AutoZone 2008 Annual Report Download - page 37

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it is not our usual practice, and as discussed previously, AutoZone does not regularly engage consultants as
part of our annual review and determination of executive compensation. The Compensation Committee has
authority, pursuant to its charter, to hire consultants of its selection to advise it with respect to AutoZone’s
compensation programs, and it may also limit the use of the Compensation Committee’s compensation
consultants by AutoZone’s management as it deems appropriate.
What are AutoZone’s peer group and compensation benchmarking practices?
AutoZone reviews publicly-available data from a peer group of companies to help us ensure that our
overall compensation remains competitive. The peer group is currently composed of the 23 specialty retailers
listed below, and includes our direct competitors as well as other companies which we believe are similar to
AutoZone in such matters as customers, product lines, revenues and market capitalization. The peer group data
we use is from proxy filings and other published sources — it is not prepared or compiled especially for
AutoZone.
We periodically review the appropriateness of this peer group. It typically changes when such events as
acquisitions and spin-offs occur.
ADVANCE AUTO PARTS INC
BARNES & NOBLE INC
BED BATH & BEYOND INC
BEST BUY CO INC
BORDERS GROUP INC
CIRCUIT CITY STORES INC
GAP INC
GENUINE PARTS CO
HOME DEPOT INC
LIMITED BRANDS INC
LOWE’S COMPANIES INC
O’REILLY AUTOMOTIVE INC
OFFICE DEPOT INC
PEP BOYS MANNY MOE & JACK
PETSMART INC
RADIOSHACK CORP
ROSS STORES INC
SHERWIN WILLIAMS CO
STAPLES INC
STARBUCKS CORP
TJX COMPANIES INC
WILLIAMS SONOMA INC
ZALE CORP
We do not use information from the peer group or other published sources to set targets or make
individual compensation decisions. AutoZone does not engage in “benchmarking,” such as targeting base
salary at peer group median for a given position. Rather we use such data as context in reviewing AutoZone’s
overall compensation levels and approving recommended compensation actions. Broad survey data and peer
group information are just two elements that we find useful in maintaining a reasonable and competitive
compensation program. Other elements that we consider are individual performance, Company performance,
individual tenure, position tenure, and succession planning.
What is AutoZone’s policy concerning the tax deductibility of compensation?
The Compensation Committee considers the provisions of Section 162(m) of the Internal Revenue Code
(the “Code”) which allows the Company to take an income tax deduction for compensation up to $1 million
and for certain compensation exceeding $1 million paid in any taxable year to a “covered employee” as that
term is defined in the Code. There is an exception for qualified performance-based compensation, and
AutoZone’s compensation program is designed to maximize the tax deductibility of compensation paid to
executive officers, where possible. However, the Compensation Committee may authorize payments which are
not deductible where it is in the best interests of AutoZone and its stockholders.
Plans or payment types which qualify as performance-based compensation include the EICP and stock
options. Neither base salaries, nor the Executive Stock Purchase Plan, qualify as performance-based under
162(m).
How is AutoZone complying with Section 409A of the Internal Revenue Code?
Section 409A of the Internal Revenue Code was created with the passage of the American Jobs Creation
Act of 2004. These new tax regulations create strict rules related to non-qualified deferred compensation
earned and vested on or after January 1, 2005. AutoZone has conducted a thorough assessment of all affected
plans, and continues to take actions necessary to comply with the new requirements by the deadlines
established by the Internal Revenue Service.
27
Proxy