Dollar General 2006 Annual Report Download - page 116

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executive officer and director compensation in the best interests of Dollar General and our
shareholders.
What are the elements of NEO compensation and why does the Committee choose to pay
them?
We provide compensation in the form of base salary, short-term incentives, long-term
incentives, benefits and perquisites. As described in more detail below, the Committee believes
that each of these elements is a necessary component of an NEO’s overall compensation package
and are consistent components of compensation programs at competing companies. The
Committee reviews base salary, short-term incentives, and long-term incentives at least annually
and other elements periodically when material changes are considered. These reviews include
evaluating the relationship of each element to the competitive market, the appropriate mix of
each element in determining total compensation and the role of each element in addressing the
principles and philosophy described above.
How is base salary determined?
In general, the Committee believes that base salary assists in fulfilling the recruiting and
retention functions of our compensation principles by reflecting the responsibilities of the
position, the experience and contribution of the individual, and the salaries for comparable
positions in the competitive marketplace. The Committee believes that we would be unable to
attract or retain quality NEOs in the absence of competitive base salary. For this reason, base
salary constitutes a significant portion of an NEO’ s total compensation. The base salary element
also assists in fulfilling the pay for performance role of our compensation philosophy because
NEOs are not eligible for any base salary increase or annual incentive payment unless they
perform satisfactorily against their previously established individual performance goals.
In determining each NEO’ s base salary, the Committee reviews the benchmarking data
provided by Hewitt, as described above, to determine comparable salaries for the position in the
market. The Committee assesses the comparability of the duties and responsibilities of the
position to those of the market positions and may adjust the median compensation value of the
benchmark position up or down accordingly. The Committee then reviews the NEO’s
experience level and performance, the relationship of the NEO’ s salary to that of the other
NEOs, and any other appropriate factor, such as when the NEO was hired or promoted and the
relationship of the NEO’ s salary to that of the other NEOs and executives. The Summary
Compensation Table contained in this report shows the amount of base salary earned by each
NEO in fiscal 2006.
How were NEO base salary adjustments determined in fiscal 2006?
Individual performance goals are established each year for the CEO by the Committee
and for the other NEOs by the CEO. In fiscal 2006, individual goals were based on the areas of
our business for which the NEO was responsible, as well as overarching Dollar General goals
and initiatives, including measures regarding Dollar General growth (revenue, total sales, same
store sales, new stores, etc.), market share, merchandising and marketing strategies, shrink
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