Pottery Barn 2010 Annual Report Download - page 174

voluntarily terminates his employment for good reason, he will be entitled to certain severance benefits. On
June 11, 2010, the company entered into a Management Retention Agreement with each of Ms. Alber and
Ms. McCollam. 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
either Ms. Alber or Ms. McCollam is terminated without cause or voluntarily terminates her employment for
good reason, she will be entitled to certain severance benefits.
The Compensation Committee approved the Management Retention Agreements that were entered into with the
named executive officers so that it can mitigate the risk of not being able to retain our named executive officers
notwithstanding the possibility of an acquisition of the company. The Compensation Committee believes these
arrangements are necessary to ensure that each named executive officers is focused on the company’s goals and
objectives, as well as the best interests of shareholders, rather than potential personal economic exposure under
these particular circumstances. Additionally, the Compensation Committee believes that these agreements will
provide a smooth transition should the company undergo such an event.
When deciding on the terms of the Management Retention Agreements, the Compensation Committee consulted
with Cook & Co., who provided various suggestions regarding the potential terms of a Management Retention
Agreement based on competitive market data from our proxy peer group. In considering these potential terms,
the Compensation Committee’s objectives were to: (1) assure we would have the continued dedication and
objectivity of our named executive officers, notwithstanding the possibility of a change of control of the
company, thereby aligning the interests of the named executive officers with those of the shareholders in
connection with potentially advantageous offers to acquire the company; and (2) create a total executive
compensation plan that is competitive with our proxy peer group.
None of the executive officers is provided with any type of golden parachute excise tax gross-up. In addition, our
equity compensation plans do not otherwise provide for automatic “single trigger” vesting acceleration upon or
following a change of control. We have considered the total potential cost of the change of control protection
afforded to our executive officers and have determined that it is reasonable and not excessive given the
importance of the objectives described above.
Do our executive officers have severance protection?
As noted in the section titled “Employment Contracts and Termination of Employment and Change-of-Control
Arrangements” beginning on page 56, if either Ms. Alber or Ms. McCollam is terminated without cause or
voluntarily terminates her employment for good reason, she will be entitled to certain severance benefits. The
Compensation Committee believes these arrangements are necessary to ensure that these two senior executives
are focused on the company’s goals and objectives, as well as the best interests of shareholders, rather than
potential personal economic exposure under these particular circumstances.
Grants of stock-settled stock appreciation rights and restricted stock units made in fiscal 2010 to company
employees, including its named executive officers (other than Mr. Lester’s May 2010 grant), include an
acceleration feature which provides for the full acceleration of vesting of such awards in the event of a qualifying
retirement, which is defined as leaving the company’s employment at age 70 or later, with at least fifteen years of
service. The Compensation Committee believes these conditions to be prevalent in the retention award
agreements of similarly situated executives.
Mr. Lester’s retirement arrangements are described above in the section titled “Employment Contracts and
Termination of Employment and Change-of-Control Arrangements” beginning on page 56.
Otherwise, except as described above, the named executive officers do not have arrangements that provide them
with specific benefits upon their termination. The Compensation Committee has considered the total potential
cost of the severance benefits to the executive officers and determined them to be reasonable and not excessive.
78