Dollar General 2013 Annual Report Download - page 159

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Benefit plans (Continued)
The Company also has a nonqualified supplemental retirement plan (‘‘SERP’’) and compensation
deferral plan (‘‘CDP’’), known as the Dollar General Corporation CDP/SERP Plan, for a select group
of management and other key employees. The Company incurred compensation expense for these plans
of approximately $1.2 million, $1.4 million and $1.7 million in 2013, 2012 and 2011, respectively.
The CDP/SERP Plan assets are invested in accounts selected by the Company’s Compensation
Committee or its delegate. These investments are classified as trading securities and the associated
deferred compensation liability is reflected in the consolidated balance sheets as further discussed in
Note 6.
10. Share-based payments
The Company accounts for share-based payments in accordance with applicable accounting
standards, under which the fair value of each award is separately estimated and amortized into
compensation expense over the service period. The fair value of the Company’s stock option grants are
estimated on the grant date using the Black-Scholes-Merton valuation model. Forfeitures are estimated
at the time of valuation and reduce expense ratably over the vesting period. The application of this
valuation model involves assumptions that are judgmental and highly sensitive in the determination of
compensation expense.
On July 6, 2007, the Company’s Board of Directors adopted the 2007 Stock Incentive Plan for Key
Employees, which plan was subsequently amended (as so amended, the ‘‘Plan’’). The Plan allows the
granting of stock options, stock appreciation rights, and other stock-based awards or dividend
equivalent rights to key employees, directors, consultants or other persons having a service relationship
with the Company, its subsidiaries and certain of its affiliates. The number of shares of Company
common stock authorized for grant under the Plan is 31,142,858. As of January 31, 2014, 19,871,333 of
such shares are available for future grants.
Through May 2011, a significant majority of the Company’s share-based awards were stock options
that vest solely upon the continued employment of the recipient (‘‘MSA Time Options’’) and options
that vest upon the achievement of predetermined annual or cumulative financial-based targets (‘‘MSA
Performance Options’’). MSA Time and MSA Performance Options generally vest ratably on an annual
basis over a period of approximately five years, with limited exceptions.
Both the MSA Time Options and the MSA Performance Options are subject to various provisions
set forth in a management stockholder’s agreement (‘‘MSA’’) entered into with each option holder. The
MSA contains certain put and call rights and other provisions pertaining to both the option holder and
the Company which may, in certain scenarios, affect the holder’s ability to sell or realize market value
for these instruments and any shares acquired thereunder.
Assuming specified financial targets are met, the MSA Performance Options vest as of the
Company’s fiscal year end, and as a result the initial and final tranche of each MSA Performance
Option grant may be prorated based upon the date of grant. In the event the performance target is not
achieved in any given annual performance period, the MSA Performance Options for that period may
still subsequently vest, provided that a cumulative performance target is achieved. The MSA Time
Options and MSA Performance Options have a contractual term of 10 years and an exercise price
equal to the fair value of the underlying common stock on the date of grant.
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