Pep Boys 2011 Annual Report Download - page 145

achievement of a level of pre-tax income in fiscal 2011, which exceeded 2010’s level. Because this
objective was not achieved, no calendar 2011 contributions were made.
Health and Welfare Benefits. As one element of a market-competitive compensation package, we
also provide our named executive officers with health and welfare benefits, including medical and
dental coverage, life insurance valued at one times salary, long term disability coverage and an auto
allowance (the auto allowance is a grandfathered benefit no longer provided to newly- hired/appointed
officers).
Employment Agreements. We have entered into Non-Competition and Change of Control
Agreements with each of the named executive officers as described in ‘‘Employment Agreements with
Named Executive Officers’’ below. The purpose of our Non-Competition Agreements is to prevent our
named executive officers from soliciting our 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.
Recoupment Policy. We will seek to recover, at the direction of the Compensation Committee, all
or a portion of any compensation awarded or paid to a current or former Officer during the prior three
fiscal years year if (i) the amount of such compensation was based on the achievement of certain
financial results that were subsequently the subject of a restatement due to the material noncompliance
of the Company with any financial reporting requirement under the securities laws and (ii) a lower
award or payment would have been made to the Officer based upon the restated financial results. If,
however, the Compensation Committee determines that an Officer engaged in misconduct that resulted
in the obligation to restate or knew or should have 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. 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.
Anti-hedging Policy. Our Officers and Directors are prohibited from entering into contracts,
instruments or other transactions or purchasing securities (a) designed to hedge against their Company
stock holdings or (b) that derive their value with or in relation to the price of a share of Company
stock (except for transactions under Company stock plans).
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
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