Big Lots 2009 Annual Report Download - page 40

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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 “Performance Evaluation” section of this CD&A were the most significant
factors in awarding equity to the named executive officers in fiscal 2009.
The stock options awarded to the named executive officers in fiscal 2009 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. Additionally, if a named executive officer dies or becomes disabled before the last scheduled vesting
date, the then-remaining unvested portion of the stock option award will vest on the day such event occurred,
provided such event occurred at least six months following the grant date. The restricted stock awarded to the
named executive officers in fiscal 2009 vests upon attaining the first trigger and the first to occur of (i) attaining
the second trigger, (ii) the lapsing of five years after the grant date 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 2009 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 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 shareholders 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: (i) 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; (ii) financial statement expense to us associated with restricted stock
is generally greater on a per share basis than the expense to us associated with stock options; and (iii)
Committee and other outside directors believe stock options also provide a strong incentive to increase
shareholder value, because stock options provide value to the executive only if the market price of our
common shares increases.
The financial measure applied to the restricted stock awards granted in fiscal 2009 was the greater of (i) earnings
per common share – diluted from continuing operations and (ii) earnings per common share – diluted from
continuing operations before extraordinary item and/or cumulative effect of a change in accounting principle (as
the case may be). If neither of these amounts appear on the consolidated statement of operations included in our
Form 10-K for the applicable fiscal year, then the financial measure to be used is the greater of (iii) earnings per
common share – diluted and (iv) earnings per common share – diluted before extraordinary item and/or cumulative
effect of a change in accounting principle (as the case may be) as it appears in the Form 10-K for the applicable