Pottery Barn 2007 Annual Report Download - page 129

The Compensation Committee believes that each of these factors influences the type and number of shares
appropriate for each individual and that no one factor is determinative. The Compensation Committee granted
SSARs to four of the named executive officers in fiscal 2007 as shown in the “Grants of Plan-Based Awards”
table on page 25.
Mr. Miller received a grant of restricted stock units in fiscal 2005. The grant of restricted stock units was
designed to act as a long-term retention tool and was significantly larger than previous annual long-term
incentive awards. The grant contained a performance condition and a service condition. In November 2007, the
award was amended to remove the performance condition. The Board of Directors believed that removing the
performance condition and retaining the service condition would further enhance the retention value of the award
and was appropriate in light of current market conditions.
For future grants to the named executive officers, the Compensation Committee has decided to continue its use of
restricted stock units, as the Committee believes that awards with immediate value are powerful retention tools
and also result in less dilution to shareholders than awards such as stock options or SSARs. The Compensation
Committee intends to use restricted stock units in future long-term incentive grants to named executive officers,
but may decide to use other equity vehicles in the future as well.
In 2008, the Compensation Committee approved grants of restricted stock units to our fiscal 2008 named
executive officers in the following amounts (the number of restricted stock units granted is equal to the amounts
indicated below divided by the closing price of our common stock on the trading day prior to the grant date):
W. Howard Lester ......................................................... $945,000
Sharon L. McCollam ....................................................... $472,000
Laura J. Alber ............................................................. $472,000
Patrick J. Connolly ......................................................... $378,000
David M. DeMattei ........................................................ $472,000
In determining the award amounts, the Compensation Committee took into account the Chief Executive Officer’s
recommendations. The Chief Executive Officer made grant recommendations based on his review of the
compensation levels of named executive officers in similar positions in our proxy peer group, at levels to ensure
that the long-term incentive amounts, when coupled with base salaries and target annual incentives, resulted in
total target direct compensation for each named executive officer between the 50th and 75th percentiles of our
proxy peer group. The Compensation Committee discussed the Chief Executive Officer’s recommendations and
approved the grants as recommended. The Compensation Committee determined the Chief Executive Officer’s
grant amount in an executive session following the meeting.
The Compensation Committee decided to designate a dollar amount for each grant (rather than designating a
number of restricted stock units to be granted) to ensure that the value of the compensation to be delivered was
not impacted by fluctuations in the company’s stock price prior to the grant date. The restricted stock units will
vest on the fourth anniversary following the effective date of grant, or May 2, 2012. The restricted stock units
also contain a one-year performance metric, based upon our profitability, designed to focus these named
executive officers on a shared business goal that guides our annual and long-term growth. This metric, because it
is based upon profitability, is deemed substantially uncertain of attainment for purposes of Internal Revenue
Code Section 162(m). When the goal was established, however, it was reasonably attainable based upon our
historic and expected levels of profitability. The Compensation Committee believes that these equity grants align
management’s interests with shareholder value creation and create a meaningful incentive for the named
executive officers to remain with the company for a significant period of time.
Prior to vesting, the named executive officers do not have the right to vote or receive dividends on these restricted
stock units. However, dividend equivalents on the shares underlying the grants will be accrued for the benefit of
each participant and paid upon the vesting date, if the underlying shares vest. The Compensation Committee
believes that dividend equivalents on the shares underlying the grants should be connected to the participant’s
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