Dollar General 2012 Annual Report Download - page 43

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program. Adjustments to EBITDA for purposes of calculating performance targets for our long-term
equity incentive program may not in all circumstances be identical to adjustments to EBITDA for other
purposes, including the covenants contained in our principal financial agreements. Accordingly,
comparability of such measures is limited.
All performance-based options and time-based options granted to the named executive officers
prior to 2012, except for those granted to Mr. Vasos, are vested. We have surpassed the cumulative
adjusted EBITDA performance targets through fiscal 2012, and we anticipate surpassing the cumulative
adjusted EBITDA performance target through fiscal 2013, for Mr. Vasos’ options.
(b) 2012 Equity Awards. Since 2010, the Compensation Committee has worked with its
consultant and management to develop a new long-term equity incentive structure that is more in line
with typical public company equity structures. The new structure was finalized and implemented in
March 2012. Under the new program, each of the named executive officers received a grant of
time-based stock options and a grant of performance share units. The combination of time and
performance-based vesting criteria is designed to compensate executives for long-term commitment to
us, while motivating sustained increases in our shareholder value and financial performance.
Consistent with our compensation philosophy and objectives, the value of the long-term
incentive awards was based on the median of the long-term equity target values of our 2012 market
comparator group. The market value for each named executive officer’s position other than the CEO
was blended to establish a single long-term incentive value on which awards are based for all named
executive officers (other than the CEO for whom the market value was not blended). This blending
practice is similar to that which we used in establishing the short-term cash incentive where the targets
for each of the named executive officers’ positions (other than the CEO) are also the same.
For the 2012 grant, the long-term incentive values were awarded 75% in time-based stock
options and 25% in performance share units recognizing that splits between performance and
time-based awards and between options and units are common within our 2012 market comparator
group. The Committee believes this is the appropriate allocation to achieve both the retention and
incentive goals of the awards. The actual number of stock options and performance share units
awarded were determined by applying a Black Scholes formula provided by Meridian to the selected
long-term incentive values.
The options will vest 25% on each of the first four anniversaries of the grant date, subject to
the executive officer’s continued employment with us and certain accelerated vesting provisions.
The performance share units awarded are equal to a target number of performance share units
that can be earned if certain performance measures are achieved during the performance period (which
was fiscal year 2012) and if certain additional vesting requirements are met. The performance measures
are goals related to adjusted EBITDA (weighted 90%) and ROIC (weighted 10%) as established by the
Compensation Committee on the grant date, using the same adjusted EBITDA/ROIC-based
performance criteria used to determine performance under the Teamshare program discussed under
‘‘Short-Term Cash Incentive Plan’’ above. The number of performance share units earned could vary
between 0% and 200% of the target number based on actual performance compared to target
performance on the same graduated scale that determines incentive payouts under our Teamshare
program discussed above. The actual number of performance shares earned for 2012 for each of the
named executive officers was 39,278 for Mr. Dreiling and 6,443 for each of the other named executive
officers. One-third of the performance share units earned based on 2012 financial performance vested
on the last day of the one-year performance period, and the remaining two-thirds of the performance
share units vest on the second and third anniversaries of the grant date, subject to the named executive
officer’s continued employment with us and certain accelerated vesting provisions. All vested
performance share units will be settled in shares of our common stock.
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