Pier 1 2007 Annual Report Download - page 106

by our board. Like the annual incentive EBITDA target amount discussed above, the cumulative EBITDA
target amount of $331,000,000 was based in part on information about the average growth rates of peer
companies’ EBITDA levels as provided in the Hewitt study and survey.
Pier 1’s stock option and performance based restricted stock awards are designed to promote success to
our executives only when there is a corresponding increase in value to shareholders. To remain competitive,
however, Pier 1 must also design its executive incentive package to ensure our ability to attract and retain a
highly skilled and motivated executive team, which is critical to our future success and to maximizing
shareholder value. Pier 1’s executive pay, therefore, includes a healthy mix of annual incentive/bonus and
long-term compensation components. Overall pay is heavily weighted with incentive based awards that are
realized only when the board established performance goals, like EBITDA, developed in part from peer group
studies and surveys, are achieved. Using targets that are benchmarked to exceed peer group performance is,
however, unrealistic given the turnaround environment in which Pier 1 currently operates.
In recent years Pier 1 has reported quarterly losses and declining sales and no executive earned or
received a performance bonus for fiscal years 2004, 2005, 2006 and 2007 because the established performance
goals were not met. Additionally, all stock option awards granted during those time periods have an exercise
price higher than the closing price of Pier 1’s common stock at the end of fiscal 2007, which was $6.63. In
order to achieve our goal of once again making Pier 1 profitable, we need to retain the flexibility to design a
pay program that is both motivational and realistically achievable. Pier 1 remains committed to utilizing
rigorous performance goals as a measure of executive compensation and benchmarking those goals to peer
group studies and surveys.
Pier 1’s commitment to these efforts is shown in the recent employment agreement with its new chief
executive officer and president, Alexander W. Smith. A significant portion of his compensation package
consists of stock option awards that will vest only when EBITDA (as defined in his employment agreement)
performance goals are achieved for Pier 1’s fiscal years 2009 and 2010. It is anticipated that Pier 1 will
establish the target levels for the vesting of his options using in part a peer group study and survey similar to
the one described above.
It would not be prudent at this time to condition payment of incentives on meeting or exceeding
performance standards of other peers which bear no relation to Pier 1’s focus on a return to profitability. Pier
1 needs the flexibility at this time to design and implement realistic and achievable annual and long-term
incentive plans for its executives, while taking the factors suggested by the shareholder proposal into
consideration, as needed.
For these reasons, the board of directors unanimously recommends a vote “AGAINST” this
proposal.
EXECUTIVE COMPENSATION
Compensation Committee Report
The compensation committee has reviewed and discussed with management the Compensation Discussion
and Analysis below. Based on the review and discussion, the compensation committee has recommended to
the board that the Compensation Discussion and Analysis be included in Pier 1’s proxy statement.
COMPENSATION COMMITTEE
James M. Hoak, Jr., Chairman
John H. Burgoyne
Former Committee Members during Fiscal 2007:
Tom M. Thomas
Karen W. Katz
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