Big Lots 2007 Annual Report Download - page 40

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Mr. Fishman in 2005, the relative difference between the compensation of our CEO and the compensation of our
other named executive officers had not increased significantly over the years. While Mr. Fishman’s compensation
package increased the relative difference between the compensation of our CEO and our other named executive
officers, the Committee believes that the increased disparity is appropriate and was and remains necessary to
attract, retain and motivate a chief executive with Mr. Fishman’s experience. No significant change in our internal
pay equity occurred in fiscal 2007.
Equity Grant Timing
Pursuant to the terms of the 2005 Incentive Plan, the grant date of equity awards must be the later of the date the
terms of the award are established by corporate action or the date specified in the award agreement. In fiscal 2007,
the outside directors, after consultation with the Committee, specified that the grant date of the equity awards
made in connection with the annual performance reviews of the EMC members was the second trading day
following our release of results from the last completed fiscal year. This future date was established to allow the
market to absorb and react to our release of material non-public information, and to avoid even the appearance that
the Board, the Committee or any employee manipulated the terms of the equity awards. For equity awards made
throughout the fiscal year, generally as a result of a hiring or promotion, the grant date is the date of the related
event (i.e., the first day of employment or effective date of promotion). We have no policy of timing the grant date
of these mid-year equity awards to coordinate with the release of material non-public information, and we have not
timed the release of material non-public information for the purpose of affecting the value of any equity awards.
Tax and Accounting Considerations
The Committee reviews and considers the impact that tax laws and accounting regulations may have on the
executive compensation awards, including the deductibility of executive compensation under Section 162(m) of
the IRC (“Section 162(m)”). In doing so, the Committee relies on guidance from members of our finance and legal
departments, as well as outside accountants and attorneys.
Section 162(m) generally limits the tax deductions for compensation expense in excess of $1 million paid to our
CEO and our three other highest compensated executives (excluding the principal financial officer). Compensation
in excess of $1 million may be deducted if it is “performance-based compensation” within the meaning of
Section 162(m). We believe that compensation paid under our equity and bonus compensation plans is generally
fully deductible for federal income tax purposes. However, in certain situations, the Committee may approve
compensation that will not meet these requirements in order to ensure competitive levels of total compensation
for our executives. When considering whether to award compensation that will not be deductible, the Committee
compares the cost of the lost deduction against the competitive market for executive talent and our need to attract,
retain and motivate the executive, as applicable.
For fiscal 2007, the Committee believes it has taken the necessary actions to preserve the deductibility of all
payments made under our executive compensation program, with the exception of a portion of the compensation
paid to Mr. Fishman. If the IRC or the related regulations change, the Committee intends to take reasonable steps
to ensure the continued availability of deductions for payments under our executive compensation program, while
at the same time considering our executive compensation philosophy and objectives and the competitive market for
executive talent.
Our Executive Compensation Program for Fiscal 2008
Review of Our Executive Compensation Program
The Committee engaged Watson Wyatt in May 2007 to provide research, comparative compensation data and
executive compensation program design expertise. Throughout this engagement, Watson Wyatt has been advising
the Committee on all principal aspects of executive compensation, including the competitiveness of program
design and awarded values. Changes to our executive compensation program based on the work of Watson Wyatt
are first being introduced in fiscal 2008. The primary objectives of this engagement are:
• validating or recommending changes to our executive compensation program;
• obtaining better comparative compensation data by creating a new peer group of companies that are
more similarly situated to us;