Neiman Marcus 2009 Annual Report Download - page 59

Table of Contents
modified additional Fixed Price Options to purchase additional shares. See discussion on "Stock Options" on page 59 of this section.
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, including the
named executive officers. In the event of a change in control, as defined, or an initial public offering, as defined, and if, in each case,
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 in October 2005 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.
Risk Assessment of Compensation Policies and Programs
We have reviewed our compensation policies and programs for all employees, including the named executive officers, and
we do not believe that these policies and practices create risks that are reasonably likely to have a material adverse effect on the
Company. The three major components of our overall compensation package were reviewed and the following conclusions were
made:
— Base salaries are determined by an industry peer group analysis and the overall experience of each individual.
Merit increases are based on financial as well as individual performance and are generally kept within a specified
percentage range for all employees, including the named executive officers;
— Because of our non-public status, long-term incentive awards in the form of stock option grants can be exercised
but must be held until such time as a public market exists thereby aligning the interests of employees with those of
our Sponsors; and
— Annual incentive bonus awards are based on Adjusted EBITDA, ROIC, and inventory turn, which are all set at the
beginning of each fiscal year based on the achievement of goals that the Compensation Committee believes will be
challenging. Maximum target payouts are capped at a pre-established percentage of base salary.
The Compensation Committee has discretionary authority to adjust incentive plan payouts and the granting of stock options,
which further reduces any business risk associated with such plan payouts and stock option grants.
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
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