Neiman Marcus 2004 Annual Report Download - page 63

comparison to the targets; however, the Committee has the discretion to make adjustments to ensure that award payments reflect our operating
results and are not inflated or deflated artificially.
Key Employee Bonus Plan. The Neiman Marcus Group, Inc. Key Employee Bonus Plan (the "Key Employee Bonus Plan") provides incentive
compensation opportunities for our key employees. Under the Key Employee Bonus Plan, participants designated by the Committee have the
opportunity to receive incentive compensation awards based on the attainment of specific performance goals established by the Committee as of
the beginning of each performance period. Participants may elect to receive all or a percentage of their annual incentive bonus in shares of Class A
Common Stock ("Elected Common Stock") pursuant to the 1997 Plan. Shares of Elected Common Stock are issued at the fair market value of the
Company's Class A Common Stock on the date of the election. The stock election also entitles an executive to receive additional shares of the
Company's Class A Common Stock in the future ("Deferred Common Stock") if the executive remains in the employment of the Company for a
three-year period and does not otherwise dispose of the Elected Common Stock. The number of shares of Deferred Common Stock will be equal
to 25 percent of the number of shares of Elected Common Stock and will not be issued until the three-year period has been completed. The Elected
Common Stock is not subject to forfeiture and is fully transferable upon issuance. If the executive disposes of the Elected Common Stock, the
Deferred Common Stock will be forfeited.
Long-Term Incentives. In fiscal year 2005, the Committee adopted a new philosophy regarding the award of long-term incentives to certain
key employees, including the Named Executive Officers, in order to encourage building more real stock ownership and increase the relative risk
and reward ratio. The new long-term incentive is based on a dollar value versus a number of shares or units awarded. The dollar value award
provides each participant with the flexibility to mix and match the various forms of awards based on individual risk tolerance and financial
situation as well as offering a more favorable tax treatment. The long-term incentive dollar value was determined by using a modified Black
Sholes valuation and price of the Class A Common Stock.
Using the dollar value of the long-term incentive award, each choice award recipient is allowed to allocate the dollar value of the award among
matching restricted stock units ("MRSU"), stock options, and restricted stock units ("RSU"). The allocation can be made entirely to one
alternative, or to a combination of two or three alternatives. If MRSUs are chosen, the choice award recipient is required to purchase a number of
shares of Class A Common Stock (the "Matched Common Stock") at 100% of the fair market value on the date of the award and hold such shares
for a period of three years from the date of the award (the "Vesting Date"). On the Vesting Date, if the recipient is still employed by us and has not
otherwise disposed of the Matched Common Stock, he or she will receive one share of Class A Common Stock equal to the number of shares of
Matched Common Stock. MRSUs and RSUs do not carry voting rights. Upon the declaration by the Board of any cash dividends on the common
stock, outstanding MRSUs will be increased by a fractional unit ("Dividend Equivalents") having a numerator equal to the amount per share of the
cash dividend and a denominator equal to the closing price of a share of Class A Common Stock on the New York Stock Exchange on the date a
cash dividend is paid.
If RSUs were chosen as a percentage of the dollar value of the award, the choice award recipient will receive a contractual right to receive one
share of Class A Common Stock equal to the number of RSUs subject to the same retention period as the MRSUs. RSUs carry no voting rights
and accrue Dividend Equivalents in the same manner as MRSUs.
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