Pep Boys 2006 Annual Report Download - page 21

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15
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Summary.
The compensation provided to the executives listed in the Summary Compensation Table, whom we refer to as
our named executive officers, consists of base salaries, short-term cash incentives, long-term equity incentives,
retirement plan contributions and heath and welfare benefits. Long-term incentives consist of stock options and
restricted stock units, or RSUs. Our executive compensation program is designed to attract and retain highly-
qualified individuals and to reward such individuals for their efforts in achieving our corporate objectives, and is
based upon four principles:
•Performance-oriented. Ensuring the alignment of shareholder, corporate and individual goals.
•Value-oriented. Ensuring optimum value creation, while considering tax effectiveness, accounting impact,
overhang and dilution considerations.
•Fairness. Ensuring an executive team orientation, where future value is equitable relative to an
individual’s role and contribution.
•Corporate Ownership. Building executive stock ownership to demonstrate commitment to and faith in
thefutureofPepBoys.
All program components are designed to be competitive at market median of other comparably sized retail
companies, with the opportunity to earn more or less based on performance. The compensation mix as a percentage
of total compensation is designed to reflect market competitiveness and job level responsibility. The Human
Resources Committee recommends to the full Board of Directors the annual total compensation levels for all of the
named executive officers (other than the CEO), based on recommendations made by the CEO and the head of
Human Resources and consultation with the Hay Group, a global management consultancy. The Human Resources
Committee recommends to the full Board of Directors the annual total compensation level for the CEO, based on
recommendations made by the head of Human Resources and the General Counsel and consultation with the Hay
Group.
The current executive compensation program structure was originally adopted in 2004 following a
comprehensive consulting engagement of the Hay Group. Since its adoption in 2004, we have made annual
adjustments to the component compensation levels based upon consultation with the Hay Group and benchmarking
analysis conducted against the compensation levels of our competitors and similarly sized specialty retailers.
The Human Resources Committee and the Board of Directors consider our overall compensation levels for the
named executive officers to be reasonable and appropriate.
Please note that the discussion that follows is applicable to each of Messrs. Bacon, Smith, Page and Yanowitz,
who were named executive officers in fiscal 2006 and continue to be executive officers as of the date of this Proxy
Statement, and Mr. Stevenson, our former CEO who resigned on July 17, 2006. A separate discussion regarding the
compensation paid to Mr. Leonard, who served as our Interim CEO from July 18, 2006 through March 25, 2007,
follows under “Interim Chief Executive Officer.”
Components of Compensation.
Base Salary. The Human Resources Committee reviews base salaries annually to reflect the experience,
performance and scope of responsibility of the named executive officers and to ensure that the salaries are at levels
that are appropriate to attract and retain high quality individuals. The Human Resources Committee measures each