Big Lots 2008 Annual Report Download - page 29

- 16 -
• Attract and retain executives by paying them amounts and offering them elements of compensation that
are competitive and consistent with most companies in our peer groups.
We believe a key factor in attracting and retaining qualified executives is to provide total compensation
that meets or exceeds the total compensation paid by companies in our compensation “peer groups”
discussed in the “Comparative Compensation Data” section of this CD&A. In addition, we believe most
executives who consider changing employers expect the same types of compensation elements as are
provided by our peer groups and/or their current employer. While we do not generally structure our
executive compensation program to be competitive with employers outside of our peer groups (although
we may do so in order to attract a particular candidate that we believe is well-suited for our business),
we believe it is necessary to offer candidates elements of compensation consistent with other companies
within our peer groups. We believe the amounts and elements of compensation that we offer make us
competitive within our peer groups, and offering competitive packages has enabled us in recent years
to attract and retain quality executives. We believe failing to offer competitive amounts and elements of
compensation to candidates and our executives would impair our ability to attract and retain a high level
of executive talent.
Each of the elements of compensation we provide serves a different role in attracting and retaining
executives. Salary serves as a short-term retention tool. Bonus under the Big Lots 2006 Bonus Plan
(“2006 Bonus Plan”) is based on annual corporate financial performance and is designed primarily to
retain executives on a year-to-year basis. Stock options issued under the 2005 Incentive Plan vest over
four years in prorated annual increments and provide executives with an incentive to remain with us
through the seven-year term of the stock option. Restricted stock awarded to executives under the 2005
Incentive Plan encourages executives to remain with us for up to five years after the award date, as such
restricted stock generally only vests if (i) we meet a threshold corporate financial goal (“first trigger”)
and (ii) either we meet another more challenging corporate financial goal (“second trigger”) or five
years lapse. Accordingly, the restricted stock encourages retention for up to five years, with the period
being reduced if we are performing at a high level. We believe that the perceived value to the executives
of the personal benefits and perquisites we offer to them, while immaterial to us in amount, and the
convenience of having these benefits when faced with the demands of their positions, makes them a
meaningful element of our compensation program.
• Motivate executives to contribute to our success and reward them for their performance.
We use the bonus and equity elements of our executive compensation program as the primary tools to
motivate our executives to continually improve our business in order to promote sustainable profitability
and enhanced shareholder value. These compensation elements provide executives with meaningful
incentives to exceed the corporate financial goals set by our Board each year.
For an executive to earn a bonus under the 2006 Bonus Plan, we must achieve a minimum corporate
performance amount established by the Committee at a time when achievement of that amount is
substantially uncertain. Although bonuses will be paid to executives under the 2006 Bonus Plan for fiscal
years in which we achieve minimum or target corporate performance amounts, our executives also have
an opportunity to earn up to double the amount of their target bonus compensation if we exceed the target
corporate performance amount. Conversely, if we do not meet the minimum corporate performance
amount, executives do not receive a bonus under the 2006 Bonus Plan. We believe this structure is
essential to motivate executives to not only meet the goals we set, but also to surpass those goals.
Restricted stock granted to executives under the 2005 Incentive Plan is a full value award. Accordingly,
we believe it is appropriate to require us to achieve at least a threshold corporate financial goal (i.e.,
the first trigger) before restricted stock issued under the 2005 Incentive Plan may vest. We believe
imposing a performance requirement in the form of a corporate financial goal, which is established by
the Committee at a time when achievement of the goal is substantially uncertain, encourages positive
performance and protects our other shareholders from dilution in the absence of our performance. As
discussed above, restricted stock awarded to our executives vests on an accelerated basis if we achieve
the second trigger. The second trigger is established when the award is made, and is typically based on a
projected multi-year operating plan. While the restricted stock awarded to our executives may vest after
several years if we perform in line with our goals, our executives have an incentive to meet or exceed
those goals at a faster rate in order to accelerate the vesting of their restricted stock.