Staples 2004 Annual Report Download - page 52

executive officers provides up to a 2% deferral of compensation with a 50% match in company common stock. In
addition, a pre-retirement survivors’ benefit plan, long-term care insurance benefit, and new executive life insurance
plan were implemented, effective October 1, 2004. These improvements to our retirement programs cover
approximately 330 senior executives. The Company’s total maximum annual after-tax cost for all these plans is
approximately $2 million.
As part of our review of Staples’ retirement benefits, it was recommended and we determined it was appropriate
that we modify our definition of retirement for purposes of our retirement and equity plans to bring our practice in
line with the marketplace. Accordingly, our retirement definition, which had been age 65, was modified to what is
commonly referred to as the ‘‘Rule of 65’’, which requires that the combination of age and company service equals 65,
with a minimum age of 55. One result of this change is that all equity awards issued under our 2004 Stock Incentive
Plan could now vest sooner under this new definition of retirement. This change affects all executive officers as well as
approximately 6,000 Staples associates who are eligible for equity awards under our 2004 Stock Incentive Plan.
Stock Ownership Guidelines
To promote equity ownership and further align the interests of management with stockholders, in
September 2004, the Committee adopted stock ownership guidelines for senior executives, with greater ownership
required from those executive officers with the highest levels of responsibility. According to the guidelines, senior
executives of the Company are required to achieve and maintain an ownership position expressed as a multiple of
salary as follows:
President and Chief Executive Officer .................. 5 X Salary
Chief Operating Officer ............................ 3 X Salary
Chief Administrative Officer ......................... 3 X Salary
President — North American Delivery ................. 3 X Salary
President — U.S. Retail ............................ 3 X Salary
Other Senior Executives (15 persons) .................. 2 X Salary
The Committee periodically reviews stock ownership levels of those executives subject to the guidelines. Each
executive subject to the ownership guidelines must achieve the required multiple of salary by the later of
September 2009 or five years from his or her date of hire. Each of the senior executive officers has achieved stock
ownership in excess of the applicable multiple of salary shown above.
Compensation of the Chief Executive Officer
Mr. Sargent, Staples’ Chief Executive Officer, is eligible to participate in the same executive compensation
program available to other Staples executives, and his Total Direct Compensation was set by the Committee in
accordance with the same criteria. Mr. Sargent’s annual base salary remained unchanged in 2004 at $1,000,000 in line
with the median base salaries of chief executive officers in our retail peer group. As a result of the Company exceeding
the performance targets under the Bonus Plan, Mr. Sargent was paid a bonus of $1,734,734 in fiscal 2004, placing his
total cash compensation for that year above the median of the retail peer group. In fiscal 2004, the Committee granted
Mr. Sargent options to purchase 525,000 shares of Staples common stock and 150,000 PARS under the options/PARS
program. These grants were valued and based on the same factors the Committee considered in establishing the size
of other executive stock option grants and PARS awards. Using the Black-Scholes valuation for options, Total Direct
Compensation paid by the Company to Mr. Sargent in fiscal 2004 placed him above the median of the retail peer
group.
We consider Mr. Sargent’s level of compensation appropriate for the following reasons: his successful execution
of our strategy to enhance long-term investor value through higher earnings per share, return on net assets and
customer satisfaction scores; his actions to ensure that the Company has a strong capital structure and cash flow; his
role in leading us to solid financial results in a challenging global economic environment; his actions in making the
Company a leader in integrity, transparency and corporate governance; and his leadership in driving growth initiatives
and focusing our businesses on improving operations and strengthening our relationships with our customers.
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