Pep Boys 2013 Annual Report Download - page 27

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Long-Term Incentives. We believe that compensation through equity grants directly aligns the interests of
management with that of the Company’s shareholders. The Stock Incentive Plan provides for the grant of stock
options at exercise prices equal to the fair market value (the mean of the high and low quoted selling prices) of Pep
Boys stock on the date of grant, and for the grant of restricted stock units.
For the fiscal 2013 equity grants, the Compensation Committee recommended, and the full Board approved,
equity grants consisting of 40% time-based vesting stock options and 60% performance-based vesting restricted
stock units (PSUs). Stock options vest over three years and have a seven-year term. Two-thirds of the 2013
performance-based PSUs are tied to the Company achieving at least a threshold return on invested capital and one-
third are tied to achieving at least a threshold level of total shareholder return measured relative to our peer group.
Both performance-based PSU metrics are measured as of the end of the ensuing three-year performance period. The
Compensation Committee then established target grant values for these long-term incentive components that when
added to the other components of compensation are intended to aggregate to a total target remuneration that is
competitive to the market median of our peer group.
In fiscal 2013, after considering the relative position of each named executive officer’s total compensation to the
market median of our peer group, the Compensation Committee recommended, and the full Board approved, the
following long-term incentive levels as a percentage of base salary.
Target %
of Base Salary
2013 Actual Grant
as a % of Base
Salary
Title
President & CEO 120% 120%
Executive Vice President 50% 50%
Senior Vice President 40% 40%
In addition, as an inducement to join the Company, each of Messrs. Adams and Flanagan was granted restricted
stock units valued at 20% of his starting base salary which vest ratably over three years.
Update. As more fully described above, beginning in fiscal 2014, in lieu of historically made retirement plan
contributions, we will increase the target percentage of base salary that long-term incentive grants represent. Such
grants will be delivered in the form of 40% PSUs, 40% stock options and 20% RSUs.
Retirement Plans. We maintain The Pep Boys Savings Plan, which is a broad-based 401(k) plan. Participants
make voluntary contributions to the savings plan, and we match 50% of the amounts contributed by participants
under the savings plan, up to 6% of salary. Due to low levels of participation in the savings plan, the plan
historically did not meet the non-discrimination testing requirements under Internal Revenue Code regulations. As a
result, the savings plan was required to make annual refunds of contributions made by our “highly compensated
employees” (including the named executive officers) under the savings plan. Beginning in 2004, we limited our
officers’ contributions to the savings plan to 0.5% of their salary per year. Given this limitation, and in order to
assist our officers with their retirement savings, in fiscal 2004 we adopted a non-qualified deferred compensation
plan that allows participants to defer up to 20% of their annual salary and 100% of their annual bonus. To further
encourage share ownership and more directly align the interests of management with that of its shareholders, the first
20% of an officer’s bonus deferred into Pep Boys Stock is matched by the Company on a one-for-one basis with Pep
Boys Stock that vests ratably over three years.
Because the Company did not pay out bonuses under the Annual Incentive Plan to the named executive officers,
no 2013 match deferrals were made.