report Download - page 42

management responsibility increases, the portion of his or her total compensation dependent on Company
performance increases.
The threshold and target percentage amounts for the named executive officers for fiscal 2010 are shown
in the table below.
Principal Position Threshold Target
Percentage of Base Salary
Chairman, President & CEO 50% 100%
Executive Vice Presidents 37.5% 75%
All Other NEOs 30% 60%
Annual cash incentives for executive officers are paid pursuant to the AutoZone, Inc. 2010 Executive
Incentive Compensation Plan (“EICP”), our performance-based short-term incentive plan. Pursuant to the plan,
the Compensation Committee establishes incentive objectives at the beginning of each fiscal year. For more
information about the EICP, see Discussion of Plan-Based Awards Table on page 43.
The actual incentive amount paid depends on Company performance relative to the target objectives. A
minimum pre-established goal must be met in order for any incentive award to be paid, and the incentive
award as a percentage of annual salary will increase as the Company achieves higher levels of performance.
The Compensation Committee may in its sole discretion reduce the incentive awards paid to named
executive officers. Under the EICP, the Compensation Committee may not exercise discretion in granting
awards in cases where no awards are indicated, nor may the Compensation Committee increase any calculated
awards. Any such “positive” discretionary changes, were they to occur, would be paid outside of the EICP and
reported under the appropriate Bonus column in the Summary Compensation Table; however, the Compensa-
tion Committee has not historically exercised this discretion.
The Compensation Committee, as described in the EICP, may (but is not required to) disregard the effect
of one-time charges and extraordinary events such as asset write-downs, litigation judgments or settlements,
changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for
reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures
and any foreign exchange gains or losses on the calculation of performance.
The incentive objectives for fiscal 2010 were set in a September 2009 Compensation Committee meeting,
and were based on the achievement of specified levels of earnings before interest and taxes (“EBIT”) and
return on invested capital (“ROIC”), as were the incentive objectives for fiscal 2011, set during a Compensa-
tion Committee meeting held in September 2010. The total incentive award is determined based on the impact
of EBIT and ROIC on AutoZone’s economic profit for the year, rather than by a simple allocation of a portion
of the award to achievement of the EBIT target and a portion to achievement of the ROIC target. EBIT and
ROIC are key inputs to the calculation of economic profit (sometimes referred to as “economic value added”),
and have been determined by our Compensation Committee to be important factors in enhancing stockholder
value. If both the EBIT and ROIC targets are achieved, the result will be a 100%, or target, payout. However,
the payout cannot exceed 100% unless the EBIT target is exceeded (i.e., unless there is “excess EBIT” to fund
the additional incentive payout). Additionally, when the aggregate incentive amount is calculated, if the
resulting payout amount in excess of target exceeds a specified percentage of excess EBIT (currently 20%),
then the incentive payout will be reduced until the total amount of the incentive payment in excess of target is
within that specified limit.
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