Dollar General 2006 Annual Report Download - page 127

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Potential benefits payable to Mr. Perdue and additional information regarding the SERP
are presented and discussed in the Pension Benefits Table and accompanying narrative included
in this report.
What are the terms of the extension of Mr. Perdue’s employment contract?
Mr. Perdue’ s employment contract was scheduled to expire on March 31, 2007.
Following lengthy negotiations, the Committee and Mr. Perdue agreed on September 18, 2006 to
extend his contract to March 31, 2008. During the negotiations, the Committee relied on the
assistance of Hewitt Associates for advice and competitive compensation information to ensure
that the contract extension was in the best interests of Dollar General and those of our
shareholders. The Committee also received internal and external legal advice on various
technical matters relating to the contract extension and in documenting its terms.
The terms of Mr. Perdue’ s employment contract extension are as follows:
• Base salary increase from $1.0 million to $1.1 million in order to bring his base salary
to approximately the market median.
• Bonus target payout increased from 80% to 100% of base salary. Bonus maximum
payout increased from 130% to 200% of base salary. Bonus minimum payout to
remain at 50% of base salary. These changes were originally approved in March
2006 upon the recommendation of the Committee and the approval of the full Board
for the reasons discussed above in the section “How does the short-term incentive
plan work?” as applied to all other NEOs.
• A grant of 365,000 RSUs that will vest ratably over three years, but are generally not
payable until after Mr. Perdue ceases to be employed by us. This grant was made to
target an economic value of approximately $4.3 million which is above the median of
the market comparator group and general industry data provided by Hewitt. The
Committee believed it was necessary to provide above median long-term incentive
compensation as an inducement for Mr. Perdue to sign the contract extension. Also,
this above market compensation was provided in the form of equity compensation,
rather than cash compensation, to ensure that Mr. Perdue’ s interests were
appropriately aligned with shareholders. The Committee chose to deliver the long-
term economic value in RSUs because we were then preparing our November 2006
plans to revitalize our merchandising and real estate strategies and the Committee did
not believe it appropriate to issue stock options to the CEO shortly in advance of the
public announcement of that revitalization strategy.
• The addition of a provision requiring that severance benefits be payable upon his
termination if he resigns within 60 days after our failure to offer to renew the
contract. This change was approved to make Mr. Perdue’ s contract consistent with
the contracts of all other officers in this regard.
• The removal of the exclusion from the change-in-control provisions of the contract
ownership or acquisitions of our securities by Cal Turner, Jr., James Stephen Turner,
members of their family or certain of their affiliates or associates.
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