Dollar General 2006 Annual Report Download - page 120

objectives; and (b) our achievement of net income goals established by the Committee at the
beginning of fiscal 2006.
As discussed above, the fiscal 2006 performance of each NEO was determined to be
satisfactory, qualifying each NEO for a Teamshare payout, subject to the achievement of fiscal
2006 net income goals.
Based on performance with respect to our net income goal, each NEO could be eligible to
receive the following Teamshare awards: (a) if we reached the “threshold” net income goal of
$350,154,733, which was considered by the Committee to be challenging, then 32.5% (50% for
the CEO) of salary was to be awarded; (b) if we reached the “target” net income goal of
$376,895,000, which was tied to Dollar General’ s financial target, then 65% (100% for the CEO)
of salary was to be awarded; and (c) if we reached the “maximum” net income goal of
$414,584,500, which was considered by the Committee to be extremely difficult, then 130%
(200% for the CEO) of salary was to be awarded. The percentage of salary awarded for net
income performance falling between the “threshold” and “target” and the “target” and
“maximum” goals was to be based on a graduated scale commensurate with net income results.
Because we did not meet our fiscal 2006 net income threshold goal, NEOs did not receive
payouts under our Teamshare plan. However, over the course of the year it became clear that the
Teamshare net income goal was no longer a relevant measure of management’ s success because
of the impact of the critical strategic initiatives begun during the year. These initiatives included
changes to our merchandising markdown strategy; changes to the real estate site selection
strategy resulting in slowing the growth in store openings in favor of improved site quality;
changing sourcing and packaway strategies; and closing a significant number of stores in under-
performing locations.
After extensive discussion and analysis, and with the agreement of the full Board of
Directors, the Committee determined that a discretionary bonus payout should be authorized
outside of the annual Teamshare bonus plan. This discretionary bonus was made to recognize
the significant restructuring and strategic efforts made by employees over the course of the year.
The Committee believes that this action was necessary to align the fiscal 2006 short-term
performance incentive more closely to the revitalization strategy, to reward critical employees
for their accomplishments towards implementation of that revised strategy, and to motivate and
retain the NEOs and employees who are integral to the strategy’ s continued successful execution.
After determining that a discretionary bonus should be made to substantially all
employees who would otherwise have been eligible to participate in Teamshare, the Committee
decided to award each NEO, except the CEO (see “How was the Compensation for the CEO,
David A. Perdue, Determined?”) a 2006 discretionary bonus amount equal to the threshold
amount that would have been paid under the Teamshare plan. These amounts are reflected in the
“Bonus” column of the Summary Compensation Table set forth in this document.
The Committee also decided to re-evaluate the use of net income as the sole performance
measure for 2007. The Committee planned to consider additional measures used by our
competitor companies and which can be tied to accomplishing the milestones in the strategic
initiatives that are underway. However, before this decision could be made, we announced our
pending acquisition by KKR and agreed to consult with KKR on significant changes to certain of
our normal business practices. KKR requested, and the Committee agreed, to adopt earnings
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