Foot Locker 2005 Annual Report Download - page 121

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plan. This compares to an annual bonus payment of $1,662,000 to Mr. Serra in 2004 when the Company
slightly exceeded its pre-tax income and return-on-invested-capital plan for the year.
• Mr. Serra’s long-term bonus payment of $1,617,120 was calculated in the same manner as that of
other participants in the Long-Term Incentive Compensation Plan, and was the result of the Company
exceeding its return-on-invested-capital plan for 2003-2005. This compares to a long-term bonus
payment of $2,117,700 in 2004, when the Company significantly exceeded its return-on-invested-capital
plan for the performance period.
• The stock option grant of 115,000 shares at $27.01 per share, the fair market value on the date of
grant, made to Mr. Serra in February 2005 reflected Mr. Serra’s performance, responsibilities and his
ability, through his efforts, to improve the value of the Company’s Common Stock. Consistent with
stock option grants made to other executives, this grant vests in three equal annual installments. The
value of the stock option grant is wholly dependent on increases in the price of the Company’s Common
Stock over the price on the date of grant.
• The restricted stock grant of 105,000 shares made to Mr. Serra in February 2005 reflected
Mr. Serra’s performance, responsibilities, the Company’s desire to retain his services, and his ability,
through his efforts, to improve the value of the Company’s Common Stock. A portion of the value that
Mr. Serra is expected to receive on the vesting of the restricted shares is dependent on increases in the
price of the Company’s Common Stock.
Consistent with the Company’s executive compensation policies, the great majority of Mr. Serra’s
compensation is at risk, dependent upon the Company’s performance or the share price of its Common
Stock.
In determining Mr. Serra’s compensation, the Committee considered appropriate compensation for
an executive of Mr. Serra’s background and experience, Mr. Serra’s performance as the Company’s Chief
Executive Officer, the benefits to the Company and its shareholders that are expected to result from
retaining his services as the Company’s Chief Executive Officer and providing him with a meaningful
compensation opportunity tied to the performance of the Company and the price of its Common Stock,
and the compensation of chief executive officers of other companies in the retail and athletic footwear
and apparel industries. This Committee, acting jointly with the Nominating and Corporate Governance
Committee, annually reviews Mr. Serra’s performance as the Company’s Chief Executive Officer and
the results of this review are one factor in determining Mr. Serra’s compensation.
One Million Dollar Pay Deductibility Cap
In general, it is the Company’s position that compensation paid to its executive officers should be
fully deductible for U.S. tax purposes, and the Company has structured its bonus and stock option
programs so that payments made under them are deductible. In certain instances, however, the
Committee believes that it is in the best interests of the Company and its shareholders to have the
flexibility to pay compensation that is not deductible under the limitations set by Section 162(m) of the
Internal Revenue Code in order to provide a compensation package consistent with the executive
compensation policies discussed in this report. In particular, that portion of Mr. Serra’s base salary that
exceeds $1,000,000 and the value of restricted stock awards made to Mr. Serra and, potentially, a portion
of the restricted stock awards made to the other executive officers named in the compensation table are
not expected to be deductible. It is the Committee’s view that the benefits of securing the services of
Mr. Serra and these officers, and their potential contribution to the performance of the Company,
outweigh the Company’s inability to obtain a deduction for those elements of compensation.
James E. Preston, Chairman
Purdy Crawford
Philip H. Geier Jr.
Christopher A. Sinclair
Cheryl Nido Turpin
29