Pottery Barn 2010 Annual Report Download - page 167

Plan. In doing so, the Compensation Committee evaluates company performance against the business plan
approved by the Board in the first fiscal quarter and individual performance. The Compensation Committee also
establishes secondary 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, although the Compensation Committee may
also take other factors into consideration in determining if and how to apply this negative discretion. The
Compensation Committee expected to pay bonuses under the Bonus Plan at target levels only if the secondary
goal was fully met. For fiscal 2010, this secondary goal was an earnings per share target of $1.24 (excluding
store impairments and other extraordinary non-recurring charges, and including any amounts payable to covered
employees under the Bonus Plan), which would impact the level of funding of the company-wide bonus pool for
fiscal 2010 under the Company’s broad-based FY 2010 Management Bonus Plan (the “Management Bonus
Plan”) that had an anticipated maximum funding at earnings per share of $1.44. This secondary goal was
achieved for fiscal 2010, as the company achieved earnings per share of $1.95 (excluding store impairments and
other extraordinary non-recurring charges, and including any amounts payable to covered employees under the
Bonus Plan) for fiscal 2010. 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 also is taken into account in applying negative discretion. Individual performance (for
positions other than his or her 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 or her 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 or her 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 from the maximum available awards.
For example, the Compensation Committee evaluated the fiscal 2010 performance of the Chief Executive Officer
and determined that her performance and leadership of the company were outstanding, and therefore the
Compensation Committee determined not to apply any negative discretion with respect to Ms. Alber’s fiscal
2010 bonus under the Bonus Plan, as discussed below.
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 named 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 for fiscal 2010
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.
What were the target bonus amounts established for fiscal 2010?
At its March 22, 2010 meeting, the Compensation Committee established the incentive targets under the Bonus
Plan for each named executive officer for fiscal 2010. The target bonuses under the Bonus Plan were set after a
review of the respective responsibilities of the named executive officers, the bonus targets set by our comparable
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