Big Lots 2011 Annual Report Download - page 53

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• The Committee reviewed the total number of common shares authorized for awards in fiscal 2011 to
ensure that such amount would not exceed the total number of common shares available for grant in
fiscal 2011. See the “Bonus and Equity Plans” disclosure that follows the Summary Compensation Table
for more information concerning the common shares available for issuance under the 2005 LTIP.
This process was employed to ensure that executive equity compensation is commensurate with corporate and
individual performance and remains consistent with our policy that incentive compensation should increase
as a percentage of total compensation as the executive’s level of responsibility and the potential impact that
the executive could have on our operations and financial condition increases. Specifically, the retention of
Mr. Fishman, as discussed in the “Retention Agreement” section of this CD&A, and the items of corporate and
individual performance, as described in the “Performance Evaluation” section of this CD&A, were the most
significant factors in determining the size of the equity awards made to our named executive officers in fiscal 2011.
In comparison to the other named executive officers who received restricted stock and stock options, Mr. Fishman’s
fiscal 2011 equity award was solely in the form of restricted stock. The Committee and other outside directors
believe this difference is necessary to retain Mr. Fishman, as they believe his continued leadership is important
to our future performance, and to provide him with equity compensation that is competitive with the equity
compensation awards made to chief executive officers by peer group companies. Additionally, this decision was
driven by the following considerations:
• The CEO should receive more at-risk incentive compensation than the other named executive
officers. Consistent with the philosophy of our executive compensation program, the Committee and
other outside directors believe that our CEO should be awarded at-risk incentive compensation in
larger amounts than the other named executive officers, because our CEO’s level of responsibility
and potential impact on our operations and financial condition are greater than the other named
executive officers.
• Restricted stock is generally more valuable to the executive than stock options and, therefore, requires
fewer common shares to provide an equivalent value. The per share value of restricted stock to the
executive is generally greater than the per share value of stock options to the executive. This is generally
true because stock options provide value to the executive only if and to the extent the market price of
our common shares increases during the exercise period, while restricted stock provides value once
it vests. Therefore, it is more efficient to deliver equity awards in the form of restricted stock. We
can award fewer common shares in the form of restricted stock and still provide the executive with
the same value that could be delivered by awarding a greater number of common shares underlying a
stock option.
• Awarding fewer common shares is less dilutive to our shareholders and the other equity award
recipients. Using fewer common shares underlying restricted stock awards to deliver an equivalent
value to the executive in stock options has the benefit of being less dilutive to our shareholders and uses
fewer of the common shares available under the 2005 LTIP. As discussed in the “Retention Agreement”
section of this CD&A, we entered into a retention agreement with Mr. Fishman in March 2010 to
provide him restricted stock awards as the only form of equity compensation in fiscal 2010, fiscal
2011 and fiscal 2012. In comparison to fiscal 2009 when Mr. Fishman received 530,000 common
shares (i.e., 200,000 common shares underlying a restricted stock award and 330,000 common shares
underlying a stock option award), the total number of common shares awarded to Mr. Fishman has been
reduced by 280,000 common shares annually in fiscal 2010 and fiscal 2011 – a 52.8% reduction.
• Counterbalancing factors: It is not permissible, and may not be cost-effective to us, to grant all equity
awards in the form of restricted stock. Although it may be more efficient and less dilutive to provide
equity awards in the form of restricted stock, the: (1) 2005 LTIP prohibits us from awarding more than
one-third of all awards granted pursuant to the plan in the form of restricted stock, restricted stock units
and performance units; (2) financial statement expense to us associated with restricted stock is generally
greater on a per share basis than the expense to us associated with stock options; and (3) Committee
and other outside directors believe stock options also provide a strong incentive to increase shareholder
value, because stock options provide value to the executive only if the market price of our common
shares increases.