Neiman Marcus 2009 Annual Report Download - page 58

Table of Contents
objectives, individual performance, our overall budget for merit increases, and attainment of our financial goals. Salaries are reviewed
before the end of each fiscal year as part of our performance and compensation review process as well as at other times to recognize a
promotion or change in job responsibilities. Merit increases are usually awarded to the named executive officers in the same
percentage range as all employees and are based on overall performance and competitive market data except in those situations where
individual performance and other factors justify awarding increases above or below this range. Merit increases typically range
between two and eight percent.
In addition, Mr. Tansky and Ms. Katz have employment agreements, described in more detail below beginning on page 69,
that set a minimum salary upon execution of the agreement.
Annual Bonus. Annual bonus incentives keyed to short-term objectives form the second building block of our compensation
program and are designed to provide incentives to achieve certain financial goals of the Company and personal objectives. These
financial goals, which are used to determine annual bonus incentives for all employees, emphasize profitability and asset
management. The Compensation Committee believes that a significant portion of annual cash compensation for the named executive
officers should be at risk and tied to our operational and financial results. "Pay for performance" for the named executive officers has
been significantly enhanced in recent years by putting a larger percentage of their potential compensation at risk in the annual bonus
incentive program.
All named executive officers are eligible to be considered for annual bonus incentives. Threshold, target, and maximum
annual performance incentives, stated as a percentage of base salary, are established for each of the named executive officers at the
beginning of each fiscal year. The objectives set for Mr. Tansky and other senior officers with broad corporate responsibilities are
based on financial results of the overall company as well as individual performance objectives. 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. Other components may also be considered from time to time at the discretion of the Compensation Committee.
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 Compensation Committee believes that stock options
create value for the executives if the value of the Company increases. This creates a direct correlation to the interests of our equity
investors.
Equity awards become effective on the date of approval by the Compensation Committee or the effective date for grants
made in connection with a new hire or a promotion.
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 all eligible officers, including the named executive officers. The initial stock option
grants were not tied to performance objectives and were 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. The initial stock
option grants were awarded at an exercise price equal to the fair market value of our common stock at the time of the grant. The
exercise prices of certain of our options escalate at a 10% compound rate per year (Accreting Options) until the earlier to occur of
(i) exercise, (ii) a defined anniversary of the date of grant (four to five years) or (iii) the occurrence of a change in control. However,
in the event the Sponsors cause the sale of shares of the Company to an unaffiliated entity, the exercise price will cease to accrete at
the time of the sale with respect to a pro rata portion of the accreting options. The exercise price with respect to all other options
(Fixed Price Options) is fixed at the grant date.
Stock options typically vest and become exercisable twenty-five percent on the first anniversary of the date of the grant and
thereafter in thirty-six (36) equal monthly installments over the following thirty-six (36) months, beginning on the one-month
anniversary of such date, until 100% of the option is fully vested and exercisable provided that the participant is still employed by the
Company at such time.
Because of the decline in capital markets and general economic conditions, the exercise prices of these options were in excess
of the estimated fair value of our common stock. In the second and third quarters of fiscal year 2010, we commenced an exchange
offer (Exchange Offer) for all outstanding and unexercised Accreting Options held by all eligible officers including the named
executive officers, extended the option term with respect to the Fixed Price Options and
55