Pep Boys 2010 Annual Report Download - page 27

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21
known of such misconduct and failed to take appropriate action, then we will seek to recover the related
compensation regardless of the fiscal year in which it was paid.
Share Ownership Guidelines. In fiscal 2010, the Compensation Committee undertook a review of our share
ownership guidelines for all our officers as compared to our peer group and determined to increase the ownership
levels, as a multiple of their annual salary, for our President & Chief Executive Officer from 3x to 5x and our
Executive Vice Presidents from 2x to 3x. As a result of this review, our officers are expected to hold shares equal to
the following multiples of their annual salary: President & Chief Executive Officer 5x; Executive Vice President 3x;
Senior Vice President 2x; and Vice President 1x. The share ownership levels may be satisfied through direct share
ownership and/or by holding unvested time-based RSUs and vested “in the money” stock options. Officers have five
years from the later of their appointment to their then current position or the establishment of a higher ownership
threshold for their position (as described above) to achieve their expected ownership levels. If in a shortfall position,
(i) an officer may not sell Pep Boys Stock, (ii) all net after-tax shares acquired upon the exercise of stock options or
the vesting of RSUs must be retained and (iii) any short-term incentive award in excess of the “cash cap” level will
be awarded in the form of RSUs. All of our named executive officers are currently in compliance with our share
ownership guidelines.
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 and perforamnce-based RSUs will qualify as “performance based” compensation that is not
subject to the $1 million deduction limit under Section 162(m). 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 2010 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 29, 2011 filed with the SEC.
This report is submitted by M. Shân Atkins, Robert H. Hotz and James A. Mitarotonda.