Pottery Barn 2012 Annual Report Download - page 122

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bonuses would be available if this goal was met, the Compensation Committee uses its discretion to determine
the actual amount, if any, to be paid to any named executive officer. See below for a discussion of whether and
how the Compensation Committee utilizes its discretion to determine actual bonus amounts.
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 2012 because it believed that maintaining positive net cash flow was critical to the
success of the company in fiscal 2012. 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 2012
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 2012?
Yes. For fiscal 2012, 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 2012 for each named executive officer. As described below, the Compensation
Committee used discretion to decrease bonuses actually awarded under the Bonus Plan to significantly below the
maximum available levels for all named executive officers, other than Ms. McCollam and Mr. Harvey, who did
not receive bonuses. Please see below for a summary of the severance Ms. McCollam received.
How does the Compensation Committee decide if and how to make bonus awards less than the maximum allowed
under the Bonus Plan?
The primary performance goal results in the funding of the Bonus Plan. If the primary performance goal is
achieved, as it was in fiscal 2012, then the Compensation Committee decides whether (and how) to reduce
bonuses from the maximum available under the Bonus Plan. In determining actual bonus awards, the
Compensation Committee evaluates company performance against a secondary performance goal. For fiscal
2012, this secondary goal was an earnings per share target of $2.52, with maximum funding at earnings per share
of $2.80 (excluding extraordinary non-recurring charges). Actual performance for fiscal 2012 exceeded this
secondary goal. Additionally, the Committee evaluates performance against the Company’s business plan that
was approved by the Board prior to the first fiscal quarter, and individual performance as assessed by the Chief
Executive Officer (for positions other than her own). The Compensation Committee may deviate from the
guidelines, but bonuses granted under the Bonus Plan may not exceed the maximum limit set forth in the plan.
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 named executive officer.
The Compensation Committee believes that achieving individual goals and objectives is important to the overall
success of the company and will adjust bonuses paid to reflect performance in these areas. For example, if the
company or an executive officer fails to fully meet some or all of the company or individual objectives, the
executive’s award may be significantly reduced or even eliminated. Conversely, if the objectives are
overachieved, awards may be subject to less or no reduction from the maximum available awards.
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