Pep Boys 2008 Annual Report Download - page 22

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For fiscal 2008, the Human Resources Committee established target levels that it believed were achievable.
However, it also believed, at the time the target levels were established, that the achievement of the targets was
substantially uncertain. The Human Resources Committee retains full discretion to either award or withhold in its
entirety, or increase or decrease the amount of, short-term incentive plan compensation regardless of the attainment,
or failure to attain, the relevant performance goal(s) (except that short-term incentive plan compensation cannot be
increased in the case of compensation meant to qualify as “performance based” compensation under Section 162(m)
of the Internal Revenue Code).
For fiscal 2008, the Company achieved its corporate objectives in the areas of (i) retail customer service index at
68 and (ii) service center customer service index at 55, resulting in a potential payout of 37% of target.
Accordingly, for fiscal 2008, the Human Resources Committee approved short-term incentive plan compensation
for each of Messrs. Cirelli, Fee and Webb equal to 17% of their respective 2008 annual salaries. As an inducement
for Mr. Arthur to join the Company in fiscal 2008, his short-term incentive plan compensation was guaranteed at
target level regardless of the Company’s performance against its bonus objectives. Despite the Human Resources
Committee’s approval of short-term incentive plan compensation equal to 31% of his 2008 annual salary, Mr. Odell,
citing the fact that the Company had determined not to provide merit increases across its associate base, elected to
forgo any short-term incentive plan compensation. Because Messrs. Rachor and Yanowitz left the employment of
the Company prior to the conclusion of fiscal 2008, neither of them received any short-term incentive plan
compensation.
Long-Term Incentives. We believe that compensation through equity grants directly aligns the interests of
management with that of its shareholders -- long-term growth in the price of Pep Boys stock. The Stock Incentive
Plans provides for the grant of stock options at exercise prices equal to the fair market value (the mean between and
the high and low quoted selling prices) of Pep Boys stock on the date of grant and the grant of RSUs. All of the
stock options granted in fiscal 2008 expire seven years from the date of grant and all stock options and RSUs
granted in 2008 become exercisable in thirds on the first three anniversaries of the date of grant. Dividend
equivalents are paid on RSUs.
Equity grants made in fiscal 2007 were calculated by multiplying a named executive officer’s individual
performance score (detailed in the “Base Salary” discussion above) by a pre-established target grant for such named
executive officer’s position. For the fiscal 2008 equity grants, the Human Resources Committee determined not to
utilize such formula due to the unique employment circumstances of its named executive officers in fiscal 2007.
accordingly, Messrs. Odell, Arthur and Webb received grants based upon their then recent inducement offers to join
the Company and Messrs. Cirelli and Fee received grants based upon the Human Resources Committee’s measure
of such executive’s contributions to the Company in fiscal 2007.
For the fiscal 2009 equity grants, the Human Resource Committee has established target grants designed to be
competitive at market median of our peer group and to assist the named executive officers in achieving our
established ownership guidelines, as described below. In order to further incent our named executive officers to
improve our operating performance, such target grants will consist solely of stock options.
We have established stock ownership guidelines for our executive officers. Under our stock ownership
guidelines, it is recommended that each named executive officer incrementally acquire, over their first five years of
employment with Pep Boys, and then hold, at least two times their annual salary in Pep Boys stock. An officer may
satisfy the stock ownership guidelines through direct share ownership and/or by holding RSUs.
Retirement Plans. We maintain The Pep Boys Savings Plan, which is a broad-based 401(k) plan. Participants
make voluntary contributions to the savings plan, and we match 50% of the amounts contributed by participants
under the savings plan, up to 6% of salary. Due to low levels of participation in the savings plan, the plan
historically did not meet the non-discriminatory testing requirements under Internal Revenue Code regulations. As
a result, the savings plan was required to make annual refunds of contributions made by our “highly compensated
employees” (including the named executive officers) under the savings plan. Beginning in 2004, we limited our
officers’ contributions to the savings plan to ½% of their salary per year. In order to assist our officers with their
retirement savings, we adopted a non-qualified deferred compensation plan that allows participants to defer up to
20% of their annual salary and 100% of their annual bonus. In order to further encourage share ownership and