Pier 1 2016 Annual Report Download - page 105

COMPENSATION
Target Setting
For fiscal 2016, Pier 1 Imports set rigorous performance targets for
its short-term incentive performance metrics consisting of a “Profit
Goal,” as described below, and e-Commerce revenue growth, and
its long-term incentives consisting of a Profit Goal and TSR. Pier 1
Imports has historically considered the prior year’s actual results
and management’s projections for the year ahead when
determining performance metrics for the fiscal year. Pier 1 Imports
further considered the input from the independent compensation
consultant for the compensation committee and feedback from
shareholders. Finally, Pier 1 Imports reviewed and analyzed
information including analyst expectations as well as historical
performance information for Pier 1 Imports’ peer group for
executive compensation purposes (the “fiscal 2016 peer group,”
more fully described below under the caption “Executive
Compensation Components – Peer Group”).
With considerable rigor, the combination of both internal and
external data was used to establish the targeted fiscal 2016 Profit
Goal as well as the threshold and maximum Profit Goal amounts.
The targeted fiscal 2016 Profit Goal represented an increase of
slightly over 10% above the amount of the Profit Goal achieved for
fiscal 2015. While this increase was below the targeted fiscal 2015
Profit Goal, Pier 1 Imports believes the targeted fiscal 2016 Profit
Goal is aggressive based on the actual amount of the Profit Goal
for fiscal 2015 and the input from the independent compensation
consultant as described above.
The “Profit Goal” metric is a performance metric of earnings
before interest, taxes, depreciation, and amortization, adjusted for
certain recurring non-cash items and unusual or non-recurring
items as determined by the compensation committee.
Advisory Vote on Executive Compensation;
Shareholder Engagement Efforts
Pier 1 Imports believes that it is important for its shareholders to
vote on the say-on-pay proposal on an annual basis as a means to
express their views regarding Pier 1 Imports’ executive
compensation philosophy, compensation policies and programs,
and decisions regarding executive compensation, all as disclosed
in the proxy statement. Pier 1 Imports’ board of directors and its
compensation committee value the opinions of Pier 1 Imports’
shareholders and the compensation committee considers
shareholder input and evaluates whether any actions are
necessary to address shareholder concerns.
At the 2015 annual meeting of shareholders, approximately 68%
of the votes represented and entitled to vote on the advisory vote
on executive compensation approved Pier 1 Imports’ NEO
compensation as disclosed in the proxy statement. While over
two-thirds of shareholders supported the executive compensation
practices of Pier 1 Imports, the board of directors, the
compensation committee and management believed that the
approval percentage decrease from the previous year’s vote
warranted increased focus. Throughout the spring, summer and
fall of 2015, Pier 1 Imports conducted an expanded shareholder
engagement process. Shareholders representing approximately
81% of the shares of Pier 1 Imports common stock were
contacted to meet and discuss their views on Pier 1 Imports’
executive compensation practices. Ultimately throughout the fall
and winter of 2015 and early in 2016, Pier 1 Imports held
discussions with shareholders representing approximately 54% of
the shares of Pier 1 Imports common stock. Those discussions
included participation by the chairman of the board of directors
and/or the chair of the compensation committee with shareholders
representing approximately 28% of the shares.
During fiscal 2016, Pier 1 Imports also engaged with proxy and
other investor advisory service firms that represent the interests of
various stockholders.
A wide range of topics was covered throughout the course of these
discussions, including performance metrics, target setting, and
vesting periods for long-term incentive grants. Many Pier 1 Imports
shareholders expressed similar points of view on particular
compensation issues, however there was generally consensus on
one major issue regarding executive compensation practices. All of
the shareholders with whom Pier 1 Imports spoke want alignment
between pay and performance. While some shareholders favor
particular metrics for rewarding short- or long-term performance,
the general view of Pier 1 Imports’ shareholders is that no specific
metric is prescriptive and Pier 1 Imports should determine which
metrics are appropriate to reward performance. In general,
shareholders view the three-year cumulative cliff vesting for long-
term incentive equity grants favorably. Pier 1 Imports appreciates
the feedback it receives from its shareholders. The compensation
committee continues to carefully consider the views of shareholders
as well as investor advisory service firms when making changes to
executive compensation practices and programs.
Pier 1 Imports’ Actions Which Align With Shareholder
Feedback
The following actions taken by Pier 1 Imports in fiscal 2016 align
with shareholder feedback, exercise sound corporate governance,
and continue to align pay with performance:
‰Implemented three-year cliff vesting, based on a cumulative
Profit Goal, for long-term equity incentive grants effective for
NEOs (other than Mr. Smith as described below).
‰Eliminated catch-up provisions in the Profit Goal-based awards
granted in fiscal 2016 to the NEOs (other than Mr. Smith as
described below).
‰Continued to grant three-year cliff vesting relative-TSR grants.
‰Expanded the target setting process for Profit Goal performance
metrics to include analysis of external data as noted above.
‰Continued to evaluate executive salaries on a case-by-case
basis rather than utilizing across-the-board increases.
PIER 1 IMPORTS, INC. | 2016 Proxy Statement 23