Pottery Barn 2008 Annual Report Download - page 133

Why were no annual incentives awarded for fiscal 2008?
As noted above, no bonuses were awarded to our named executive officers for fiscal 2008 under or outside of the
Bonus Plan.
Under the shareholder-approved Bonus Plan, no amount was payable for fiscal 2008 unless the primary
performance goal was achieved. During fiscal 2008, the company was negatively impacted throughout the year
by the weakening general macro-economic environment and its impact on the retail industry. We have been
operating in one of the most challenging macro-economic environments in many years. The retail sector has
declined significantly, beyond our expectations at the time the earnings per share goal was set. As a result of this
and other factors, the fiscal 2008 primary performance goal of annual earnings of $1.25 per share was not
achieved. Under the terms of the Bonus Plan, no bonuses were payable under the Bonus Plan for fiscal 2008.
The Compensation Committee has discretion to award bonuses outside of the Bonus Plan if it believes doing so
is appropriate or meets the company’s compensation goals. Despite strong performance in very challenging
conditions, the Compensation Committee determined not to award any discretionary bonuses to our named
executive officers for fiscal 2008.
In making its decision, the Compensation Committee evaluated company performance and the individual
performance of the named executive officers. The Chief Executive Officer made recommendations to the
Compensation Committee based on his subjective assessment of each executive’s performance relative to their
roles and areas of responsibility. The Compensation Committee discussed the Chief Executive Officer’s
recommendations at the meeting and concurred that business conditions in general and the company’s financial
results for the year dictated against awarding discretionary bonuses at this time.
How is long-term incentive compensation determined in general?
The third primary component of the company’s executive compensation program consists of long-term equity
compensation awards. The Compensation Committee continues to believe that equity compensation awards are
important for motivating executive officers and other employees to increase shareholder value over the long
term.
The equity awards granted to named executive officers are designed to be competitive with those offered by
comparable companies for each named executive officer’s job level, e.g., between the 50th and 75th percentile of
our comparable companies, to reflect the Chief Executive Officer and Compensation Committee’s assessment of
such executive’s on-going contributions to the company, to create an incentive for such executives to remain
with the company, and to provide a long-term incentive to help the company achieve its financial and strategic
objectives.
In fiscal 2008, the Compensation Committee granted restricted stock units (“RSUs”) and stock-settled stock
appreciation rights (“SSARs”) to all of the named executive officers as shown in the “Grants of Plan-Based
Awards” table on page 21 and the tables below. The Compensation Committee believes RSUs are very useful
retention tools and also result in less dilution than options and SSARs. At the same time, the Compensation
Committee believes that SSARs can provide valuable incentives to increase our share price.
In determining the type and number of equity awards granted to an individual executive, the Compensation
Committee considered such factors as:
• The individual’s performance and contribution to the profitability of the company;
• The type and number of awards previously granted to an individual;
• An individual’s outstanding awards;
• The vesting schedule of the individual’s outstanding awards;
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