AutoZone 2013 Annual Report Download - page 37

Proxy
The purpose of this one-time award is to motivate continued high performance while enhancing the
retention characteristics of the compensation package applicable to the Chief Executive Officer:
Performance Retention
• The target financial measures, diluted earnings
per share and stock price, relate directly to
stockholder success.
• Achieving a payout under the award terms
requires continued and sustained high
performance.
• The potential realizable value of the award is
significant, while remaining balanced by other
elements of the compensation program to
mitigate against risk related to unintended
consequences.
• The terms of the grant require Mr. Rhodes to
remain actively employed at least through the
applicable vesting date, even if one or both of
the performance goals is reached prior to then.
For more information about our stock-based plans, see Discussion of Plan-Based Awards Table on page 36.
Stock purchase plans. AutoZone maintains the Employee Stock Purchase Plan which enables all
employees to purchase AutoZone common stock at a discount, subject to IRS-determined limitations. Based on
IRS rules, we limit the annual purchases in the Employee Stock Purchase Plan to no more than $15,000, and no
more than 10% of eligible compensation. To support and encourage stock ownership by our executives,
AutoZone also established a non-qualified stock purchase plan. The Fifth Amended and Restated AutoZone, Inc.
Executive Stock Purchase Plan (“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.
The Executive Stock Purchase Plan operates in a similar manner to the tax-qualified Employee Stock
Purchase Plan, in that it allows executives to contribute after-tax compensation for use in making quarterly
purchases of AutoZone common stock. Options are granted under the Executive Stock Purchase Plan each
calendar quarter and consist of two parts: a restricted share option and an unvested share option. Shares are
purchased under the restricted share option at 100% of the closing price of AutoZone stock at the end of the
calendar quarter (i.e., not at a discount), and a number of shares are issued under the unvested share option at no
cost to the executive, so that the total number of shares acquired upon exercise of both options is equivalent to
the number of shares that could have been purchased with the deferred funds at a price equal to 85% of the stock
price at the end of the quarter. The unvested shares are subject to forfeiture if the executive does not remain with
the company for one year after the grant date. After one year, the shares vest, and the executive owes taxes
based on the share price on the vesting date (unless a so-called 83(b) election was made on the date of grant).
The table below can be used to compare and contrast the stock purchase plans. For more information about
the Executive Stock Purchase Plan, see Discussion of Plan-Based Awards Table on page 36.
Employee Stock Purchase Plan Executive Stock Purchase Plan
Contributions After tax, limited to lower of 10%
of eligible compensation or
$15,000
After tax, limited to 25% of
eligible compensation
Discount 15% discount based on lowest
price at beginning or end of the
quarter
15% discount based on quarter-
end price
Vesting None (one-year holding period
only)
Shares granted to represent 15%
discount restricted for one year;
one-year holding period for shares
purchased at fair market value
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