Neiman Marcus 2008 Annual Report Download - page 58

Table of Contents
When an employee has responsibility for a particular business unit or division, the performance goals are heavily weighted toward the
operational performance of that unit. Actual awards earned by the named executive officers are determined based on an assessment of
our overall performance, a review of each named executive officer's contribution to our overall achievement, and an assessment of
each named executive officer's performance.
The employment agreements of Mr. Tansky and Ms. Katz contain provisions regarding target levels and the payment of
annual incentives and are described in more detail below.
Long-Term Incentive. Long-term incentives in the form of stock options are intended to promote sustained high performance
and to align our executives' interests with those of our equity investors. The stock options, which vest over five years (other than in
the case of Mr. Tansky whose options vest over four years), will only create value for the executives if the value of the Company
increases. This creates a direct correlation to the interests of our equity investors.
An initial stock option grant was made in fiscal year 2006 under the Neiman Marcus, Inc. Management Equity Incentive Plan
(referred to as the Management Incentive Plan) to each of the named executive officers. The initial grant was made following the
consummation of the Acquisition in order to retain the senior management team and enable them to share in the growth of the
Company along with our equity investors. All grants of stock options under the Management Incentive Plan have an exercise price at
least equal to the fair market value of our common stock on the date of grant. No grants of stock options have been made to the
named executive officers since the initial grant in fiscal year 2006.
In addition, following the consummation of the Acquisition, the Neiman Marcus, Inc. Cash Incentive Plan (referred to as the
Cash Incentive Plan) was adopted in fiscal year 2006 to aid in the retention of certain key executives, including our named executive
officers. Under the Cash Incentive Plan, a $14 million cash bonus pool was created to be shared by its participants. In the event of a
change in control or an initial public offering in which the internal rate of return to our investors is positive, each participant in the
Cash Incentive Plan, subject generally to continued employment, will be entitled to a cash bonus based upon the number of options
that were granted to the participant under the Management Incentive Plan relative to the other participants in the Cash Incentive Plan.
Mr. Tansky will be entitled to receive (subject, with certain exceptions, to continued employment) a cash bonus under the Cash
Incentive Plan in the amount of $3,080,911 pursuant to the terms of his employment agreement. If the internal rate of return to the
Sponsors is not positive following a change in control or an initial public offering, no amounts will be paid to those participating in the
Cash Incentive Plan. No amounts have been paid to date under the Cash Incentive Plan and none are anticipated until a change of
control or initial public offering occurs.
Executive Officer Compensation
Process for Evaluating Executive Officer Performance
Role of the Compensation Committee. The Compensation Committee is responsible for determining the compensation of our
named executive officers and for establishing, implementing and monitoring adherence to our executive compensation philosophy.
The Compensation Committee charter authorizes the committee to retain and terminate compensation consultants to provide advice
and evaluation relative to the named executive officers. The Compensation Committee is further authorized to approve the fees and
retention terms of any consultant it retains.
The Compensation Committee considers input from our CEO, our Senior Vice President and Chief Human Resource Officer,
and the compensation consultants in making determinations regarding our executive compensation program and the individual
contribution of each of our named executive officers. The CEO does not play a role in his own compensation determinations other
than discussing individual performance objectives. The CEO's performance assessment and compensation are reviewed and
determined solely by the Compensation Committee.
In developing and reviewing the executive incentive programs, the Compensation Committee considers the business risks
inherent in program designs to ensure they do not induce executives to take unacceptable levels of business risk for the purpose of
increasing their incentive plan awards. The Committee ensures that the plan designs are conservative in this respect and that together
the compensation components work as a check and balance to ensure executive incentives are fully consistent with the interests of our
equity investors. The Compensation Committee believes that the mix of compensation components used in the determination of our
named executive officers' compensation does not encourage our named executive officers to take unreasonable risks relating to the
business.
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