Pottery Barn 2010 Annual Report Download - page 173

The company has an aircraft lease agreement with a management company owned by Mr. Lester’s estate, and the
company agreed to continue the agreement on its current economic terms through May 2011. Under the
Retirement and Consulting Agreement, Mr. Lester agreed to give the company an option to purchase this aircraft
at its estimated fair market value at the time we entered into the Retirement and Consulting Agreement. On
January 3, 2011, as required by the lease agreement, the company provided the lessor with notice of its intent to
exercise the option to purchase the aircraft at the end of the lease term. However, on or prior to the end of the
lease term, the company instead expects to enter into an agreement to lease the aircraft from a third party on
terms no less favorable than those in the current lease.
How is the Chief Executive Officer compensated?
Ms. Alber was named the company’s Chief Executive Officer on May 26, 2010. Ms. Alber’s fiscal 2010
compensation package was based on:
• A review of the compensation paid to chief executive officers of comparable companies (based on the
process described above);
• Company performance; and
• Our general compensation philosophy as described above.
The Compensation Committee reviewed Ms. Alber’s base salary at its meeting in March 2010. After a discussion
and a review of Ms. Alber’s total compensation and that of other Chief Executive Officers in our proxy peer
group, the Compensation Committee adjusted her 2010 target total cash compensation to fall slightly above the
50th percentile of our proxy peer group. Ms. Alber’s actual bonus payouts for fiscal 2010 are discussed above. In
addition to receiving the maximum bonus permitted under the Bonus Plan upon achievement of the primary
performance goal, the Compensation Committee awarded Ms. Alber a special bonus of $350,000, granted outside
of the Bonus Plan, in recognition of her outstanding performance and the company’s results for fiscal 2010.
In connection with Ms. Alber being named the company’s Chief Executive Officer, the company entered into an
employment agreement with Ms. Alber to document the material terms and conditions of her employment. The
Compensation Committee consulted with Cook & Co., which provided various suggestions regarding the
potential terms of Ms. Alber’s Employment Agreement based on competitive market data from our proxy peer
group. When deciding the terms of Ms. Alber’s employment agreement, including provisions for severance, the
Compensation Committee recognized that concerns about potential job loss can create uncertainty that may
unduly affect performance. We believe that the terms of Ms. Alber’s employment agreement help to ensure her
continued attention and dedication to her assigned duties, and, thus, help ensure that she acts in the best interests
of our shareholders. Ms. Alber’s employment agreement also helps to mitigate her risk of a potential job loss, as
well as provide additional incentives to Ms. Alber to remain employed with the company. A summary of
Ms. Alber’s employment agreement can be found in the section titled “Employment Contracts and Termination
of Employment and Change-of-Control Arrangements” on page 56.
Are there any other benefits considerations?
The company believes that benefits should provide our employees with protection and security through health
and welfare, retirement, disability insurance and life insurance programs. The named executive officers do not, in
general, receive benefits in excess of those provided to other employees. However, the Compensation Committee
may recommend additional benefits for certain individuals from time to time if the Compensation Committee
determines that the category and amount of such benefits are reasonable and necessary to provide additional
incentives to attract or retain key executives.
Do the named executive officers have change of control arrangements?
On May 25, 2010, the company approved a Management Retention Agreement with each of Patrick Connolly,
Richard Harvey and Seth Jaffe. As noted in the section titled “Employment Contracts and Termination of
Employment and Change-of-Control Arrangements” beginning on page 56, if within 18 months following the
change of control any of Messrs. Connolly, Harvey and Jaffe’s employment is terminated without cause or he
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