AutoZone 2013 Annual Report Download - page 36

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Proxy
non-qualified stock options. Although AutoZone receives an income tax deduction for an employee’s gain on
non-qualified stock options, AutoZone does not receive a similar deduction of the exercise of ISOs. Therefore,
AutoZone stopped granting ISOs beginning in fiscal 2013.
AutoZone grants stock options annually. Currently, the annual grants are reviewed and approved by the
Compensation Committee in the meeting (typically in late September or early October) at which it reviews prior
year results, determines incentive payouts, and takes other compensation actions affecting its executive officers.
The Compensation Committee has not delegated its authority to grant stock options; all grants are directly
approved by the Compensation Committee. Option grant amounts for the Chief Executive Officer’s direct
reports and other senior executives are recommended to the Compensation Committee by the Chief Executive
Officer, based on individual performance and the size and scope of the position held. AutoZone’s practice is to
limit the total option shares granted to its employees during the annual grant process to approximately one
percent of common shares outstanding. The annual grant is typically made near the beginning of the fiscal year
and does not include a limited number of promotional or new hire grants that may be made during the fiscal
year. The Committee reserves the right to deviate from this policy as it deems appropriate.
Newly promoted or hired officers may receive an option grant shortly after their hire or promotion. As a
general rule, new hire or promotional stock options are approved and effective on the date of a regularly
scheduled meeting of the Compensation Committee. On occasion, these interim grants may be approved by
unanimous written consent of the Compensation Committee. The grants are recommended to the Compensation
Committee by the Chief Executive Officer based on individual circumstances (e.g., what may be required in
order to attract a new executive). Internal promotional grants are prorated based on the time elapsed since the
officer received a regular annual grant of stock options.
On December 15, 2010, AutoZone’s Compensation Committee authorized the grant of an award of 25,000
performance-restricted stock units (“PRSUs”) to William C. Rhodes, III, AutoZone’s Chairman, President and
CEO. The PRSUs are earned and vest as follows:
• 100% of the PRSUs shall be earned either
(a) on the date on which AutoZone’s stock price reaches $461.12 or more per share for five consecutive
trading days on or before October 1, 2015; or
(b) AutoZone achieves a Diluted Earnings Per Share equal to or greater than $29.94 on the last day of
any fiscal year between the grant date and August 29, 2015.
If one of these performance conditions is met, the PRSUs earned will vest on October 1, 2015 only if
Mr. Rhodes is employed by AutoZone through October 1, 2015.
• In the event that neither of the performance conditions above is met, then 80% (20,000) of the PRSUs
shall be earned if:
(a) AutoZone’s stock price reaches $461.12 or more per share for five consecutive trading days on or
before October 1, 2016; or
(b) AutoZone achieves a Diluted Earnings Per Share equal to or greater than $29.94 on the last day of
any fiscal year between the grant date and August 27, 2016.
If one of these performance conditions is met, the PRSUs earned will vest on October 1, 2016 only if
Mr. Rhodes is employed by AutoZone through October 1, 2016.
Assuming shares are earned and vest, the units will be delivered as shares of AutoZone common stock.
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