Big Lots 2012 Annual Report Download - page 46

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performance), individual performance, the executive’s level of responsibility, the potential impact that
the executive could have on our operations and financial condition, and the market price of our common
shares. See the introduction to the “Our Executive Compensation Program for Fiscal 2012” section
and the “Performance Evaluation” section of this CD&A for a discussion of how our CEO and the
Committee evaluate performance.
x The Committee determined the number of shares to be awarded to Mr. Fishman pursuant to the formula
provided in his retention agreement, which determination is based on our performance in the prior fiscal
year. See the “Retention Agreement” section of this CD&A for a discussion of the adjustments to the
number of shares underlying Mr. Fishman’s performance-based restricted stock award.
x The Committee reviewed the total number of common shares authorized for awards in fiscal 2012 to
ensure that such amount would not exceed the total number of common shares available for grant in
fiscal 2012. See the “Bonus and Equity Plans” disclosure that follows the Summary Compensation
Table for more information concerning the common shares available for issuance under the 2012 LTIP.
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 retention of
Mr. Fishman, as discussed in the “Retention Agreement” section of this CD&A, and the items of corporate and
individual performance, as described in the “Performance Evaluation” section of this CD&A, were the most
significant factors in determining the size of the equity awards made to our named executive officers in fiscal 2012.
In comparison to the other named executive officers who received restricted stock and stock options, Mr. Fishman’s
fiscal 2012 equity award was solely in the form of performance-based restricted stock. The Committee and
other outside directors believed Mr. Fishman’s continued leadership was important to our performance and
structuring his equity award solely in the form of performance-based restricted stock enhanced our ability to
retain Mr. Fishman as the Committee believed that the award was competitive with the equity compensation
awards made to chief executive officers by peer group companies. Additionally, this decision was driven by the
following considerations:
x The CEO should receive more at-risk incentive compensation than the other named executive
officers. Consistent with the philosophy 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.
x 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.
x Awarding fewer common shares is less dilutive to our shareholders and the other equity award
recipients. Restricted stock awards have the additional benefits of being less dilutive to our shareholders
and using fewer of the common shares available under the 2012 LTIP than stock option awards. As
discussed in the “Retention Agreement” section of this CD&A, we entered into a retention agreement
with Mr. Fishman in March 2010 to provide him performance-based restricted stock awards as the
only form of equity compensation in fiscal 2010, fiscal 2011 and fiscal 2012. In comparison to fiscal
2009 when Mr. Fishman received 530,000 common shares (i.e., 200,000 common shares underlying a
restricted stock award and 330,000 common shares underlying a stock option award), the total number
of common shares awarded to Mr. Fishman has been reduced by 280,000 common shares annually in
fiscal 2010 and fiscal 2011, a 52.8% reduction, and by 290,000 common shares in fiscal 2012, a 54.7%
reduction.