Big Lots 2014 Annual Report Download - page 61

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PROPOSAL TWO: APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO
ITEM 402 OF REGULATION S-K, INCLUDING THE CD&A, COMPENSATION TABLES AND THE
NARRATIVE DISCUSSION ACCOMPANYING THE TABLES
Section 14A of the Exchange Act requires that we provide our shareholders with the opportunity to vote to
approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this
Proxy Statement in accordance with the compensation disclosure rules of the SEC. The following summary of our
executive compensation program describes our compensation philosophy and the key objectives identified by our
Compensation Committee to implement our compensation philosophy.
Our executive compensation program seeks to promote three primary objectives: (1) aligning the interests of
executives and shareholders through performance-linked compensation; (2) motivating executives to contribute to
our success and reward them for their performance; and (3) attracting and retaining talented executives by paying
compensation that is competitive with the compensation paid by the companies in our comparator groups. We
use a balanced mix of salary, annual cash incentive awards and equity awards to promote these objectives. For a
more detailed discussion of how our executive compensation program reflects these objectives and our executive
compensation philosophy, including information about the fiscal 2014 compensation of our named executive
officers, we encourage you to read the CD&A as well as the Summary Compensation Table and other related
compensation tables in this Proxy Statement.
In fiscal 2014, we focused on improving our financial and operating performance. Given the commitment of
the Compensation Committee and other outside directors to a pay-for-performance philosophy and our focus
on improving our financial and operating performance in fiscal 2014, the Compensation Committee and other
outside directors structured a significant portion of the compensation awarded to our named executive officers
for fiscal 2014 as “at risk” or “variable” and dependent on our performance and/or the value of our common
shares, including:
• Annual Cash Incentive Awards. Each named executive officer was eligible to receive a cash
performance bonus based solely on our operating profit. The Compensation Committee and other
outside directors selected operating profit as the sole financial measure because they believe it focuses
our named executive officers on increasing our revenues and controlling our costs. The fiscal 2014
annual incentive awards were structured so that the target bonus would be earned only if we achieved
the operating profit for fiscal 2014 projected in our annual corporate operating plan. Based on our
$222,278,299 operating profit in fiscal 2014, our named executive officers earned an annual incentive
award for fiscal 2014 equal to 110% of their respective target bonus.
• Performance Share Unit Awards. For the first time, all of our named executive officers received a
significant portion (60%) of their equity awards in the form of PSUs. The PSUs awarded to our named
executive officers in fiscal 2014 will vest, if at all, after the completion of a three-year performance
period based: (1) 50% on our average EPS performance, excluding extraordinary items, for each of
the three years during the performance period; (2) 50% on our average ROIC performance, excluding
extraordinary items, for each of the three years during the performance period; and (3) on the
named executive officer’s continued employment through the end of the performance period. The
Compensation Committee and other outside directors selected EPS and ROIC as the financial measures
applicable to the PSUs to incentivize our named executive officers to achieve long-term financial results
that we believe will create shareholder value.
• Time-Vested Restricted Stock Unit Awards. Time-vested RSUs are primarily intended to align the
interests of our named executive officers and our shareholders and help retain and motivate our named
executive officers. The RSUs will vest ratably over three years from the grant date of the award if the
participant remains employed by us through each annual vesting date.
Although our operating profit declined in 2014 on a relative basis from fiscal 2013 (from $230.1 million to
$224.5 million), our operating profit exceeded the amount projected by the Board in our fiscal 2014 corporate
operating plan and we improved our operational and financial performance in 2014 in several other important
respects. For example, in fiscal 2014, our comparable store sales increased 1.8%, our net sales increased by
$52 million, our gross margin rate increased by 30 basis points and our total shareholder return was 73%.