Pottery Barn 2005 Annual Report Download - page 117

How does the Compensation Committee address Internal Revenue Code Section 162(m)?
Under Section 162(m) of the Internal Revenue Code of 1986, as amended, and regulations adopted under it by
the Internal Revenue Service, publicly held companies may be precluded from deducting certain compensation
paid to certain executive officers in excess of $1,000,000 in a year. The regulations exclude from this limit
performance-based compensation and stock options, provided certain requirements, such as shareholder
approval, are satisfied. Exceptions to this deductibility limit may be made for various forms of “performance-
based” compensation. The company believes that awards granted under the company’s equity incentive plans can
be excluded from the $1,000,000 limit. We believe that bonuses awarded under the 2001 Incentive Bonus Plan
are excluded from calculating the limit. While we cannot predict how the deductibility limit may impact the
company’s compensation program in future years, we intend to maintain an approach to executive compensation
that strongly links pay to performance.
Who prepared this report?
Members of the Compensation Committee, Adrian D.P. Bellamy, Jeanne P. Jackson and Richard T. Robertson,
prepared this report.
Nominations and Corporate Governance Committee Report
Who serves on the Nominations and Corporate Governance Committee?
The Nominations and Corporate Governance Committee consisted of Michael R. Lynch, Sanjiv Ahuja and
Adrian D.P. Bellamy from January 31, 2005 to August 18, 2005. David B. Zenoff was appointed to the
Nominations and Corporate Governance Committee on August 18, 2005. From August 18, 2005 until the present,
the Nominations and Corporate Governance Committee consisted of Mr. Lynch, Mr. Ahuja, Mr. Bellamy and
Dr. Zenoff. Mr. Lynch serves as Chairman of the Nominations and Corporate Governance Committee. The Board
has determined that each current member of the Nominations and Corporate Governance Committee is
independent under the NYSE rules, as currently in effect. Each current member of the Nominations and
Corporate Governance Committee is a non-employee director.
What is the role of the Nominations and Corporate Governance Committee?
Our role is detailed in the Nominations and Corporate Governance Committee Charter, which was amended and
restated by the Board on March 15, 2006. The Nominations and Corporate Governance Committee Charter is
available on the company’s website at www.williams-sonomainc.com and is attached to this Proxy Statement as
Exhibit C. The Nominations and Corporate Governance Committee Charter is also available in print to any
shareholder who requests it. Specifically, we:
• Periodically review and recommend to the Board suitable revisions to the corporate governance
guidelines applicable to the company and the categorical standards of independence applicable to the
company’s outside directors;
• Annually consider and review with the Board criteria for selecting new director candidates, identify
individuals qualified to become Board members and periodically assist in screening and evaluating
director candidates;
• Consider director nominations from shareholders; and
• Annually evaluate the performance of the company’s Chief Executive Officer and oversee the evaluation
of the performance of the company’s management and the Board.
Does the Nominations and Corporate Governance Committee have a policy with regard to the consideration of
director candidates recommended by shareholders?
We adopted a Shareholder Recommendations Policy on March 16, 2004. It is our policy to consider
recommendations for candidates to the Board from shareholders holding no less than 500 shares of the company’s
common stock continuously for at least six months prior to the date of the submission of the recommendation.
29
Proxy