Staples 2006 Annual Report Download - page 43

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Base Salary
Base salary is the fixed component of an executive’s annual cash compensation and is set with the goal of
attracting talented executives and adequately compensating and rewarding them for services rendered during the
fiscal year. The Compensation Committee generally sets base salaries for the named executive officers at
approximately the median (50th percentile) of comparable positions in our peer groups. Changes in base salary are
typically considered based on individual performance during our annual performance review process as well as in the
event of promotion or change in responsibilities. In March 2006, the Compensation Committee consulted with its
independent advisor and reviewed and approved Mr. Sargent’s recommendations for salary increases for the other
named executive officers. The increases were generally in line with our budgeted merit increases for all associates of
3.6% of base salary, except in connection with two promotions that occurred during the 2006 fiscal year. Mr. Mahoney
was promoted to Vice Chairman and Chief Financial Officer, effective January 30, 2006, and his base salary was
increased at that time by 9.7% to $650,000 annually. Mr. Miles was promoted to President and Chief Operating
Officer, effective January 30, 2006, and his base salary was increased at that time by 12% to $650,000 annually. The
Committee also met in executive session to discuss Mr. Sargent’s 2006 compensation and increased his base salary by
3.6%. The Committee’s decision with respect to Mr. Sargent’s salary increase reflected considerations of his trailing
base salary position relative to the peer group medians, the relationship between his salary and those approved for the
other named executive officers, and his demonstration of leadership during his tenure as our Chief Executive Officer.
As a result of the Committee’s action, Mr. Sargent’s base salary approximates the median of base salaries for Chief
Executive Officers in our peer groups. Mr. Sargent’s base salary is approximately 10% of his total annual
compensation. In general, the Committee allocates a greater percentage of Mr. Sargent’s total direct compensation to
performance-based and equity incentives because Mr. Sargent is uniquely situated to influence our short- and long-
term performance.
Performance-Based Annual Cash Bonus
Staples’ stockholder approved Executive Officer Incentive Plan provides cash incentives for our executives to
focus on annual financial and operating results and enables our total cash compensation to remain competitive within
the marketplace for executive talent. Each named executive officer has a target bonus award for each plan year.
Target bonus awards are expressed as a percentage of the actual base salary paid to the named executive officer
during that plan year. The percentages are determined by the Compensation Committee based upon the named
executive officer’s job level and responsibilities and may vary for different officers or business units. The
Compensation Committee generally selects bonus amounts for the named executive officers such that target total cash
compensation approximates the median (50th percentile) of comparable positions in our peer groups.
Within 90 days after the beginning of each plan year, the Compensation Committee establishes specific
performance objectives for the payment of bonus awards for that plan year. The performance objectives for each plan
year are based on one or more of the following measures: sales, earnings per share, return on net assets and customer
service levels. The Committee may determine that special one-time or extraordinary gains or losses should or should
not be included in the calculation of such measures. In addition, customer service target levels are based on pre-
determined tests of customer service levels such as customer comment card statistics, customer relations statistics
(e.g., number of customer complaints), and delivery response levels. The Committee believes that the performance
objectives established each fiscal year for the Executive Officer Incentive Plan are important in that year to driving
sustainable growth and increasing shareholder value. The Compensation Committee believes that actual performance
objectives selected constitute confidential commercial or business information, the disclosure of which would
adversely affect us.
For each plan year, a specified percentage of each bonus award is based upon each of the performance objectives
selected by the Compensation Committee for that plan year. For each of the performance objectives that is met, a
corresponding portion of the bonus award is paid. Each performance objective has an associated threshold level that
must be achieved for any of the bonus award associated with such objective to be paid. Under the terms of our
Executive Officer Incentive Plan, bonuses are not paid unless we achieve a minimum earnings per share. The
maximum bonus award payable to a named executive officer for any plan year is $3 million. In addition, the
Compensation Committee presently limits bonus awards to twice a named executive officer’s target bonus award.