Pottery Barn 2010 Annual Report Download - page 161

Does the Compensation Committee delegate any of its authority?
Pursuant to its charter, the Compensation Committee may form and delegate authority to subcommittees. The
Compensation Committee does not delegate any of its authority with respect to executive officers and
non-employee directors of the company. However, the Compensation Committee has appointed an Incentive
Award Committee consisting of two of the company’s directors. In fiscal 2010, the Compensation Committee
reappointed W. Howard Lester and Patrick J. Connolly as members of the Incentive Award Committee until
May 26, 2010. Laura Alber and Sharon L. McCollam were named as the successor members of the Incentive
Award Committee as of May 26, 2010. The Compensation Committee had delegated to the Incentive Award
Committee the ability to grant equity awards under the company’s 2001 Long-Term Incentive Plan to
non-executive officer employees with a corporate rank at or below Senior Vice President and equity awards or
cash awards to those employees with a corporate rank at or below Director, but at its November 10, 2010
meeting, the Compensation Committee approved a proposal to replace all cash awards under the 2001 Long-
Term Incentive Plan with restricted stock units, and the Incentive Award Committee’s delegated authority was
changed to reflect this. The Compensation Committee approved this change at the recommendation of the Chief
Executive Officer because she and the Compensation Committee believe it was important to provide our
associates with long-term incentive vehicles that are directly linked to shareholder return. Granting equity-based
incentives rather than cash awards places more of the individual’s compensation at-risk, thereby aligning the
interests of our associates with those of our shareholders and reinforcing the company’s pay-for-performance
strategy. This delegation is reviewed annually and certain limitations including the number of shares subject to
the grants (both on an individual basis and in the aggregate), the maximum size of cash awards (prior to
November 10, 2010) (both on an individual basis and in the aggregate) and which individuals may receive grants
are placed on the Incentive Award Committee’s authority. Reports of equity, and prior to November 10, 2010,
cash grants made by the Incentive Award Committee are included in the materials presented at the Compensation
Committee’s regularly scheduled meetings.
What is management’s role in the compensation-setting process?
Although the Compensation Committee generally does not delegate any of its authority with respect to executive
officers and non-employee directors of the company, management does play a significant role in the
compensation-setting process for executive officers other than the Chief Executive Officer. In particular,
management assists the Compensation Committee with the following:
• Evaluating individual executive performance against established revenue and profitability targets for the
fiscal year, including business unit achievement of budget targets;
• Recommending appropriate business performance targets and objectives for the upcoming fiscal year; and
• Recommending salary and cash bonus levels and equity awards based on performance evaluations and a
review of peer group data. Management considers the respective responsibilities of the executive officers,
the current combination of pay elements for each executive and whether that combination is appropriate
to provide incentives to achieve the desired results for the company. Management considers the
proportion of base salary to cash bonus levels and believes that a significant portion of each executive’s
total cash compensation should be at risk and payable only if the company achieves certain levels of
performance. In addition, management recognizes the Compensation Committee’s view that equity
awards should reflect each executive’s performance for the year and align the executive’s financial
reward with shareholder return. After considering these factors, management may recommend to the
Compensation Committee changes in the amount and type of each element of total compensation.
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