Pep Boys 2009 Annual Report Download - page 35

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(ITEM 3) APPROVAL OF THE AMENDMENT AND RESTATEMENT OF OUR
2009 STOCK INCENTIVE PLAN
TO ALLOW GRANTS OF PERFORMANCE-BASED AWARDS
TO BE DEDUCTIBLE UNDER SECTION 162(M) OF THE INTERNAL REVENUE CODE
On March 30, 2010, the Board of Directors approved, subject to shareholder approval at the Annual Meeting, an
amendment to our 2009 Stock Incentive Plan to provide the Compensation Committee with the flexibility to grant
restricted stock and phantom unit awards, as well as dividend equivalents on phantom units, as performance-based
compensation so that such grants will be deductible under Section 162(m) of the Internal Revenue Code (the
“Code”). The Board of Directors approved an amendment and restatement of the 2009 Stock Incentive Plan to
incorporate this amendment. Prior to this amendment, grants of restricted stock, phantom units and dividend
equivalents on phantom units under the 2009 Plan could not qualify as performance-based compensation under
Section 162(m) of the Code. The Board of Directors is submitting the 2009 Stock Incentive Plan, as amended and
restated, for shareholder approval at the Annual Meeting. By approving the 2009 Plan, as amended and restated, the
shareholders will be approving the material terms of the performance goals under which performance-based
restricted stock and phantom unit awards, as well as dividend equivalents on phantom units, may be earned. The
material terms for which approval is being sought includes the performance criteria used to determine whether such
awards intended as performance-based compensation under Section 162(m) of the Code can become vested, the
eligibility requirements for such awards, and the limits on shares and value of such awards that may be made
pursuant to the 2009 Stock Incentive Plan, so that these performance-based restricted stock, phantom unit and
dividend equivalent awards qualify for the performance-based compensation exemption under Section 162(m) of the
Code.
While the Board of Directors believes that time-based awards granted under the 2009 Plan align the interests of
management with that of our shareholders -- long-term growth in the price of Pep Boys Stock -- the Board of
Directors believes that the issuance of performance-based restricted stock, phantom unit and dividend equivalent
awards further aligns these interests. Accordingly, the Board of Directors amended the 2009 Stock Incentive Plan to
include performance criteria for issuing performance-based restricted stock, phantom units and dividend equivalents
that will only vest if predetermined objectives are achieved.
The Board of Directors further believes that our interests, as well as the interests of our shareholders, will be
advanced if these performance-based awards are structured to qualify for the exemption from the $1 million
deduction limitation under Section 162(m) of the Code. While the deductibility of compensation that is paid is taken
into account by the Compensation Committee, the Compensation Committee has not adopted a policy that all
compensation must be deductible under Section 162(m) of the Code. This preserves the flexibility of the
Compensation Committee to compensate our executive officers in a manner that is consistent with our compensation
philosophy. As a result, our Compensation Committee may grant awards under the 2009 Stock Incentive Plan that
are not deductible under Section 162(m) of the Code.
If our shareholders approve this proposal, we will have the ability to grant performance-based awards of
restricted, phantom units, and dividend equivalents on phantom units to our officers under the 2009 Stock Incentive
Plan that are intended to meet the requirements of Section 162(m) of the Code. Section 162(m) permits us to deduct
“qualified performance-based compensation” in excess of $1 million in any taxable year to our Chief Executive
Officer and certain of our other executive officers, if, among other things, the material terms of the performance-
based awards have been approved by our shareholders. If shareholders do not approve this proposal, any awards
made under the 2009 Stock Incentive Plan that were conditioned on the shareholder approval of this proposal will be
cancelled. If shareholders do not approve this proposal, the Board of Directors will retain the ability to grant
restricted stock and phantom unit (including dividend equivalents on such) awards under the 2009 Stock Incentive
Plan that vest based on the attainment of performance goals, however, such awards will not qualify for the Section
162(m) performance-based compensation exemption.
The Board of Directors has unanimously approved, and recommends that the shareholders approve, the
amendment and restatement of the 2009 Stock Incentive Plan so that performance-based restricted stock, phantom
unit and dividend equivalent awards may be granted under the 2009 Stock Incentive Plan that qualify for the
performance-based compensation exemption under Section 162(m) of the Code.