Pep Boys 2009 Annual Report Download - page 26

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employees or competing with us if they leave Pep Boys of their own volition. As consideration for such restrictive
covenants, the Non-Competition Agreements provide for a severance payment to be made to a named executive
officer if he is terminated by the Company without “cause.” The purpose of the Change of Control Agreements is to
provide an incentive for our officers to remain in our employment and continue to focus on the best interests of Pep
Boys without regard to any possible change of control.
2010 Update. Consistent with the newly-constituted Compensation Committee’s objective of reviewing all
elements of our executive compensation plan, the Compensation Committee will undertake a review of our Non-
Competition and Change of Control Agreements, in light of recent trends in executive compensation with respect to
these types of agreements. The Compensation Committee also plans to consider implementing a “clawback policy”
that would seek to recoup certain incentive based compensation paid to any Officer in certain circumstances.
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 Plan is currently 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). At the 2010 Annual Meeting, the Company is seeking shareholder approval of the performance criteria to
be utilized in awarding performance-based RSUs with the intention that they will similarly qualify. In addition,
bonuses paid to the named executive officers 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). Time-based RSUs, which
had been granted in the past, 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 Compensation 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
2009 was fully deductible.
Compensation Committee Report
We have reviewed and discussed the foregoing 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 January 30, 2010 filed with the SEC.
This report is submitted by M. Shân Atkins, Robert H. Hotz and James A. Mitarotonda.