Pep Boys 2009 Annual Report Download - page 22

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• The Compensation Committee may determine that payout on any short term bonus component will be
contingent upon achievement of the annual budget. This decision will be made annually, when targets are
set for the ensuing year;
• If the long-term incentive plan includes more than one performance dimension, the Compensation
Committee may decide to treat performance on one element as a prerequisite to payout on other goals (i.e.
as a ‘qualifier’), whether or not threshold performance is achieved on those other dimensions;
• The Compensation Committee believes that requiring achievement of full target performance in order to
trigger any payout under the annual incentive plan is generally inappropriate due to the risk of incenting
poor decision making at the margin. The Compensation Committee will annually set a “threshold”
performance level which is below the target objective, at which point some amount of incentive
compensation will be paid;
• From time to time the Compensation Committee may decide to grant a discretionary, individual short or
long term incentive award based on a specific individual’s performance;
• In the spirit of encouraging over-performance against annual targets, performance above target may be
rewarded disproportionately; i.e. marginal rewards for over-performance may exceed the marginal penalty
for under-performance; and
• All payouts are subject to the discretion of the Compensation Committee even if targets are achieved.
Working with Towers Watson (formerly Towers Perrin), the Compensation Committee also revised our executive
compensation peer group to provide an expanded set of data points from those companies with whom we compete
for both customers and executive talent. The peer group expanded from 11 to 17 companies and now consists of
Aarons, Advance Auto Parts, Autozone, Big 5 Sporting Goods, Cabela’s, Conn’s, Dick’s Sporting Goods, Gander
Mountain, hhgregg, Midas, Monro Muffler & Brake, O’Reilly Automotive, PetSmart, RadioShack, Rent-A-Center,
Tractor Supply and West Marine.
Components of Compensation.
Base Salary. The Compensation 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 retain high quality individuals. The Compensation Committee measures each named executive
officer’s individual performance during the applicable fiscal year on a five-point scale (1-unacceptable; 2-requires
improvement; 3-satisfactory; 4-commendable; 5-outstanding) in the areas of leadership, impact and functional skills,
based upon such executive officer’s supervisor’s assessment. An average performance value is then applied against
the relative position of the named executive officer’s current salary within the market range for his position and the
budgeted percentage increase for all officers as a group. For example, a named executive officer with an average
performance value of 5 whose current salary was at the lowest end of the market range for his position would receive
the highest salary increase. While a named executive officer with an average performance value of 1 whose current
salary was at the highest end of the market range for his position would theoretically receive the lowest salary
increase (in practice, such executive would not receive any increase and likely would be terminated). These
performance values are then applied against the relative position of the named executive officer’s current salary
within the market range for his position and the budgeted percentage increase for all officers as a group. Consistent
with Pep Boys stated fiscal 2009 goal to return to profitability, no percentage increase for officers as a group was
budgeted, and no named executive officer was awarded a merit-based increase to their base salary, for fiscal 2009.
2010 Update. Towers Watson provided the Compensation Committee with peer group base salary data for its
named executive officers, which was considered by the Compensation Committee when it determined whether or not
to award merit-based increases to named executive officers for fiscal 2010.