Dollar General 2006 Annual Report Download - page 119

Committee’ s ability to make discretionary payments or awards to employees (including NEOs)
under any other plan or arrangement.
For fiscal 2006, the Committee selected net income as the sole performance measure for
determining payouts under the plan. The Committee selected this performance measure for 2006
because it believed that net income directly reflected several important business results, such as
performance against sales, margin and expense targets and indirectly measures asset (or
inventory level) controls. Also, many of the companies in our market comparator group use net
income as one of their measures of performance for bonus determinations.
The net income result needed to achieve a Teamshare target payout was set to equal our
annual financial objective as approved by the Board of Directors. Typically, once the target has
been set, threshold and maximum performance levels are then set per competitive benchmarking
data at approximately 90% and 110% of the financial target, respectively. However for 2006, the
Committee established the threshold performance level at $1 greater than the previous year’ s
actual net income result, or approximately 93% of target net income, and the maximum
performance level at 110% of the 2006 net income target. The threshold was set so that a
Teamshare bonus would not be earned unless our 2006 net income performance was at least
equal to our 2005 net income performance.
The Committee determines the amount of each NEO’ s Teamshare payout target based on
benchmarking information provided by Hewitt regarding competitive target incentives of
comparable positions in the market comparator group and general industry. The Committee also
sets the amounts of the threshold and maximum payout levels for performances below and above
the target levels respectively, with payouts prorated between threshold and maximum levels in
relation to net income results.
At the March 2006 Committee meeting, Hewitt advised that the typical payout structure
used in the market comparator group and general industry is to set the target payout percentage at
twice that of the threshold payout percentage and the maximum payout percentage at twice that
of the target. In order to adopt this more typical and competitive structure, the Committee set the
maximum potential payout levels for NEOs other than the CEO (see below) at 130% of base
salary for the 2006 fiscal year as opposed to 100% of base salary used in 2005. As a result, the
Teamshare payout range for the NEOs other than the CEO (see below) was set at 32.5% of base
salary (threshold), 65% of base salary (target), and 130% of base salary (maximum).
Hewitt also advised at this meeting that the prior year’ s Teamshare target payout level of
80% of base salary for the CEO was low in relation to the market comparator group and general
industry and that a target payout level of 100% of base salary was more typical. As a result, the
Committee recommended, and the independent directors approved, setting the CEO’ s Teamshare
target payout level at 100% of base salary, threshold payout level at 50% of base salary and the
maximum payout level at 200% of base salary.
What short-term incentives were awarded to the NEOs in fiscal 2006?
For fiscal 2006, eligibility to receive a payout under Teamshare was determined based on
the following objective and subjective criteria: (a) the individual’ s achievement of a satisfactory
performance rating when evaluated against his or her annually established performance
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