Big Lots 2007 Annual Report Download - page 36

- 22 -
As a consequence of the fiscal 2007 bonus payments, total cash compensation paid to the named executive officers
for fiscal 2007 was at or above the median for our peer group. We believe higher than market average total cash
compensation is appropriate in light of our fiscal 2007 performance and furthers our objectives to motivate our
executives and reward superior performance.
Equity for Fiscal 2007
The equity awarded to the named executive officers in fiscal 2007 is reflected in the Grants of Plan-Based Awards
table. To determine the size of the equity awards for EMC members, the Committee first considered corporate
performance to establish the total pool of common shares that would be made available for equity awards to all
EMC members collectively. Then, individual performance, the responsibilities of the executive and the comparative
compensation data were considered to determine the percentage of the total pool to be granted to each EMC
member. This process is intended to ensure that executive equity compensation is commensurate with corporate
and individual performance and consistent with our policy that incentive compensation should increase as a
percentage of total compensation as the executive’s level of responsibility increases.
The fiscal 2007 equity compensation for the named executive officers consisted of non-qualified stock options
and restricted stock awards under the 2005 Incentive Plan. The Committee believes that the grant of a significant
quantity of stock options and restricted stock to the named executive officers further aligns their interests with the
interests of our shareholders and provides us with a significant retention and motivation tool. Consequently, the
named executive officers’ equity interests in our organization, through stock options and restricted stock, comprise
a substantial portion of their compensation and help to align their personal rewards and motivation with our
performance and shareholder value.
The stock options awarded to the named executive officers in fiscal 2007 have an exercise price equal to the fair
market value of our common shares on the grant date, vest equally over four years, and expire seven years after the
grant date. The allocation of stock options to restricted stock was two-to-one for Mr. Fishman and three-to-one for
the other named executive officers. The Committee and other outside directors believe this difference is necessary
to provide Mr. Fishman with equity compensation that is competitive with the equity compensation awards made
to chief executive officers by peer group companies and to further our practice of increasing the percentage of
compensation at risk as an executive’s level of responsibility increases.
The financial measure applied to the restricted stock awards made in fiscal 2007 was the greater of income per
common share – diluted from continuing operations and income per common share – diluted from continuing
operations before extraordinary item and/or cumulative effect of a change in accounting principle (as the case may
be). If neither of these amounts appear on the consolidated statements of operations included in our Form 10-K
for the applicable fiscal year, then the financial measure to be used is the greater of income per common share –
diluted before extraordinary item and/or cumulative effect of a change in accounting principle (as the case may be)
and income per common share – diluted as it appears in the Form 10-K for the applicable fiscal year. Each financial
measure is adjusted to remove the effect of any gain or loss as a result of litigation or lawsuit settlement that is
specifically disclosed, reported or otherwise appears in our periodic filings with the SEC or our annual report
to shareholders. These financial measures were selected because the Committee and the other outside directors
believe they provide a good indication of our profitability, ongoing operating results and financial condition.
The first trigger selected for the fiscal 2007 restricted stock awards is $0.25 under the applicable financial measure.
Upon attaining the first trigger, the award is eligible to vest under one of three scenarios – the attainment of the
second trigger, the lapsing of five years while remaining continuously employed, or the grantee’s death or disability
(in which case 20% of the award vests for each consecutive year of employment completed from the grant date
to the date of death or disability). The second trigger selected for the fiscal 2007 restricted stock awards is $1.65
under the applicable financial measure. When the Committee and the other outside directors approved the financial
measures and corporate performance amounts applicable to the second trigger in March 2007, we believed those
measures represented strong, but reasonable, levels of performance that would be a challenge to achieve. The
second trigger for restricted stock awarded in fiscal 2007 was approximately 190% greater than the second trigger
for restricted stock awarded in fiscal 2006. We believe this large increase is appropriate in light of our high levels
of performance in fiscal 2006, during which we exceeded the second trigger for the restricted stock awarded to
executives in February 2006, and our objectives to motivate our executives, reward superior performance and align
the interests of our executives and shareholders. While the first trigger was met for the fiscal 2007 restricted stock
awards, the second trigger was not.