Pottery Barn 2005 Annual Report Download - page 114

some cases, through discretionary bonuses granted outside of the plan. The company pays bonuses under the plan
only when the company meets or exceeds a specific corporate earnings objective as established by us in the first
quarter of each fiscal year. Bonuses to executive officers, whether granted within or outside of the 2001 Incentive
Bonus Plan, are based on the company’s performance and on each executive officer’s individual performance. If
the company or the executive officer fails to fully meet some or all of the company or individual objectives, the
award may be significantly reduced or even eliminated. Conversely, if the objectives are overachieved, awards
may be significantly increased above target thresholds set under the 2001 Incentive Bonus Plan pursuant to the
pre-determined formula and maximums of the plan.
In March 2005, we established a fiscal 2005 target annual incentive amount under the 2001 Incentive Bonus Plan
(the “target bonus”) for all of the company’s executive officers, including the Chief Executive Officer. The
executive officers’ target bonus under the 2001 Incentive Bonus Plan was above the 50th percentile of annual
incentive bonus targets of similarly situated executive officers at comparable companies. The executive officers’
base salaries and the bonus target together place annual cash compensation above the 50th percentile of similarly
situated executive officers at comparable companies.
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 2005,
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 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 2005, the company met the Company Objective and, as a result, target bonus amounts were paid
pursuant to the 2001 Incentive Bonus Plan.
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 2005 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
Mr. Lester ............................................ $731,300
Mr. Mueller .......................................... 731,300
Ms. Alber ............................................ 280,000
Ms. McCollam ........................................ 274,000
Mr. Connolly ......................................... 230,000
How is long-term incentive compensation determined?
The third component of the company’s executive compensation program consists of equity compensation awards.
We continue to believe that equity compensation awards are important for motivating executive officers and
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