Pep Boys 2006 Annual Report Download - page 25

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19
Mr. Leonard’s director compensation received in fiscal 2006 is not reflected in the named executive officer
compensation tables below.
Former Chief Executive Officer Severance.
As a result of Mr. Stevenson’s resignation in July 2006, under the terms of his Non-Competition Agreement, in
exchange for a general release of any claims against the Company and a covenant not to solicit any of the
Company’s employees for a period of one year, Mr. Stevenson received a cash payment of $1,000,000 representing
one year of base salary. In connection with obtaining Mr. Stevenson's release, we also agreed to purchase for
cancellation, in order to reduce share dilution, all of his outstanding options, for $1,691,307.84 at their then current
in the money value (the number of then vested options multiplied, by the amount by which the then underlying
share price exceeded the exercise price - without any premium or vesting acceleration). Upon his resignation, Mr.
Stevenson also received his vested benefits under The Pep Boys Savings Plan and The Pep Boys Deferred
Compensation Plan.
Tax and Accounting Matters.
We consider the tax and accounting impact of each type of compensation in determining the appropriate
compensation structure. For tax purposes, annual compensation payable to the named executive officers generally
must not exceed $1 million in the aggregate during any year to be fully deductible under Section 162(m) of the
Internal Revenue Code. The Stock Incentive Plans are structured with the intention that stock option grants will
qualify as “performance based” compensation that is not subject to the $1 million deduction limit under Section
162(m). In addition, bonuses paid to the CEO under the Annual Incentive Bonus Plan qualify as “performance
based” compensation that is not subject to the $1 million deduction limit under Section 162(m). RSUs generally do
not qualify as “performance based” compensation for this purpose and are therefore subject to the $1 million
deduction limit. In order to compete effectively for the acquisition and retention of top executive talent, we believe
that we must have the flexibility to pay salary, bonus and other compensation that may not be fully deductible under
Section 162(m). Accordingly, the Human Resources Committee retains the authority to authorize payments that may
not be deductible under Section 162(m) if it believes that such payments are in the best interests of Pep Boys and
our shareholders. All compensation paid to the named executive officers in fiscal 2006 was fully deductible.
Compensation Committee Report
We have reviewed and discussed the forgoing Compensation Discussion and Analysis with management. Based
upon our review and discussion with management, we have recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Proxy Statement and in Pep Boys’ Annual Report on
Form 10-K for the fiscal year ended February 3, 2007 filed with the SEC.
This report is submitted by:
Peter A. Bassi
John T. Sweetwood
Nick White
James A. Williams