Pottery Barn 2004 Annual Report Download - page 98

What are the criteria considered in awarding annual incentives?
Under the 2001 Incentive Bonus Plan, key performance criteria for evaluating executive officers include business
and financial objectives, and people and organizational goals, as well as other relevant factors as determined by
us with input from the company’s senior management. These criteria change from year to year. For fiscal 2004,
the Compensation Committee determined that no portion of the total target bonus amount under the 2001
Incentive Bonus Plan would be payable unless a prescribed company goal relating to company profitability (the
“Company Objective”) was achieved.
In the first quarter of each fiscal year, we review a performance report that summarizes management’s view
regarding whether, and to what extent, the key performance criteria were attained for the prior fiscal year. The
performance report also discusses any other significant but unforeseen factors that may have positively or
negatively affected the company’s performance.
For fiscal 2004, the company exceeded the Company Objective and, as a result, full target bonus amounts were
paid pursuant to the 2001 Incentive Bonus Plan. Since the performance levels of the executive officers and the
company exceeded the company’s targeted goals, the Compensation Committee granted additional bonuses on a
discretionary basis outside of the 2001 Incentive Bonus Plan to the company’s executive officers reflecting each
such officer’s contribution to the company’s financial results for fiscal 2004.
We verify the company’s actual earnings for each performance period, review management’s recommendation
for the resulting aggregate bonus awards and approve an aggregate award amount. We also review and approve
the individual bonus recommendations for the company’s executive officers. The company’s Chief Executive
Officer approves the bonus recommendations for all other eligible employees below the executive officer level.
Based on the company’s performance in fiscal 2004 and certain brand-specific metrics, incentive bonuses were
paid to the named executive officers as follows:
Named Executive Officer
Bonus Under the
2001 Incentive
Plan
Additional
Discretionary Bonus Total Bonus Paid
Mr. Lester .................... $516,370 $214,930 $731,300
Mr. Mueller ................... 516,370 214,930 731,300
Mr. Connolly ................. 187,825 2,175 190,000
Ms. Alber .................... 166,669 79,331 246,000
Ms. McCollam ................ 171,037 63,963 235,000
How is long-term incentive compensation determined?
The third component of the company’s executive compensation program consists of annual stock option grants.
We continue to believe that stock option grants are important for motivating executive officers and other
employees to increase shareholder value over the long term. We granted stock options to the named executive
officers in fiscal 2004. Our stock option grants to executive officers are designed to be competitive with those
offered by comparable companies for an executive’s job level, to reflect the company’s assessment of the
executive’s ongoing contributions to the company, to create an incentive for executives to remain with the
company, and/or to provide a long-term incentive to help the company achieve its financial and strategic
objectives. Annual stock option grants to our executive officers fall generally within the third quartile of option
grants to similarly situated executive officers at comparable companies.
In determining the amount of stock options granted to an individual executive, the Compensation Committee
considers such factors as:
• Awards previously granted to an individual;
• An individual’s outstanding awards;
• The vesting schedule of the individual’s outstanding awards;
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