Big Lots 2010 Annual Report Download - page 32

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we meet another more challenging corporate financial goal (“second trigger”) or the five-year period
following the grant date lapses. As discussed in more detail in the “Retention Agreement” section of this
CD&A, Mr. Fishman was awarded restricted stock in fiscal 2010 under a retention agreement we entered
into with Mr. Fishman that is designed to assure us that we will have his continued services through March
2013. 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
Plan may vest. We believe imposing a performance requirement in the form of a corporate financial
goal, which is established by the Committee at a time when achievement of the goal is substantially
uncertain, encourages positive performance and protects our shareholders from dilution in the absence
of our performance. As discussed above, restricted stock awarded to our executives (other than to Mr.
Fishman pursuant to his retention agreement) vests on an accelerated basis if we achieve the second
trigger. The second trigger is established when the award is made, and is typically based on a projected
multi-year corporate operating plan. The restricted stock awarded to Mr. Fishman in fiscal 2010 also
requires that we achieve a corporate financial goal; however, if that goal is not achieved for the year
in which it was established, there is no opportunity for that award to vest based on our performance in
subsequent years.
• Align the interests of executives and shareholders through incentive-based executive compensation.
We pay bonuses to executives under the 2006 Bonus Plan only if we meet or exceed corporate
performance goals. Stock options awarded under the 2005 Incentive Plan are valuable only if the market
price of our common shares exceeds the exercise price during the period in which the stock options
may be exercised. Restricted stock awarded under the 2005 Incentive Plan vests only if we achieve a
threshold corporate performance goal and its value is determined by the market price of our common
shares. Accordingly, the realization and value of each of these elements of compensation is dependent
upon our performance and/or the appreciation in the value of our common shares.
In fiscal 2010, 83.8% of the total compensation earned by our named executive officers was derived
from incentive compensation in the form of bonuses (non-equity incentive plan compensation), stock
options and restricted stock, as each is reflected in the Summary Compensation Table. We believe
this demonstrates that our executive compensation program is closely aligned with the interests of
our shareholders. We do not apply a specific formula or set a specific percentage at which incentive
compensation is targeted or awarded for our named executive officers individually or as a group. Rather,
the amount of total compensation that may be earned by each named executive officer through these
forms of incentive compensation is subjectively determined based on each named executive officer’s level
of responsibility and potential impact on our operations and financial condition. The percentage of total
compensation that a named executive officer may earn through these forms of incentive compensation
generally increases as the executive’s level of responsibility and impact on our business increases.