AutoZone 2010 Annual Report Download - page 53

Discussion of Plan-Based Awards Table
Executive Incentive Compensation Plan. The EICP is intended to be a performance-based compensation
plan under Section 162(m) of the Internal Revenue Code. The Company’s executive officers, as determined by
the Compensation Committee of the Board of Directors, are eligible to participate in the EICP. At the
beginning of each fiscal year, the Compensation Committee establishes a goal, which may be a range from a
minimum to a maximum attainable bonus, based on one or more of the following measures:
•Earnings •Return on invested capital
• Earnings per share • Economic value added
• Sales • Return on inventory
• Market share • EBIT margin
• Operating or net cash flows • Sales per square foot
• Pre-tax profits • Comparable store sales
• Earnings before interest and taxes (EBIT)
The EICP provides that the goal may be different for different executives. The goals can change annually
to support our business objectives. After the end of each fiscal year, the Compensation Committee must certify
the attainment of goals under the EICP and direct the amount to be paid to each participant in cash. See
“Compensation Discussion and Analysis” on page 28 for more information about the EICP.
Executive Stock Purchase Plan. The Executive Stock Purchase Plan permits participants to acquire
AutoZone common stock in excess of the purchase limits contained in AutoZone’s Employee Stock Purchase
Plan. Because the Executive Stock Purchase Plan is not required to comply with the requirements of
Section 423 of the Internal Revenue Code, it has a higher limit on the percentage of a participant’s
compensation that may be used to purchase shares (25%) and places no dollar limit on the amount of a
participant’s compensation that may be used to purchase shares under the plan. For more information about
the Executive Stock Purchase Plan, see “Compensation Discussion and Analysis” on page 28.
Stock Option Plan. Stock options are awarded to many levels of management, including executive
officers, to align the long-term interests of AutoZone’s management and our stockholders. During the 2010
fiscal year, 555 AutoZone employees received stock options. The stock options shown in the table were
granted pursuant to the AutoZone, Inc. 2006 Stock Option Plan (“2006 Stock Option Plan”).
Both incentive stock options and non-qualified stock options, or a combination of both, can be granted
under the 2006 Stock Option Plan. Incentive stock options have a maximum term of ten years, and non-
qualified stock options have a maximum term of ten years and one day. Options granted during the 2010 fiscal
year vest in one-fourth increments over a four-year period. All options granted under the 2006 Stock Option
Plan have an exercise price equal to the fair market value of AutoZone common stock on the date of grant,
which is defined in the 2006 Stock Option Plan as the closing price on the trading day previous to the grant
date. Option repricing is expressly prohibited by the terms of the 2006 Stock Option Plan.
Each grant of stock options is governed by the terms of a Stock Option Agreement entered into between
the Company and the executive officer at the time of the grant. The Stock Option Agreements provide vesting
schedules and other terms of the grants in accordance with the 2006 Stock Option Plan.
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