Pottery Barn 2009 Annual Report Download - page 123

not receive a federal income tax deduction for compensation paid to our Chief Executive Officer or any of the
next three most highly compensated executive officers to the extent that any of these persons receives more than
$1,000,000 in any one year. However, the company may deduct compensation in excess of $1,000,000 if it
qualifies as performance-based compensation under Section 162(m). Payments under the amended and restated
2001 Incentive Bonus Plan are intended to qualify as performance-based compensation, thereby permitting the
company to receive a federal income tax deduction for the payment of incentive compensation. For awards
granted under the 2001 Incentive Bonus Plan to qualify as “performance-based” compensation under
Section 162(m), among other things, our shareholders must approve the material terms of the plan at the 2010
Annual Meeting. A favorable vote for this proposal will allow us to continue to deduct certain executive
compensation in excess of $1,000,000 and provide us with potentially significant future tax benefits and
associated cash flows.
Who administers the plan?
The 2001 Incentive Bonus Plan is administered by a committee (the “committee”) of the company’s Board,
consisting of two or more directors. The members of the committee must qualify as “outside directors” under
Section 162(m) for purposes of qualifying compensation under the plan as performance-based compensation.
Currently, the committee administering the plan is the Compensation Committee of the Board, of which all
members are “outside directors”.
What are the powers of the committee?
The committee has full power to administer the plan, including adopting, amending or revoking rules or
procedures as it deems proper for the administration of the plan. However, such actions may only be taken upon
the agreement of a majority of the committee. Subject to the terms of the plan, the committee has sole discretion
to interpret the plan, make all determinations for the administration of the plan, grant bonus awards under the
plan, including determining the terms and conditions of each award, such as the target amount and the
performance goals, and at any time reduce any award to be paid out under the plan.
Who is eligible to receive awards?
Executive officers and those employees who are deemed “covered employees” for purposes of Section 162(m)
may participate in the amended and restated 2001 Incentive Bonus Plan. For purposes of Section 162(m),
covered employees include our Chief Executive Officer and the company’s next three most highly compensated
executive officers. An executive whose employment or service relationship with the company terminates before
the end of any award period generally is not entitled to participate in the plan or receive any awards under the
plan in a later fiscal year, unless he or she again becomes eligible to participate in the plan.
How are target awards established?
For each award period, the committee establishes a performance award target based upon the achievement of a
specified goal for each plan participant. Award periods consist of one or more fiscal years of the company, or one
or more quarters of the company, as the committee determines, and the award periods may be different for
different awards. The committee must establish performance goals for an award no later than the earlier of 90
days after the first day of the award period or the date on which 25% of the award period has elapsed. The
maximum award under the plan for each award period may not exceed the lesser of $3,000,000 or 300% of each
participant’s annual base salary in effect on the first day of the first fiscal year in the award period, multiplied by
the number of complete or partial fiscal years in the award period.
How are the amounts of individual awards established?
For each award period, the covered employee is entitled to receive an award equal to the specific amount
determined using the formulas that have been established for that award. The committee has the discretion to
decrease the amount of any award payable under the plan but cannot increase the amount once the plan has been
determined.
29
Proxy