Big Lots 2010 Annual Report Download - page 42

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- 26 -
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 executives level of responsibility and the potential impact that the executive could have on our
operations and financial condition increases. Specifically, the retention of Mr. Fishman, as discussed below and in the
“Retention Agreement” section of this CD&A, and the items of corporate and individual performance, as described in
the “Performance Evaluationsection of this CD&A, were the most significant factors in awarding equity to our named
executive officers in fiscal 2010.
In comparison to the other named executive officers who received restricted stock and stock options, Mr. Fishmans
fiscal 2010 equity award was solely in the form of restricted stock. The Committee and other outside directors
believe this difference is necessary to retain Mr. Fishman, as they believe his continued leadership is important
to our future performance, and to provide him 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. As compared to fiscal 2009, we
were able to reduce by approximately 37% the number common shares underlying equity awards made,
in the aggregate, to Mr. Fishman, Mr. Cooper, Ms. Bachmann and Mr. Martin (the four individuals
who served as our named executive officers in both fiscal 2009 and fiscal 2010). A primary reason
we were able to make this reduction was our strategy to award Mr. Fishman more common shares
underlying a restricted stock award (250,000 in fiscal 2010 compared to 200,000 in fiscal 2009), but
far fewer common shares underlying a stock option award (none in fiscal 2010 compared to 330,000 in
fiscal 2009).
• 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.
As discussed in the “Retention Agreement” section of this CD&A, we entered into a retention agreement
with Mr. Fishman in March 2010. Pursuant to the terms of the retention agreement, Mr. Fishman received a
performance-based restricted stock award of 250,000 common shares in fiscal 2010. In order for Mr. Fishmans
fiscal 2010 award to vest, (i) he had to remain employed by us through the first anniversary of the award and, (ii)