Pottery Barn 2011 Annual Report Download - page 141

To provide the Compensation Committee the ability to make appropriate awards under the Bonus Plan and
ensure market competitiveness in its compensation programs, we are asking our stockholders in Proposal 2 of
this Proxy Statement to increase the overall limitation from $3,000,000 to $10,000,000. We are also asking our
stockholders to eliminate the multiple of salary limitation under the Bonus Plan as only one of our proxy peers
has a similar limitation in its plan. Finally, we are asking our stockholders to approve the material terms of the
Bonus Plan in Proposal 2.
Why did the Compensation Committee choose positive net cash flow provided by operating activities as the
primary performance goal under the Bonus Plan?
The Compensation Committee chose positive net cash flow provided by operating activities as the primary
performance goal for fiscal 2011 because it believed that maintaining positive net cash flow was critical to the
success of the company in fiscal 2011. The achievability of the goal was deemed substantially uncertain for
purposes of Internal Revenue Code Section 162(m). When the positive net cash flow objective for fiscal 2011
was first established, it was thought to be reasonably attainable, but not certain, based upon the company’s net
cash flow history and expected levels of net cash flow.
Did the company achieve positive net cash flow provided by operating activities for fiscal 2011?
Yes, for fiscal 2011, the company achieved positive net cash flow provided by operating activities as described
above. Since this primary, critical performance goal was achieved, maximum bonuses became available under
the Bonus Plan for fiscal 2011 for each named executive officer. As described below, the Compensation
Committee used discretion to decrease bonuses actually awarded under the Bonus Plan to below the maximum
available levels for all named executive officers.
How does the Compensation Committee decide if and how to make bonus awards less than the maximum allowed
under the Bonus Plan?
If the primary performance goal is achieved, as it was in fiscal 2011, then the Compensation Committee decides
if (and how) to reduce bonuses from the maximum available under the Bonus Plan. In doing so, the
Compensation Committee evaluates company performance against the business plan that was approved by the
Board prior to the first fiscal quarter and individual performance. The Compensation Committee also establishes
secondary performance goals to assist in determining bonus awards, 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 appropriate bonus amounts. The Compensation Committee expected to
pay bonuses under the Bonus Plan at target levels if the secondary goal was fully met. For fiscal 2011, this
secondary goal was an earnings per share target of $2.19 and a maximum funding at earnings per share of $2.47
(excluding store impairments and other extraordinary non-recurring charges, and including any amounts payable
to covered employees under the Bonus Plan). This secondary goal was achieved for fiscal 2011, as the company
achieved earnings per share of $2.24 (excluding store impairments and other extraordinary non-recurring
charges, and including any amounts payable to covered employees under the Bonus Plan) for fiscal 2011. The
Compensation Committee may deviate from the guidelines, but may not award bonus payouts 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 determining appropriate bonus awards. Individual
performance is assessed by the Chief Executive Officer (for positions other than her own) and takes into account
achievement of individual goals and objectives. Achievement of objectives that increase stockholder return or
that are determined by the Chief Executive Officer (for positions other than her own) to significantly impact
future stockholder return are significant factors in the Chief Executive Officer’s individual performance
assessment. The Chief Executive Officer recommended bonus awards based on her assessment of the results
achieved by each individual.
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