Harris Teeter 2009 Annual Report Download - page 91

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17
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy
The primary objective of the Company’s executive compensation program is to enhance shareholder
value in the Company while attracting, retaining and rewarding highly qualified executives. Accordingly, the
Company’s executive compensation program encourages management to produce strong financial performance
by tying corporate and individual performance to compensation levels. The Company’s executive compensation
program consists generally of annual base salary, annual cash incentive bonuses, long-term equity incentive
compensation, such as stock options, restricted stock and performance share grants, and other benefits.
The Company’s practice is to provide incentives through its compensation program that promote both the
short-term and long-term financial objectives of the Company and its subsidiaries. Achievement of short-term
objectives is rewarded through base salary and annual cash incentive bonuses, while long-term equity incentive
awards encourage management to focus on the Company’s long-term goals and success. Both annual cash
incentive bonuses and a substantial portion of long-term equity incentive compensation are performance-based.
These incentives are based on financial objectives of importance to the Company, including operating profit
percentage and net operating profit after tax return on invested capital. The Company’s compensation practices
reflect a pay-for-performance philosophy, whereby a substantial portion of an executive’s potential compensation
is at risk and tied to performance of the Company and its subsidiaries, as applicable. The percentage of an
executive’s compensation that is tied to performance increases as the Company’s profit performance and rate of
return increases.
Compensation Setting Process
The Compensation Committee is responsible for setting total compensation for executives of the Company
and for overseeing the Company’s various executive compensation plans and the overall management of the
compensation program. Periodically, the Compensation Committee obtains independent and impartial advice
from external compensation consulting firms and industry surveys and resources in executing its responsibilities.
In prior fiscal years the Compensation Committee had engaged Mercer to act as its independent compensation
consultant. For Fiscal 2009 the Compensation Committee did not retain the services of a compensation
consultant and instead relied on information provided to the Compensation Committee from prior fiscal
years by the compensation consultant, along with other market information the Compensation Committee
considered relevant.
As a starting point for determining the total annual compensation levels for executives, the Compensation
Committee considers various published broad-based third party surveys of the annual compensation of
wholesale and retail food companies as well as other retail companies including drug store, convenience, mass
merchandising and specialty retail (the “Compensation Surveys”). The companies surveyed generally include
(i) companies that operate in the specific industries in which the Company’s subsidiaries operate, (ii) regional
companies that are comparable in size to the Company and (iii) other companies with which the Company believes
it competes for its top executives. For example, one survey covers 194 companies in the retail sector including
big box stores, grocery, drug and convenience stores, outlet stores, restaurants, department and specialty stores,
while a second survey covers 96 companies in the retail sector, and a third survey covers 35 wholesale and
retail food companies. The Compensation Surveys generally provide information on what companies paid their
executives in terms of base salary and annual incentives, the target annual compensation the executives could
have received upon attainment of certain goals, the value and composition of long term incentives companies
granted to executives, and long term incentives and annual incentives as a percentage of base salary. While the
Compensation Committee believes the Compensation Surveys are valuable, it does not use the Compensation
Surveys as a benchmark to set executive compensation. The Compensation Committee does not believe it is
appropriate to tie executive compensation directly to the compensation awarded by other companies or to a
particular survey or group of surveys. Instead the Compensation Committee uses the Compensation Surveys
as an informational tool to assist the Compensation Committee in the compensation setting process, because