Pier 1 2007 Annual Report Download - page 89

MATTERS RELATING TO CORPORATE GOVERNANCE, BOARD STRUCTURE,
DIRECTOR COMPENSATION AND STOCK OWNERSHIP
Corporate Governance
The board of directors believes that good corporate governance is a prerequisite to achieving business
success. Pier 1’s board of directors has adopted formal written corporate governance guidelines, policies and
procedures designed to strengthen Pier 1’s corporate governance. The board has amended those guidelines,
policies and procedures on several occasions. Among other things, the guidelines contain standards for
determining whether a director is independent, a code of business conduct and ethics applicable to all of Pier
1’s directors, officers and employees, and charters for each of the board’s committees. The nominating and
corporate governance committee is responsible for overseeing and reviewing the guidelines at least annually,
and recommending any proposed changes to the full board for its approval. The Pier 1 Imports, Inc. Corporate
Governance Guidelines, Code of Business Conduct and Ethics and charters for the audit, compensation, and
nominating and corporate governance committees are available on Pier 1’s web site at www.pier1.com under
the heading Investor Relations — Corporate Governance and are available in print to any shareholder who
requests a copy.
Director Independence
It is Pier 1’s policy that the board of directors will at all times consist of a majority of independent
directors. In addition, all members of the audit committee, compensation committee, and nominating and
corporate governance committee must be independent. To be considered independent, a director must satisfy
both the subjective and objective independence requirements established by the New York Stock Exchange
(“NYSE”). In assessing independence under the subjective test, the board took into account the standards in
the objective tests, and reviewed and discussed additional information provided by the directors and Pier 1
with regard to each director’s business and personal activities as they may relate to Pier 1 and Pier 1’s
management. Based on the foregoing, as required by NYSE rules, the board made a subjective determination
as to each independent director that no relationships exist with Pier 1 which, in the opinion of the board, is
material. The board has not established categorical standards or guidelines to make these subjective determi-
nations. The board will consider and apply all relevant facts and circumstances relating to a director in
determining whether that director is independent.
Based on the NYSE independence requirements, the board has determined that six of the seven current
members of the board of directors are independent. They are directors Hoak, Thomas, Burgoyne, Ferrari, Katz
and London. Pier 1’s president and chief executive officer Alexander W. Smith is the seventh member of the
current board. On March 21, 2007, Mr. Hoak announced his decision not to stand for re-election. Based on the
NYSE independence requirements, the board has determined that director nominees Robert B. Holland, III and
Cece Smith, who are described below under the caption Nominees for Directors, are independent. Indepen-
dence for both the current non-employee directors and the director nominees was considered under both the
subjective and objective requirements of the NYSE. In other words, none of the current non-employee
directors or director nominees were disqualified from independent status under the objective standard, and
under the subjective standard each non-employee director and director nominee was determined to not have a
material relationship with Pier 1.
In considering the independence of Mr. Holland, the board considered all the relevant facts and
circumstances, including Mr. Holland’s adult son’s employment in the external audit area of an accounting
firm previously retained by Pier 1 to provide support and assistance to Pier 1’s internal audit group.
Mr. Holland’s adult son is not a partner with the firm, does not work in the internal audit area of the firm, and
did not perform any work on Pier 1 matters. Based upon these and the other relevant facts and circumstances
considered, the board determined that Mr. Holland does not have a material relationship with Pier 1 and meets
the objective NYSE requirements.
In considering the independence of Mr. Thomas, the board considered all the relevant facts and
circumstances, including Mr. Thomas’ position as a shareholder of the Winstead PC law firm which performs
2