Big Lots 2009 Annual Report Download - page 30

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The Board and the Compensation Committee of the Board (which we refer to as the “Committee” throughout this
CD&A) periodically review our executive compensation philosophy and consider factors that may influence a
change in our executive compensation philosophy. Consistent with our executive compensation philosophy, the
Committee has identified the following key objectives for our executive compensation program:
• Attract and retain executives by paying them amounts and offering them elements of compensation that
are competitive and comparable to those paid and offered by most companies in our peer groups.
We believe a key factor in attracting and retaining qualified executives is to provide total compensation
that is competitive with the total compensation paid by companies in our compensation “peer groups”
discussed in the “Comparative Compensation Data” section of this CD&A. In addition, we believe most
executives who consider changing employers expect to receive the same compensation elements that are
provided by companies in our peer groups and/or their current employer. As we believe it is necessary
to offer executive candidates elements of compensation consistent with other companies within our
peer groups, we generally do not structure our executive compensation program to be competitive with
companies outside of our peer groups (although we may do so to attract a particular candidate that we
believe is well-suited for our business). We believe the amounts and elements of compensation that we
offer make us competitive within our peer groups, and offering competitive packages has enabled us in
recent years to attract and retain quality executives. We believe failing to offer competitive amounts and
elements of compensation to candidates and our executives would impair our ability to attract and retain
a high level of executive talent.
Each of the elements of compensation we provide serves a different role in attracting and retaining
executives. Salary serves as a short-term retention tool. Bonus under the 2006 Bonus Plan is based on
annual corporate financial performance and is designed primarily to retain executives on a year-to-year
basis. Stock options issued under the 2005 Incentive Plan vest over four years in prorated annual
increments and provide executives with an incentive to remain with us for up to the seven-year term
of the stock option. Restricted stock awarded to executives under the 2005 Incentive Plan encourages
executives to remain with us for up to five years after the award date, as the restricted stock generally
vests only if (i) we meet a threshold corporate financial goal (“first trigger”) and (ii) either we meet
another more challenging corporate financial goal (“second trigger”) or the five-year period following
the grant date lapses. Accordingly, the restricted stock encourages retention for up to five years, with
the period being reduced if we are performing at a high level. We believe that the perceived value to
the executives of the personal benefits and perquisites we offer to them and the convenience of having
these benefits when faced with the demands of their positions, makes them a meaningful element of our
compensation program.
• Motivate executives to contribute to our success and reward them for their performance.
We use the bonus and equity elements of our executive compensation program as the primary tools to
motivate our executives to continually improve our business in order to promote sustainable profitability
and enhanced shareholder value. These compensation elements provide executives with meaningful
incentives to meet or exceed the corporate financial goals set by our Board each year.
For an executive to earn a bonus under the 2006 Bonus Plan, we must achieve a minimum corporate
performance amount established by the Committee at a time when achievement of that amount is
substantially uncertain. Although bonuses will be paid to executives under the 2006 Bonus Plan for
fiscal years in which we achieve minimum or target corporate performance amounts, our executives
also have an opportunity to earn up to double the amount of their target bonus compensation if we
exceed the target corporate performance amount. Conversely, if we do not meet the minimum corporate
performance amount, executives do not receive a bonus under the 2006 Bonus Plan. We believe this
structure is essential to motivate executives to not only meet the goals we set, but also to surpass
those goals.
Restricted stock granted to executives under the 2005 Incentive Plan is a full value award. Accordingly,
we believe it is appropriate for us to require the achievement of at least a predetermined threshold
corporate financial goal (i.e., the first trigger) before restricted stock issued under the 2005 Incentive