Big Lots 2008 Annual Report Download - page 39

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subjective views of comparative compensation data, retention factors, corporate performance
(particularly operating profit, selling and administrative expenses and earnings per share against
planned performance), individual performance, the executive’s level of responsibility, the potential
impact that the executive could have on our operations and financial condition, and the market price of
our common shares. See the introduction to the “Our Executive Compensation Program for Fiscal 2008”
section and the “Performance Evaluation” section of this CD&A for a discussion of how our CEO and
the Committee evaluate performance.
• The Committee reviewed the total number of common shares authorized for awards in fiscal 2008 to
ensure that such amount would not exceed the total number of common shares available for grant in
fiscal 2008. See the “Bonus and Equity Plans” disclosure that follows the Summary Compensation
Table for more information concerning the common shares available for issuance under the 2005
Incentive Plan.
This process was employed to ensure that executive equity compensation is commensurate with corporate and
individual performance and remains consistent with our policy that incentive compensation should increase as
a percentage of total compensation as the executive’s level of responsibility and the potential impact that the
executive could have on our operations and financial condition increases. Specifically, the items of corporate and
individual performance described in the “Salary for Fiscal 2008” section above were also the most significant
factors in awarding equity to the named executive officers in fiscal 2008.
The stock options awarded to the named executive officers in fiscal 2008 have an exercise price equal to the fair
market value of our common shares on the grant date, vest equally over four years, and expire seven years after
the grant date. The restricted stock awarded to the named executive officers in fiscal 2008 (as discussed in detail
below) vests upon attaining the first trigger and the first to occur of (i) attaining the second trigger, (ii) the lapsing
of five years while continuously employed or (iii) the grantee’s death or disability (which results in the vesting
of a prorated portion of the award). In comparison to the other named executive officers, Mr. Fishman received a
greater portion of his fiscal 2008 equity award in the form of restricted stock. The Committee and other outside
directors believe this difference is necessary to provide Mr. Fishman with equity compensation that is competitive
with the equity compensation awards made to chief executive officers by peer group companies. Additionally, this
decision was driven by the following considerations:
• The CEO should receive more at-risk incentive compensation than the other named executive officers.
Consistent with the key objectives of our executive compensation program, the Compensation
Committee and other outside directors believe that our CEO should be awarded at-risk incentive
compensation in larger amounts than the other named executive officers, because our CEO’s level of
responsibility and potential impact on our operations and financial condition are greater than the other
named executive officers.
• Restricted stock is generally more valuable to the executive than stock options and, therefore, requires
fewer common shares to provide an equivalent value. The per share value of restricted stock to the
executive is generally greater than the per share value of stock options to the executive. This is generally
true because stock options provide value to the executive only if and to the extent the market price of our
common shares increases during the exercise period, while restricted stock provides value once it vests.
Therefore, it is more efficient to deliver equity awards in the form of restricted stock. We can award
fewer common shares in the form of restricted stock and still provide the executive with the same value
that could be delivered by awarding a greater number of common shares underlying a stock option.
• Awarding fewer common shares is less dilutive to our shareholder and the other equity award
recipients. Using fewer common shares underlying restricted stock awards to deliver an equivalent
value to the executive in stock options has the benefit of being less dilutive to our shareholders and uses
fewer of the common shares available under the 2005 Incentive Plan.
• Counterbalancing factors: It is not permissible, and may not be cost-effective to us, to grant all equity
awards in the form of restricted stock. Although it may be more efficient and less dilutive to provide
equity awards in the form of restricted stock, the: (a) 2005 Incentive Plan prohibits us from awarding
more than one-third of all awards granted pursuant to the plan in the form of restricted stock, restricted
stock units and performance units; (b) financial statement expense to us associated with restricted