AutoZone 2011 Annual Report Download - page 38

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approved by the Compensation Committee. Option grant amounts for the Chief Executive Officer’s direct reports
and other senior executives are recommended to the Compensation Committee by the Chief Executive Officer,
based on individual performance and the size and scope of the position held. AutoZone’s general policy is to limit
the total option shares granted to its employees during the annual grant process to approximately one percent of
common shares estimated to be outstanding at the end of that fiscal year. The annual grant is typically made near
the beginning of the fiscal year and does not include promotional or new hire grants that may be made during the
fiscal year. The Committee reserves the right to deviate from this policy as it deems appropriate.
Newly promoted or hired officers may receive an option grant shortly after their hire or promotion. As a
general rule, new hire or promotional stock options are approved and effective on the date of a regularly
scheduled meeting of the Compensation Committee. On occasion, these interim grants may be approved by
unanimous written consent of the Compensation Committee. The grants are recommended to the Compensation
Committee by the Chief Executive Officer based on individual circumstances (e.g., what may be required in
order to attract a new executive). Internal promotional grants are prorated based on the time elapsed since the
officer received a regular annual grant of stock options.
AutoZone stockholders approved the 2011 Equity Plan at the 2010 annual meeting. Pursuant to the 2011
Equity Plan, AutoZone’s Compensation Committee approved two distinct one-time awards of equity, other than
stock options, during fiscal year 2011.
On December 15, 2010, the Committee authorized the grant of an award of 25,000 performance-restricted
stock units (“PRSUs”) to William C. Rhodes, III, AutoZone’s Chairman, President and CEO. The PRSUs are
earned and vest as follows:
• 100% of the PRSUs shall be earned either
(a) on the date on which AutoZone’s stock price reaches $461.12 or more per share for five consecutive
trading days on or before October 1, 2015; or
(b) AutoZone achieves a Diluted Earnings Per Share equal to or greater than $29.94 on the last day of
any fiscal year between the grant date and August 29, 2015.
• In the event that neither of the performance conditions above is met, then 80% (20,000) of the PRSUs
shall be earned if:
(a) AutoZone’s stock price reaches $461.12 or more per share for five consecutive trading days on or
before October 1, 2016; or
(b) AutoZone achieves a Diluted Earnings Per Share equal to or greater than $29.94 on the last day of
any fiscal year between the grant date and August 27, 2016.
Assuming shares are earned and vest, the units will be delivered as shares of AutoZone common stock.
The purpose of this one-time award is to motivate continued high performance while enhancing the
retention characteristics of the compensation package applicable to the Chief Executive Officer:
Performance Retention
• The target financial measures, diluted earnings
per share and stock price, relate directly to
stockholder success.
• Achieving a payout under the award terms
requires continued and sustained high
performance.
• The potential realizable value of the award is
significant, while remaining balanced by other
elements of the compensation program to
mitigate against risk related to unintended
consequences.
• The terms of the grant require Mr. Rhodes to
remain actively employed at least through
October 1, 2015, even if one or both of the
performance goals is reached prior to then.
28
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