Dollar General 2007 Annual Report Download - page 123

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The Committee reviewed benchmarking data provided by Hewitt of a market comparator
group substantially similar to the group used for purposes of 2007 compensation decisions (with
the addition of Payless Shoe Source, Retail Ventures and Big Lots and the removal of Office
Depot and RadioShack). This benchmarking data showed that there was a significant movement
in the market median for Ms. Guion’ s position and, as a result, the Committee adjusted her pay
accordingly. The Committee approved 3% base salary increases for all NEOs (other than Mr.
Dreiling, who did not receive a base salary increase since he was hired shortly before the end of
the 2007 fiscal year, and Ms. Guion, who received an approximate 15.5% base salary increase
for the reason discussed above) in order to maintain base salaries at the median of the market
comparator group.
Short-Term Incentive Plan. Our short-term incentive plan, called Teamshare, serves to
motivate NEOs to achieve certain objective financial goals that are established early in the fiscal
year. As is the case with base salary, as a threshold matter an NEO may not receive a Teamshare
payout unless he or she receives a satisfactory overall performance evaluation, even if the
Teamshare financial goal is attained. Accordingly, Teamshare fulfills a part of our pay for
performance philosophy while aligning our NEOs’ and shareholders’ interests. Teamshare also
helps us meet our recruiting and retention objectives by providing compensation opportunities
that are consistent with those prevalent in our market comparator group.
(a) 2007 Teamshare Structure. Teamshare authorizes the payment of cash bonuses,
calculated as a percentage of base salary, based on our performance measured against a financial
performance measure established early in the fiscal year. “Threshold,” “target” and “maximum”
performance goals are set, along with corresponding potential payout percentages. Payouts are
prorated between threshold and maximum levels in relation to actual performance results.
In 2007, the Compensation Committee had decided to re-evaluate its historical use of net
income as the Teamshare performance measure given changes in our business strategy, but
before that evaluation could occur we announced the proposed Merger and agreed to consult
with KKR on significant changes to certain of our normal business practices. KKR requested,
and the Committee agreed, to adopt a metric based principally upon earnings before interest,
taxes, depreciation and amortization (EBITDA) as the sole 2007 Teamshare performance
measure. After discussions with KKR, the Committee set this performance target for 2007 at
$570 million, which was equal to our annual financial objective. Consistent with prior practice
and after consultation with KKR, the Committee also set the threshold and maximum levels at
90% and 110%, respectively, of the target level. The Committee considered the Teamshare
performance target to be challenging and generally consistent with the level of difficulty of
achievement associated with our performance-based awards for prior years. We did not achieve
the threshold Teamshare performance level in fiscal years 2006 or 2005. We achieved
Teamshare performance levels between threshold and target in fiscal years 2004 and 2002 and at
maximum in fiscal year 2003.