Pep Boys 2011 Annual Report Download - page 140

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Compensation Philosophy.
Pep Boys’ executive compensation program is designed to:
• Enable Pep Boys to attract, retain, and motivate key executives who are critical for current and
long-term success;
• Provide targeted compensation levels which are competitive with our customized peer group
(discussed below) as to base salary, annual incentives and long-term incentives, and which are
reflective of current and/or expected future company performance levels;
• Support Pep Boys’ long-range business strategy;
• Establish a clear linkage between individual performance objectives and corporate or business
unit financial performance objectives; and
• Align executive compensation with shareholder interests by linking long-term incentives to
increasing shareholder value, utilizing performance metrics where appropriate.
The Compensation Committee has also adopted the following more specific guidelines in
formulating the detailed elements of Pep Boys’ executive compensation program:
• 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;
At the discretion of the Compensation Committee,
• Payout on any short term incentive component may be made 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, achievement
of target on any one element may be treated 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.
Peer Group.
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
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