Pottery Barn 2009 Annual Report Download - page 140

Committee meeting, the Compensation Committee approved increases to the base salaries and bonus targets for
its named executive officers for fiscal 2010 for the reasons discussed below.
What are the components of executive compensation?
The Compensation Committee considers three major elements in the executive compensation program:
• Base salary;
• Annual incentive opportunities; and
• Long-term incentives.
The Compensation Committee believes that offering the executive team a total compensation package with a
strong at-risk, pay-for-performance component helps achieve the company’s objective of creating value for its
shareholders. Each of the three major elements in the executive compensation program is discussed in detail
below, but in general, this means:
• Base salaries are competitive with comparable public retail companies with respect to similar positions, to
create an incentive for executives to join and remain with the company;
• Annual incentive opportunities are based principally on the company’s overall corporate performance and
the executive’s attainment of individual goals. This results in the company’s strongest performers
receiving greater compensatory rewards and lesser performers receiving lower compensatory rewards.
We believe the structure of our annual incentive opportunities fosters a performance-driven,
pay-for-performance culture; and
• Long-term incentives, such as equity compensation awards, are structured to encourage our executive
team to work toward long-term sustained growth and success from the perspective of owners of the
company, to reward executives and other key employees for maximizing long-term shareholder value and
to provide incentives to remain with the company.
The named executive officers also receive certain retirement and other benefits, as well as perquisites and other
personal benefits as described below. We consider these perquisites, described below, in addition to the major
elements of compensation, in determining if total compensation is reasonable and not excessive.
Does the Compensation Committee compare the company’s compensation practices to those of other companies?
Yes, the Compensation Committee compares the company’s compensation practices to those of certain other
companies within the retail industry. The compensation practices of other companies within the retail industry
are relevant to establishing the company’s compensation programs and executive compensation for each year so
that we can attract and retain qualified executive and managerial talent in a competitive marketplace.
The Compensation Committee strives to ensure that the company’s total compensation packages and executive
compensation are aligned with market pay levels and practices. In order to achieve such goals, the Compensation
Committee takes into account the relationships among base salary, short-term incentive compensation and long-
term equity compensation at other companies considered to be comparable each year, collectively referred to as
“comparable companies” or our “proxy peer group.”
Our proxy peer group consists of other retail companies that are comparable to our company in one or more
significant ways: they may be specialty retailers, they may be of similar revenue size and market-capitalization
value, or they may compete with us for executive talent in our geographic markets. Historically, the comparable
group of companies has not changed significantly. For fiscal 2009, the group of comparable companies consisted
of 15 public companies: Abercrombie & Fitch, American Eagle Outfitters, AnnTaylor Stores, Barnes & Noble,
Bed Bath & Beyond, Foot Locker, The Gap, Gymboree, Limited Brands, Men’s Wearhouse, Nordstrom, Pier 1
Imports, Ross Stores, Saks and Tiffany & Co.
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