AutoZone 2010 Annual Report Download - page 46

To encourage full participation in our equity plans, all AutoZone stock acquired under those plans is
included in the executive’s holdings for purposes of calculating his or her ownership. This includes vested
stock options and shares which have restrictions on sale. One of the purposes of the ownership requirement is
to create a disincentive for an executive to exercise vested stock options early, selling shares to pay the
exercise cost and taxes, before the award has had time to achieve its full potential value.
Key features of the stock ownership requirement are summarized in the table below:
Ownership Requirement • Chief Executive Officer 5 times base salary
• Executive Vice President 3 times base salary
• Senior Vice President 2 times base salary
Holding Requirements • Individuals who have not achieved the ownership requirement within
the specified period will be required to hold 50% of net after-tax
shares upon exercise of any stock option, and may not sell any shares
of AZO.
• Guidelines will no longer apply after an executive reaches age 62, in
order to facilitate appropriate financial planning as retirement
approaches. The Compensation Committee may waive the guidelines
for any other executive at its discretion.
Ownership Definition • Shares of stock directly owned (including shares subject to holding
requirements under any stock purchase plan);
• Unvested Shares acquired via the Executive Stock Purchase Plan; and
• Vested stock options acquired via the AutoZone Stock Option Plan
(based on the “in-the-money” value).
Under AutoZone’s insider trading policies, all transactions involving put or call options on the stock of
AutoZone are prohibited at all times. Officers and directors and their respective family members may not
directly or indirectly participate in transactions involving trading activities which by their aggressive or
speculative nature may give rise to an appearance of impropriety.
What roles do the Chief Executive Officer and other executive officers play in the determination of
executive compensation?
The Chief Executive Officer attends most meetings of the Compensation Committee and participates in
the process by answering Compensation Committee questions about pay philosophy and by ensuring that the
Compensation Committee’s requests for information are fulfilled. He also assists the Compensation Committee
in determining the compensation of the executive officers by providing recommendations and input about such
matters as individual performance, tenure, and size, scope and complexity of their positions. The Chief
Executive Officer makes specific recommendations to the Compensation Committee concerning the compensa-
tion of his direct reports and other senior executives, including the executive officers. These recommendations
usually relate to base salary increases and stock option grants. The Chief Executive Officer also recommends
pay packages for newly hired executives. Management provides the Compensation Committee with data,
analyses and perspectives on market trends and annually prepares information to assist the Compensation
Committee in its consideration of such recommendations. Annual incentive awards are based on achievement
of business objectives set by the Compensation Committee, but the Compensation Committee may exercise
negative discretion, and if it does so, it is typically in reliance on the Chief Executive Officer’s assessment of
an individual’s performance.
The Chief Executive Officer does not make recommendations to the Compensation Committee regarding
his own compensation. The Senior Vice President, Human Resources has direct discussions with the
Compensation Committee Chair regarding the Compensation Committee’s recommendations on the Chief
36
Proxy