Dollar General 2006 Annual Report Download - page 121

before interest, taxes, depreciation and amortization (EBITDA) as the sole performance measure
for the 2007 Teamshare plan. The actual threshold, target and maximum amounts are to be set in
consultation with KKR before the end of April 2007.
How does the long-term incentive program work?
The Committee believes that long-term incentives are a critical part of the overall
compensation package, motivating executives to focus on achieving success for shareholders
over the long-term. These incentives thus assist in achieving a balance between short-term and
long-term goals and in aligning our NEOs’ interests with those of our shareholders. Our long-
term incentives are delivered in the form of equity grants and are structured in such a way as to
recognize increases or decreases in the stock price. The Committee targets a certain economic
value to be delivered through the long-term incentives, but the NEO only realizes that targeted
value if our stock price increases. Lesser increases or no increase in stock price will result in the
NEOs receiving less than targeted value, while greater stock price increases will result in the
NEOs receiving above target value. Long-term incentives are also included in most
compensation packages of the market comparator group as well as most other general industry
companies, furthering our program’s recruiting and retention objectives.
The Committee relies on the competitive compensation information from the market
comparator group provided by Hewitt Associates. This competitive information is used to
establish long-term incentive target dollar amounts for each NEO position. The Committee, with
Hewitt’ s assistance, then determines the form in which the long-term compensation value should
be delivered.
The Committee typically grants stock options and in some cases RSUs annually to all
eligible employees including the NEOs at its March meeting. At this meeting, the Committee
also reviews compensation benchmarking and other relevant information and evaluates the
performance of our NEOs. It is our practice to establish the exercise price of options as the
closing market price on the date of the grant. We typically release our annual earnings and other
financial results shortly after this meeting. However, the grants are made prior to that release for
the reasons stated above, regardless of whether the earnings release will be favorable or
unfavorable. In accordance with our usual practice, the fiscal 2007 annual equity grants to
eligible employees were made at the March Committee meeting, except for grants to officers at
the level of Executive Vice President or above which were made several days following that
meeting after receiving the input and approval of KKR per the terms of the merger agreement.
In addition to the annual equity grant to eligible employees, the Committee currently
approves inducement option and RSU grants to new employees generally at the level of Vice
President or above. Those grants are made at the first Committee meeting following the officer’ s
start date per the terms of the officer’ s employment agreement. In these cases also, it is our
practice to establish the exercise price of options as the closing market price on the grant date.
Pursuant to the merger agreement referenced above in Part I, Item 1 “Business”, at the
effective time of the merger, each outstanding share of common stock of Dollar General, other
than any shares held by any wholly owned subsidiary of Dollar General and any shares owned by
Parent or Merger Sub or held by Dollar General, will be cancelled and converted into the right to
receive $22.00 in cash, without interest. In addition, immediately prior to the effective time of
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