Pottery Barn 2011 Annual Report Download - page 148

company to attract and retain superior employees for key positions. The company provides certain perquisites to
its named executive officers, including premiums for term life insurance in excess of $50,000, a matching
contribution for investments in our 401(k) plan and a $500 monthly car allowance. Some of these perquisites are
also provided to other employees. The value of all of these benefits to each of the named executive officers is
detailed in the “Other Annual Compensation from Summary Compensation” table on page 27. The
Compensation Committee believes these perquisites to be customary for comparable professionals in our
industry with comparable management and retail industry experience. There are no tax gross-ups to named
executive officers on any imputed income relating to any non-business related benefits or perquisites.
The named executive officers who contribute to our 401(k) plan received matching contributions from the
company. In fiscal 2011, these matching contributions were limited to $7,350 for the named executive officers
and for all participating employees earning over $245,000.
The company suspended deferrals into the nonqualified deferred compensation plan for all associates beginning
in January 2010 and will continue to evaluate the benefit program in the future to ensure that it is providing the
best value to associates and the company.
As noted earlier, Ms. Stangl and Mr. Harvey receive reimbursement of up to $12,000 per year for financial
counseling expenses.
Does the Compensation Committee evaluate the risk of our compensation programs?
In 2011, the Compensation Committee retained Cook & Co to evaluate the risk inherent in the Company’s
executive and non-executive programs. Accordingly, Cook & Co. evaluated the Company’s executive and non-
executive programs and provided a report to the Compensation Committee. The report concluded that, among
other things:
• The company’s executive compensation program is designed to encourage behaviors aligned with the
long-term interests of shareholders;
• There is appropriate balance in short-term versus long-term pay, cash and equity, recognition of corporate
versus business unit performance, financial and non-financial goals, formulas and discretion, etc.; and
• Policies are in place and being implemented to mitigate compensation risk such as stock ownership
guidelines, insider-trading prohibitions, and independent Compensation Committee oversight.
How does the Compensation Committee address Internal Revenue Code Section 162(m)?
Under Section 162(m) of the Internal Revenue Code of 1986, as amended, and regulations adopted under it by
the Internal Revenue Service, publicly held companies may be precluded from deducting certain compensation
paid to certain executive officers in excess of $1,000,000 in a year. The regulations exclude from this limit
various forms of performance-based compensation, stock-settled stock appreciation rights and stock options,
provided certain requirements, such as stockholder approval, are satisfied. The company believes that awards
granted under the company’s equity incentive plans qualify as performance-based compensation and can
therefore be excluded from the $1,000,000 limit, with the exception of restricted stock units that vest solely based
on continued service. The company believes that bonuses awarded to date under the Bonus Plan also qualify as
performance-based compensation and are excluded from calculating the limit. Bonuses awarded outside of the
Bonus Plan, do not qualify as performance-based compensation for purposes of Section 162(m) and therefore
count toward the $1,000,000 limit. While the Compensation Committee cannot predict how the deductibility
limit may impact its compensation program in future years, the Compensation Committee intends to maintain an
approach to executive compensation that links pay to performance. We are asking our stockholders to approve
certain amendments to and the material terms of our Bonus Plan in Proposal 2 of this annual proxy statement.
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