AutoZone 2014 Annual Report Download - page 43

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upon exercise of an ISO for at least two years from the date of grant and one year from the date of exercise).
ISOs have a maximum term of ten years and, as granted, vest in equal 25% increments on the first, second, third
and fourth anniversaries of the grant date. They are granted at the fair market value on the date of grant as
defined in the relevant stock option plan. There is a $100,000 limit on the aggregate grant value of ISOs that
may become exercisable in any calendar year; consequently, the majority of options granted are in the form of
non-qualified stock options. Although AutoZone receives an income tax deduction for an employee’s gain on
non-qualified stock options, AutoZone does not receive a similar deduction of the exercise of ISOs. Therefore,
AutoZone stopped granting ISOs beginning in fiscal 2013.
AutoZone grants stock options annually. Currently, the annual grants are reviewed and approved by the
Compensation Committee in the meeting (typically in late September or early October) at which it reviews prior
year results, determines incentive payouts, and takes other compensation actions affecting its executive officers.
The Compensation Committee has not delegated its authority to grant stock options; all grants are directly
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 practice is to
limit the total option shares granted to its employees during the annual grant process to approximately one
percent of common shares outstanding. The annual grant is typically made near the beginning of the fiscal year
and does not include a limited number of 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.
On December 15, 2010, AutoZone’s Compensation 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.
• 100% of the PRSUs could 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.
PRSUs earned would vest on October 1, 2015 only if Mr. Rhodes is employed by AutoZone through
October 1, 2015.
On November 25, 2013, 100% of the PRSUs were earned when AutoZone’s stock price closed at or above
the $461.12 target for the fifth consecutive trading day. Assuming the PRSUs vest on October 1, 2015, the units
will be delivered as shares of AutoZone common stock.
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