Harris Teeter 2012 Annual Report Download - page 90

Annual cash incentive plan awards (“Incentive Bonuses”) are provided to the current NEOs through the 2006
Cash Incentive Plan, which was approved by the shareholders at the Annual Meeting of Shareholders held on
February 15, 2007. Awards under the 2006 Cash Incentive Plan link incentive pay to level of achievement of
financial performance criteria. The Compensation Committee awards potential Incentive Bonuses to the current
NEOs based upon each such NEO’s level of responsibility within the Company, and the attainment of that potential
compensation is based upon the performance of the Company. In particular, the Compensation Committee has set
forth performance metrics for the Company based on information which the Compensation Committee deems most
important to determining the performance of such entities. The footnotes to the Cash Incentive Plan Awards for
2012 table identify the different performance metric thresholds which the current NEOs would be required to meet
in order to earn an Incentive Bonus under the plan. At its meeting in November 2012, the Board of Directors adopted
the 2013 Cash Incentive Plan being presented to shareholders for approval at this Annual Meeting (see “Proposal
2: Approval of the Harris Teeter Supermarkets, Inc. 2013 Cash Incentive Plan”). It is anticipated that future Incentive
Bonuses would be granted pursuant to the 2013 Cash Incentive Plan.
Harris Teeter Supermarkets, Inc. is a holding company for its primary operating subsidiary Harris Teeter, Inc.
(“Harris Teeter”), and prior to the sale of A&E, was a holding company for both Harris Teeter and A&E. Historically
Incentive Bonuses for the Company’s executives were based on the performance of the company by which such
executive was employed (i.e., Harris Teeter Supermarkets, Inc., Harris Teeter or A&E). At the time the performance
criteria for Fiscal 2012 Incentive Bonuses were set, Mr. Dickson and Mr. Woodlief were employed by Harris Teeter
Supermarkets, Inc. and Mr. Morganthall and Mr. Antolock were employed by Harris Teeter. Accordingly, for Fiscal
2012, Incentive Bonuses for Mr. Dickson and Mr. Woodlief were based on NOPAT Return and Incentive Bonuses
for Mr. Morganthall and Mr. Antolock were based on operating profit margin. As described above, Mr. Jackson
was no longer an employee of the Company as of November 2011, and, as such, the Compensation Committee
did not award him an Incentive Bonus for Fiscal 2012.
Generally, if the Company or its subsidiary achieves the applicable predetermined minimum goals, which are
approved by the Compensation Committee, executives are paid a predetermined percentage of their base salary
as their Incentive Bonus. The percentage of base salary payable as Incentive Bonus increases as the operating profit
margin or NOPAT Return increases. The Compensation Committee has the discretion to eliminate or reduce the
Incentive Bonus payable to any or all of the current NEOs in accordance with the 2006 Cash Incentive Plan.
The Compensation Committee uses NOPAT Return and operating profit margin as performance measures for
the Company because the Compensation Committee believes these measures are appropriate determinates of the
Company’s success. NOPAT Return is a measure by which the Compensation Committee is able to determine the
Company’s return on total invested capital (for all investors, including shareholders and debt holders). NOPAT Return
effectively adjusts for the financing of a company and is a better measure of the operational performance of the
business. By using NOPAT Return the Compensation Committee is able to determine the on-going operational success
of the Company. Operating profit margin is a measurement of what proportion of a company’s revenue is remaining
after paying for all operating costs, specifically excluding financing costs. Operating profit margin provides a measure
of how much a company earns (before interest and taxes) on each dollar of sales. If the operating profit margin is
increasing, the Company is earning more per dollar of sales. In addition, the Compensation Committee has chosen
these performance measures because the Compensation Committee believes these measures are used by third parties,
such as investment banks, analysts and lenders, to judge the performance of the Company and its competitors, and
these performance measures are utilized by the Company when evaluating their performance against its peers. Further,
these measures are used to compensate various other employees at the Company. However, as described below, for
future years the Compensation Committee expects to utilize the same Incentive Compensation performance metrics
for all named executive officers, with variance in individual awards as a percentage of base salaries and the thresholds
for incentive bonuses reflective of their respective roles at the Company.
Pursuant to its authority under the 2006 Cash Incentive Plan, in connection with determining whether the
Company achieved its performance criteria for Fiscal 2012 Incentive Bonuses, the Compensation Committee
excluded the $29.8 million of Lowes Foods Transaction Expenses, as these expenses represented one-time non-
operational items occurring during the relevant performance period. The Compensation Committee determined that
including the Lowes Foods Transaction Expenses in the NOPAT Return or operating profit margin calculations
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