Pep Boys 2011 Annual Report Download - page 26

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In order to incent the achievement of incremental profitability, all Company contributions to the savings plan
and Account Plan (on account of all associates, including the named executive officers) that would otherwise have
been made during calendar 2011 were conditioned upon the Company’s 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.
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
Boyswithout 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 $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