Pottery Barn 2009 Annual Report Download - page 144

performance goals to assist in guiding its use of negative discretion, which, if achieved at target levels, are
expected to result in payment of target bonuses. For fiscal 2009, this secondary goal was an earnings per share
target of $0.19 (excluding extraordinary non-recurring charges), which would impact the level of funding of the
company-wide bonus pool for fiscal 2009 under the Management Bonus Plan. This secondary goal was achieved
for fiscal 2009. The Compensation Committee expected to pay bonuses at target levels only if the secondary goal
was fully met. The Compensation Committee may deviate from the guidelines, but may never increase bonuses
under the Bonus Plan above the maximum payout amounts that become available as a result of the achievement
of the primary performance goal.
Individual performance (for positions other than his own) 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 (for positions other than his own) to significantly
impact future shareholder return are significant factors in the Chief Executive Officer’s subjective performance
assessment. The Chief Executive Officer believed that his well-tenured team performed at a very high level, and,
to reward this achievement, recommended bonus awards commensurate with the results achieved.
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 less or no reduction.
In determining final bonus amounts, if any, the Compensation Committee verifies the company’s actual
performance for each performance period, reviews management’s recommendation for the resulting aggregate
bonus awards and approves an aggregate award amount. The Compensation Committee also reviews and approves
the individual bonuses payable, if any, to each of the company’s executive officers under the Bonus Plan. The
Compensation Committee decides the bonus amount, if any, for the Chief Executive Officer in an executive session.
Why did the Compensation Committee choose earnings per share as the secondary performance goal under the
Bonus Plan?
The Compensation Committee chose earnings per share as the secondary performance goal because it believes
that earnings per share is a significant measure of performance and is the measure most closely aligned to long-
term shareholder value.
How were the parameters for annual incentive bonuses and actual bonus amounts determined under the
Management Bonus Plan for fiscal 2009?
As noted above, Mr. Harvey’s bonus was determined under the Management Bonus Plan. Similar to the Bonus
Plan, annual incentives under the Management Bonus Plan are set based on a variety of factors tailored to assist
the company in driving performance as well as retention. The company promotes strong performance by
rewarding its employees, other than its executive officers as of the start of the fiscal year, for achieving specific
performance objectives with an annual cash bonus paid through the Management Bonus Plan. In some cases,
strong performance is rewarded through discretionary bonuses granted outside of the Management Bonus Plan.
The Management Bonus Plan provides funding for company-wide bonuses, including bonuses payable under the
Bonus Plan. The Management Bonus Plan is funded only when the company meets or exceeds a specific
objective. For fiscal 2009, the Compensation Committee determined that funding of the Management Bonus Plan
would depend on the level of company earnings per share (excluding extraordinary non-recurring charges), and
would be funded at minimum levels only if a minimum threshold of earnings per share of $0.04 (excluding
extraordinary non-recurring charges) was achieved, and funding at maximum levels if earnings per share of $0.39
(excluding extraordinary non-recurring charges) was achieved. Under this determination, the Management Bonus
Plan would be funded so as to be able to pay bonuses at 100% of target levels if the company achieved earnings
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