Pep Boys 2013 Annual Report Download - page 40

35
(ITEM 4) RE-APPROVAL OF OUR
ANNUAL INCENTIVE BONUS PLAN
TO ALLOW CERTAIN AMOUNTS PAID UNDER THE PLAN TO CONTINUE TO BE DEDUCTIBLE
UNDER SECTION 162(m) OF THE INTERNAL REVENUE CODE
We are re-submitting The Pep Boys – Manny, Moe & Jack Annual Incentive Bonus Plan (the “Bonus Plan”) for
shareholder approval so that the Compensation Committee may continue to award bonuses under the Bonus Plan that
qualify for the performance-based compensation exemption from the $1,000,000 deduction limit under Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The Bonus Plan, including the material
terms of the performance goals, was last approved by our shareholders at our 2009 Annual Meeting. Section 162(m)
of the Code generally requires re-approval of the material terms of the performance goals under an incentive
program, such as the Bonus Plan, every five years in order for a company to continue to have the ability to grant
awards that qualify as performance-based compensation under Section 162(m) of the Code. The material terms for
which approval is being sought include the performance criteria used to determine whether such awards intended as
qualified performance-based compensation under Section 162(m) of the Code will be paid, the eligibility
requirements for such awards, and the maximum amount that may be paid to any participant under the Bonus Plan.
The Bonus Plan provides for the award of cash bonuses to eligible employees based on their achievement of
certain preset performance objectives, be it company-wide, departmental or, where appropriate, individual
performance, over our fiscal year. The Board of Directors believes that the Bonus Plan furthers our compensation
structure and strategy and encourages results-oriented actions on the part of our eligible employees. Employees
holding officer or director level positions are eligible to participate in the Bonus Plan. Section 162(m) of the Code
permits us to deduct “qualified performance-based compensation” in excess of $1,000,000 in any taxable year to our
President & Chief Executive Officer and certain of our other executive officers, if, among other things, the material
terms of the performance-based compensation have been approved by our shareholders. The Board of Directors
believes that our interests, as well as the interests of our shareholders, will be advanced if we continue to have the
ability to structure incentive awards under the Bonus Plan that qualify for the exemption from the $1,000,000
deduction limitation under Section 162(m) of the Code. If our shareholders approve this proposal, we will continue
to have the ability to provide performance-based bonuses to our officer and director level employees under the
Bonus Plan that will meet the requirements of Section 162(m) of the Code.
If our shareholders do not approve this proposal, the Bonus Plan will continue; however, the Compensation
Committee will no longer be able to grant awards under the Bonus Plan that qualify for the qualified performance-
based exemption under Section 162(m) of the Code.
The material terms of the Bonus Plan are summarized below. A copy of the Bonus Plan is attached to this Proxy
Statement as Exhibit A. This summary of the Bonus Plan is not intended to be a complete description of the Bonus
Plan and is qualified in its entirety by the text of the Bonus Plan, to which reference is made.
Material Features of the Bonus Plan
Types of Awards. The Bonus Plan provides that incentive awards may be granted that qualify as qualified
performance-based compensation under Section 162(m) of the Code. In addition to such awards, awards may be
granted under the Bonus Plan that do not qualify as such; provided, however, that in no event may any award be
granted under the Bonus Plan in substitution or replacement of an award intended to qualify as qualified
performance-based compensation under Section 162(m) of the Code. If our shareholders do not approve this
proposal, we will no longer be able to issue incentive awards under the Bonus Plan that qualify for exemption from
the $1,000,000 deduction limitation under Section 162(m) of the Code. All incentive awards payable under the
Bonus Plan are paid in cash.
Administration. The Bonus Plan is administered by the Compensation Committee. As such, the Compensation
Committee has the power and authority to take all actions and make all determinations which it deems necessary or
desirable to effectuate, administer and interpret the Bonus Plan. The Compensation Committee has the power and
authority to extend, amend, modify and terminate the Bonus Plan at any time; however, the Compensation