Family Dollar 2006 Annual Report Download - page 65

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The Committee has not established a formula or pre−established methodology for determining total direct compensation or
for the allocation of compensation among salary, short−term and long−term incentive compensation. However, the Committee has
generally established the total direct compensation level of each NEO, other than the CEO, at the 50th percentile for similar positions
at retail companies. The total direct compensation of the CEO for the current fiscal year is between the 25th and 50th percentiles for
comparable positions at retail companies. The Committee has weighted the compensation packages of the NEOs toward performance
based compensation, with short−term bonus opportunities meeting or exceeding comparable retail positions while long−term
incentives approximate the 50th percentile or higher of comparable retail positions, except for the CEO, who has long term incentives
between the 25th and 50th percentiles of comparable retail positions.
The Company’s CEO, assisted by other executive officers, reviews similar materials in determining the compensation
packages of the Senior Vice Presidents who are not NEOs. The CEO reviews such compensation packages with the Compensation
Committee and obtains their approval of all equity grants made to any officer at the level of Vice President or above. Based on all
information available to it, the Company believes that the total compensation packages offered to all of the Company’s executive
officers are reasonable, competitive and designed to achieve the Company’s compensation goals.
Factors for Determining Compensation Mix
To determine the proper mix of compensation types, the Compensation Committee considers a number of factors, including:
• Historical information The Committee relies on historical information to show the Committee which compensation designs
have been most successful in helping the Company achieve its business strategy. Historical information is also relevant in
determining what compensation designs and what mixes of compensation have aided the Company’s executive officer
retention efforts.
• Current market practices As discussed above, the Committee compares both total direct compensation and each element of
the Company’s compensation package against a peer group of similar retail and non−retail companies, with a special
emphasis on the compensation practices of the Company’s most direct competitors. The Committee relies on compensation
consultants and executive recruiters to provide information regarding the compensation practices of the Company’s peers.
Recent successes or failures of the Company’s executive recruitment efforts are also factors in the establishment of
compensation levels.
• Management recommendations The Committee considers management recommendations, including individual performance
ratings as prepared by executive management when making compensation awards at the end of each fiscal year.
• Consideration of All Elements of Compensation In setting compensation levels, the Committee considers all elements of the
compensation program in total as well as each element in isolation.
• Balance The Company’s compensation program is intended to be balanced. The Committee considers the need to provide
sufficient guaranteed short−term income via base salary and benefits, but also performance−based short and longer−term
financial rewards which will promote achievement of the Company’s goals when making compensation decisions. Further,
the Committee believes that as an individual’s level of responsibility and ability to contribute to the Company’s financial
results increases, such individual’s total compensation should also increase. As an individual’s total compensation increases,
the Committee believes that the ratio of both equity to non−equity compensation and performance−based compensation to
total compensation should also increase.
• Compensation best practices The Committee believes that compensation decisions should be reasonable, responsible and
tied to the best interests of the Company’s stockholders. The Company’s stockholders should understand the Company’s
compensation philosophy and program goals. Therefore, the Company consistently monitors developments in executive
compensation “best−practices” to assist the Committee in achieving these objectives.
• Internal equity The Company’s compensation program is intended to be internally fair. The Committee monitors the
relationship between the CEO’s total compensation to that of the Company’s other executive officers.
Elements of Compensation
The following describes the different types of employee compensation, as well as the rationale for each element.
Base Salary NEO salary ranges are determined by reviewing compensation surveys, as well as market information provided
by recruiters and the Committee’s consultants for similar positions, with special consideration given to compensation at retail
companies with sales exceeding $1 billion. Generally, the Company targets base salaries at the 50th percentile of this group of
competitors. The Committee believes that setting salaries at a lower level would prevent the
53
Source: FAMILY DOLLAR STORES, 10−K, March 28, 2007