Pep Boys 2010 Annual Report Download - page 22

16
• Align executive compensation with shareholder interests by linking long-term incentives to increasing
shareholder value, utilizing performance metrics where appropriate.
Pep Boys’ executive compensation may also take into account the following additional considerations:
• Short term incentives will be structured in a manner which gives primary emphasis to meeting or exceeding
the company’s annual financial objectives;
• Long-term incentives will be designed to reward performance over a multi-year time frame, with vesting of
awards to occur over a corresponding time period;
• 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.
In order to maintain a competitive total compensation program, Pep Boys compares itself with a custom peer
group comprising key competitors in the automotive service and retail business, as well as, comparably-sized
companies in the broader hardlines retail industry. The peer group is reviewed annually by the Compensation
Committee, together with its compensation consultant, to ensure that it remains relevant and was last amended in the
Fall of 2009. The current peer group includes: Aarons, Advance Auto Parts, Autozone, Big 5 Sporting Goods,
Cabela’s, Conn’s, Dick’s Sporting Goods, hhgregg, Midas, Monro Muffler & Brake, O’Reilly Automotive,
PetSmart, RadioShack, Rent-A-Center, Tractor Supply and West Marine. In some cases, Pep Boys also analyzes
competitive practices in the general industry for those positions that may be occupied by executives recruited from
outside of these industries.
For fiscal 2010, the Compensation Committee recommended to the full Board the annual total compensation
levels for all of the named executive officers (other than the President & Chief Executive Officer), based on
recommendations made by the President & Chief Executive Officer and the Senior Vice President - Human
Resources, and in consultation with Pay Governance, the Compensation Committee’s compensation consultant. The
Compensation Committee recommended to the full Board the annual total compensation level for the President &
Chief Executive Officer after consulting with Pay Governance. To arrive at such recommendations, the chair of the
Compensation Committee scheduled and developed the agenda for committee meetings in consultation with the
Senior Vice President - Human Resources. The Senior Vice President - Human Resources was responsible for
developing appropriate materials for the Compensation Committee’s review and consideration and for reviewing
these materials and recommendations with the chair of the Compensation Committee and Pay Governance prior to