Dollar General 2011 Annual Report Download - page 74

Proxy
PROPOSAL 3:
VOTE REGARDING THE AMENDED AND RESTATED ANNUAL INCENTIVE
PLAN
What am I being asked to approve?
Our Board of Directors is asking you to approve our Annual Incentive Plan, including the
material terms of the performance goals under the plan, to preserve our ability under Section 162(m)
of the Internal Revenue Code to deduct compensation associated with future performance-based
incentive awards to be made under the plan. The disclosure below is a summary only. For a full
description, you should read the entire text of the plan which is attached as Appendix B.
Why should I approve the Annual Incentive Plan?
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to any
publicly held corporation for individual compensation over $1 million paid in any taxable year to
‘‘covered employees,’’ which term generally includes each of the persons who were, at the end of each
fiscal year, our Chief Executive Officer or one of the other named executive officers (other than our
Chief Financial Officer). Section 162(m) specifically exempts certain performance-based compensation
from the deduction limit. In order to qualify for this exception, our shareholders must re-approve, every
five years, the material terms of the performance goals of the plan under which compensation is to be
paid. Our Annual Incentive Plan contains these performance goals, and therefore is the plan being
proposed for approval by our shareholders.
If the Annual Incentive Plan is not approved at the Annual Meeting, then any bonuses paid to
our ‘‘covered employees’’ will not qualify as ‘‘performance-based compensation’’ and therefore may not
be fully deductible by Dollar General due to the compensation limit imposed by Section 162(m).
Who is eligible to participate in the Annual Incentive Plan?
The CNG Committee of our Board of Directors, or any subcommittee thereof which meets the
requirements of Section 162(m)(4)(C) of the Internal Revenue Code, determines who is eligible to
participate in the Annual Incentive Plan, including any of our ‘‘covered employees’’ under
Section 162(m), any of our executive officers and any other of our employees. A total of 6,538 persons,
including 8 executive officers, received awards under the plan with respect to fiscal 2011, and a total of
7,373 persons, including 8 executive officers, are participating in the plan as of March 23, 2012 with
respect to fiscal 2012. We have no plans to significantly change the scope of the group who is eligible
to earn incentive compensation awards under the plan.
How does the Annual Incentive Plan work?
The Annual Incentive Plan is designed to attract and retain executives and to motivate them to
promote our profitability and growth by means of performance-based annual cash bonuses.
The plan authorizes the payment of cash bonuses based on our actual performance measured
against established business and/or financial performance measures. Prior to the beginning of each
performance period, or at a later time as may be permitted by applicable provisions of the Internal
Revenue Code (which currently is not later than the earlier of (1) 90 days after the beginning of the
period of service to which the performance goals(s) relate or (2) the first 25% of the period of service),
the CNG Committee determines the participants in the plan, establishes for each participant a
maximum award, and establishes the performance goal(s) and the performance measures applicable to,
and the method for computing the amount payable upon achievement of, such performance goals(s).
No participant can receive a bonus under the plan in excess of $5 million in any fiscal year ($10 million
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