Harris Teeter 2011 Annual Report Download - page 85

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. For
Fiscal 2011, the Compensation Committee engaged Mercer to act as its independent compensation consultant with
respect to equity grant compensation. For additional information regarding the role of Mercer and its affiliates, see
“Committees of the Board of Directors — Compensation Committee” above. The Compensation Committee also
referenced other market information the Compensation Committee considered relevant.
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 in
the Compensation Surveys generally include (i) companies that operate in the specific industries in which the
Company operates, (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 189 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 104 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 purpose of the Compensation Surveys, and the manner
in which it was used by the Compensation Committee, was to provide a general understanding of current
compensation practices and trends of similarly situated companies. The Compensation Surveys contain high-level
analyses and are compiled from information from a number of companies. The Compensation Committee uses the
Compensation Surveys as a tool to compare the overall compensation of its own executives to the executives of
other companies in similar sectors. No specific compensation decision for any individual was based on or justified
by any Compensation Survey.
In its annual review of executive compensation, the Compensation Committee meets with the Company’s Chief
Executive Officer with regard to the compensation packages of the Company’s executive officers other than the
Chief Executive Officer. The Chief Executive Officer recommends any compensation adjustments for these officers
to the Compensation Committee for its review, with changes in compensation being based upon the individual’s
performance, the performance of the Company or its subsidiaries, as applicable, and the individual’s level of
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