Pottery Barn 2006 Annual Report Download - page 116

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Does the Compensation Committee delegate any of its authority?
We do not delegate any of our authority with respect to executive officers and non-employee directors of the
company. However, we have appointed an Equity Award Committee to which we have delegated the ability to
grant awards under the company’s 2001 Long-Term Incentive Plan to those employees who are not executive
officers. The Equity Award Committee consists of two of the company’s directors, W. Howard Lester and
Patrick J. Connolly. The Equity Award Committee has the discretion to make awards annually of up to 20,000
shares to any individual and an aggregate of 400,000 shares of the company’s common stock to all individuals.
We receive reports of grants made by the Equity Awards Committee at our regularly scheduled meetings.
What is management’s role in the compensation setting process?
Although we do not delegate any of our authority with respect to executive officers and non-employee directors
of the company, management does play a significant role in the compensation-setting process. In particular,
management assists us with the following:
• Evaluating individual employee performance;
• Establishing appropriate business performance targets and objectives; and
• Recommending salary and cash bonus levels and equity awards.
Management prepares meeting information for each Compensation Committee meeting and works with our
Committee Chairperson to establish meeting agendas. We receive these materials at least several days in advance
of each meeting. We generally meet in executive session at the end of each meeting. We consider, but are not
bound to and do not always accept, management proposals. The Chief Executive Officer also participates in
Compensation Committee meetings at our request to provide:
• Background information regarding the company’s strategic objectives;
• Evaluations of the performance of senior executive officers; and
• Compensation recommendations as to senior executive officers (other than the Chief Executive Officer).
Does the Compensation Committee have outside advisors?
The Compensation Committee charter grants us the sole authority to hire and fire our own outside advisors and
compensation consultants. Although the company pays their compensation, these advisors report directly to us.
We have engaged Frederic W. Cook & Co., Inc., or Frederic W. Cook, as an independent executive
compensation consulting firm to assist us in discharging our responsibilities from time to time. During fiscal
2006, Frederic W. Cook provided us with market data related to executive and director compensation and
provided advice related to our former CEO’s departure from the company. Frederic W. Cook also provides
certain services to management, primarily related to providing market data.
What is the Compensation Committee’s philosophy of executive compensation?
We believe that the company’s executive compensation programs should support the company’s objective of
creating value for its shareholders. Accordingly, we believe that executive officers and other key employees
should have a significant stake in the company’s stock performance and that compensation programs should link
executive compensation to shareholder value. For this reason, we strive to ensure that the company’s executive
officer compensation programs are designed to enable the company to attract, retain, motivate and reward highly
qualified executive officers while maintaining strong and direct links between executive pay, individual
performance, the company’s financial performance and shareholder returns. One of the ways we have sought to
accomplish this is by making a significant portion of individual compensation directly dependent on the
company’s achievement of financial goals, and by providing significant rewards for exceeding those goals. We
believe that strong financial performance, on a sustained basis, is an effective means of enhancing long-term
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