Pottery Barn 2012 Annual Report Download - page 121

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The following table shows the base salaries for the named executive officers.
Named Executive Officer Fiscal 2011 Base Salary Fiscal 2012 Base Salary
Laura J. Alber ................................. $1,200,000 $1,300,000
Julie P. Whalen(1) .............................. $ — $ 550,000
Patrick J. Connolly ............................. $ 625,000 $ 643,750
Richard Harvey ................................ $ 675,000 $ 675,000
Sandra N. Stangl ............................... $ 750,000 $ 800,000
Sharon L. McCollam(2) ......................... $ 875,000 $ —
(1) Ms. Whalen was promoted to Executive Vice President, Chief Financial Officer effective July 27, 2012.
(2) Ms. McCollam retired from the company effective March 6, 2012.
The Compensation Committee Charter also requires that any adjustments to the base salary for our Chief
Executive Officer be determined by the independent members of the Board following receipt of a
recommendation from the Compensation Committee.
Were annual incentive bonuses awarded to named executive officers for fiscal 2012?
Yes. Annual incentive bonuses were awarded to our named executive officers (other than Ms. McCollam and
Mr. Harvey) for fiscal 2012 under the company’s 2001 Incentive Bonus Plan approved by stockholders at the
last annual meeting (the “Bonus Plan”).
How are the parameters for annual incentive bonuses determined under the Bonus Plan?
Annual incentives are set based on a variety of factors tailored to assist the company in driving financial and
operating performance as well as retention.
The company promotes superior performance by rewarding executive officers, including the named executive
officers, for achieving specific performance objectives with an annual cash bonus paid through the Bonus Plan
or, in some cases, through discretionary bonuses outside of the Bonus Plan. The company pays bonuses under the
Bonus Plan when the company meets or exceeds specific objectives and goals established by the Compensation
Committee.
The stockholder-approved Bonus Plan is intended to qualify annual incentives paid under the Bonus Plan as
deductible performance-based compensation under Internal Revenue Code Section 162(m), which otherwise
restricts our ability to deduct executive compensation in excess of $1,000,000 for the named executive officers
other than the Chief Financial Officer per taxable year. However, because of the fact-based nature of the
performance-based compensation exception under Section 162(m) and the limited availability of binding
guidance thereunder, we cannot guarantee that awards made under the Bonus Plan that are intended to qualify as
performance-based compensation under Section 162(m) will in fact qualify. In accordance with Internal Revenue
Code rules, the Bonus Plan payout criteria are specified by the Compensation Committee in the first quarter of
each fiscal year. The Bonus Plan limits the maximum payout to each executive to $10,000,000. However, the
Compensation Committee has historically set target incentive levels (“target bonuses”) for each executive
significantly below the maximum level under the stockholder-approved Bonus Plan, as discussed below.
Under the Bonus Plan, the Compensation Committee generally sets a primary, critical performance goal. If this
goal is not met, no bonuses are payable under the Bonus Plan. If this performance goal is met, maximum bonuses
become available under the Bonus Plan for each named executive officer. For fiscal 2012, the Compensation
Committee established the primary performance goal for the Bonus Plan as positive net cash flow provided by
operating activities (excluding any non-recurring charges) as provided on the company’s consolidated statements
of cash flows, with adjustments to any evaluation to exclude (i) any extraordinary non-recurring items, or (ii) the
effect of any changes in accounting principles affecting the company’s or a business unit’s reported results. The
Compensation Committee felt this goal was appropriate for the reasons discussed below. Although maximum
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