Pottery Barn 2007 Annual Report Download - page 126

How are base salaries determined?
The Compensation Committee reviews and sets the company’s executive officers’ base salaries, including those
of the named executive officers, on an annual basis. This review occurred in March 2007 to confirm appropriate
base salaries for fiscal 2007. The Compensation Committee believes that executive officers’ base salaries must
be sufficiently competitive to attract and retain key executives. Accordingly, base pay and annual increases are
determined by analyzing each individual’s salary and total target compensation relative to total salary and target
compensation for similar positions at comparable companies and through a subjective recommendation made by
the Chief Executive Officer based on each executive’s experience and past and anticipated contributions to the
company’s success. In determining executive base salaries, the Compensation Committee also considers overall
company performance. Mr. Miller was the only named executive officer to receive a base salary change in fiscal
2007. Mr. Miller’s base salary was increased from $440,000 to $460,000.
At the beginning of fiscal 2008, the Chief Executive Officer reviewed the performance of the named executive
officers, assessing individual and business unit performance against the expectations set at the beginning of fiscal
2007. The Chief Executive Officer also reviewed proxy peer group data and additional market survey data, as
relevant, to assess the market competitiveness of the current base salary of each named executive officer. While
the Chief Executive Officer believes that the named executive officers are performing well, the overall company
results have not met his expectations. Moreover, after a review of the base salaries of the named executive
officers relative to proxy peer group and market survey data, the Chief Executive Officer determined that the
base salary of each named executive officer was above the 50th percentile at each position, and the current level
of base pay for each was competitive. As a result, the Chief Executive Officer recommended no annual merit
increases or adjustments to the base salaries of the named executive officers for fiscal 2008.
At the March 2008 Compensation Committee meeting, the Compensation Committee discussed the company’s
performance, reviewed the Chief Executive Officer’s recommendations and did not adjust the base salaries of
any of the named executive officers. During an executive session at that meeting, the Compensation Committee
assessed the performance of the Chief Executive Officer and did not adjust his base salary.
How are annual incentives determined?
The company promotes outstanding performance by rewarding executive officers, including the named executive
officers, for achieving specific performance objectives with an annual cash bonus paid through the company’s
2001 Incentive Bonus Plan or, in some cases, through discretionary bonuses granted outside of the plan. The
company pays bonuses under the 2001 Incentive Bonus Plan only when the company meets or exceeds a specific
corporate earnings objective established by the Compensation Committee in the first quarter of each fiscal year.
Bonuses to executive officers, including the named 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. Individual performance is assessed by the Chief Executive Officer and takes into account
achievement of individual goals and objectives. Achievement of objectives that increase shareholder return or
that are determined by the Chief Executive Officer to significantly impact future shareholder return are
significant factors in the Chief Executive Officer’s subjective performance assessment. The Compensation
Committee believes that achieving individual goals and objectives is important to the overall success of the
company and will adjust bonuses paid to reflect performance in these areas. For example, 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 subject
to lesser or no reduction. No awards were granted outside of the 2001 Incentive Bonus Plan in fiscal 2007.
The 2001 Incentive Bonus Plan is intended to qualify bonus payments as deductible performance-based
compensation under Internal Revenue Code Section 162(m), which otherwise restricts our ability to deduct
certain executive compensation to $1,000,000 per executive per year. In accordance with Internal Revenue
Service rules, our 2001 Incentive Bonus Plan payout criteria are specified by the Compensation Committee in the
first quarter of each fiscal year. The performance criteria may not be adjusted after the first quarter. Bonus
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