Staples 2005 Annual Report Download - page 44

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28
judgments included the nature and scope of the executive officers’ responsibilities, their effectiveness in leading our
initiatives to increase earnings per share, return on net assets, customer satisfaction and growth, and their success in
creating a culture of integrity and compliance with applicable law and our ethics policies. We also considered data
regarding the compensation levels (including long-term equity incentives) of corporate executives in companies in
Staples’ competitive business group; the competitive labor market in which Staples competes for executive talent; and
the performances of a comparison group of major companies that are most likely to compete with Staples for the
services of executive officers.
Status of the Executive Compensation Program
We regularly evaluate the effectiveness of our overall executive compensation program. Based on our ability to
retain our senior executives and the Company’s recent performance, we continue to believe we have a highly effective
executive compensation program.
Our Executive Compensation Program is as follows:
•Base Salaries: Base salaries for the executive officers are set at approximately the median of comparable
positions in the retail peer group.
•Cash Bonus: Each of Staples’ executive officers was eligible to participate in Staples’ Executive Officer
Incentive Plan in fiscal 2005 (the “Bonus Plan”). The Bonus Plan provided for the payment of a range of cash
bonuses to executive officers based on pre-established objectives relating to Company-wide earnings per share
(40%), return on net assets (40%), and customer satisfaction goals (20%). For an executive officer to be
eligible to receive any cash bonus under the plan, a minimum earnings per share threshold had to be achieved.
In addition, the return on net assets and customer satisfaction criteria had minimum levels that had to be
achieved before any payment related to these specific criteria could be made. The earnings per share, return on
net assets and customer satisfaction goals for the Bonus Plan were determined by the Committee at the
beginning of fiscal 2005. The Committee established target bonus payouts for executives in an attempt to bring
the cash portion (base salary plus target bonus) of Total Direct Compensation to approximately the median of
the cash compensation paid to the retail peer group. For fiscal 2005, Staples exceeded the 100% payout target
for earnings per share and return on net assets and fell slightly below target on customer satisfaction.
•Long-Term Stock Incentives: In addition to base salary and cash bonuses, Staples’ executives have been
annually granted performance-based long-term incentives represented by stock options and PARS. In the
business environment in which Staples competes for executives, stock options and other equity awards are an
important part of executive compensation. Annual stock option and PARS awards were made to executive
officers in June 2005 and October 2005, respectively, the same time that stock option and PARS awards were
made to all other eligible associates. The options and PARS vest on the same terms as options and PARS
granted to other eligible associates.
As referenced above, in 2006, the Committee intends to change the long-term components of compensation for
our executive leadership team to place even more emphasis on pay for performance. Under the new plan, there will be
a long-term incentive portfolio comprised of 50% non qualified stock options that vest ratably on an annual basis over
four years, 30% performance shares that will vest after three years based on achievement of three year goals relating
to cumulative return on net asset dollars, and 20% time based restricted stock that will vest 50% after two years and
50% after three years. The performance shares could result in zero payment if a minimum performance goal is not
achieved. The value delivered to the executive at target Company performance under the new plan will be
approximately equivalent to the value delivered at target under the current plan.
Perquisites
Since the Company was founded in 1986, Staples’ executive compensation programs have been relatively free of
perquisites, consistent with our egalitarian culture and entrepreneurial spirit. To reinforce this position, the
Committee adopted formal policies in 2004 regarding personal use of our leased aircraft and reimbursement for
tax/financial planning services for executive officers. In 2005, there was no personal usage of the aircraft by any