Big Lots 2012 Annual Report Download - page 31

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We believe that our executives should have a significant portion of their compensation tied to our performance
and that the proportion of the at-risk incentive compensation they receive should increase as the executive’s level
of responsibility increases. The emphasis that we place on “pay for performance” is evidenced by the fact that
84.7% of the total compensation awarded to our named executive officers for fiscal 2012 was at-risk incentive
compensation comprised of bonus opportunities and equity compensation. The Committee believes the bonus and
equity award elements of our executive compensation program create a strong link between pay and performance
because they result in executives receiving higher compensation in years in which we are successful and lower
compensation in less successful years.
Our financial performance in fiscal 2012 did not meet our expectations. As a result of such performance and
the emphasis that our executive compensation program places on pay for performance, the actual compensation
realized by our named executive officers in fiscal 2012 was significantly lower than the total potential
compensation awarded to our named executive officers for fiscal 2012. For example, we did not achieve the
operating profit required for our named executive officers to earn bonuses for fiscal 2012 under the Big Lots
2006 Bonus Plan (“2006 Bonus Plan”). Accordingly, the named executive officers did not receive bonuses for
fiscal 2012.
Additionally, Mr. Fishman’s fiscal 2012 performance-based restricted stock award did not vest and, as a result, was
forfeited. Mr. Fishman’s fiscal 2012 performance-based restricted stock award was part of the retention agreement
entered into between Mr. Fishman and us in March 2010, when the Committee and the other outside directors
concluded that Mr. Fishman’s continued leadership and extraordinary contributions were important to our future
performance due to our record growth and shareholder return during his tenure with Big Lots and his vision for
our future. Based on that determination, the Committee and the other outside directors believed it was in the best
interests of Big Lots and our shareholders for Big Lots to enter into the retention agreement with Mr. Fishman
to better assure the continuing service of Mr. Fishman so that he could continue to (1) strengthen our business
performance and prospects for our continued growth, (2) return value to our shareholders and (3) implement
our succession plans. The Committee structured all of the compensation awarded to Mr. Fishman under the
retention agreement as at-risk incentive compensation to strengthen the alignment between Mr. Fishman’s pay
and our performance. Mr. Fishman’s fiscal 2012 performance-based equity award under the retention agreement
would have vested if (1) we had achieved the operating profit goal established at the beginning of fiscal 2012 and
(2) Mr. Fishman remained employed by us on March 31, 2013. Our fiscal 2012 operating profit performance did
not satisfy the goal and, as a result, Mr. Fishman’s fiscal 2012 performance-based restricted stock award did not
vest and was forfeited. We believe that the forfeiture of Mr. Fishman’s 2012 performance-based restricted stock
award under his retention agreement further demonstrates the alignment between pay and performance under our
executive compensation program.
On December 4, 2012, Mr. Fishman notified our Board that he intends to retire as our Chairman, Chief Executive
Officer and President upon the appointment of his successor. Accordingly, Mr. Fishman will continue to receive his
salary and bonus opportunity until his retirement, without an increase for fiscal 2013, and he was not granted any
new equity compensation during our annual review of executive compensation in March 2013.
Pay for Performance
One of the key principles of our executive compensation philosophy is that an executive compensation program
should encourage high levels of corporate and individual performance by motivating executives to continually
improve our business in order to promote sustained profitability and enhanced shareholder value. We believe our
executive compensation program effectively implements our pay for performance philosophy as the value of bonus
opportunities and equity awards under the program depends upon our financial performance and/or the price of our
common shares.
The key components we use to evaluate the performance of our named executive officers have been our operating
profit and earnings per share. We believe that our operating profit is an important financial measure, as it reflects
top-line sales and expense control, and when used year-over-year, promotes our long-term financial health.
Additionally, the at-risk incentive compensation that we award in the form of equity is significantly impacted by
the price of our common shares and our earnings per share. While our earnings per share and operating profit
have generally increased in recent years, we experienced a slight decline in our operating profit in fiscal 2011 and
we underperformed under both measures to a greater degree in fiscal 2012; consequently, Mr. Fishman’s realized
compensation decreased in fiscal 2011 and fiscal 2012.