Harris Teeter 2012 Annual Report Download - page 87

discretionary bonus for the performance of A&E through November 7, 2011, accelerated vesting of outstanding
equity awards as of the date of his separation, and other amounts.
During Fiscal 2012, the Compensation Committee made minimal changes to the compensation programs. No
changes were made to the overall design of the Company’s compensation programs.
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. 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 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. 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 2012 the Company did not retain the services of a compensation consultant and the Compensation
Committee instead referenced information provided to the Compensation Committee from prior fiscal years by the
compensation consultant, along with 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 214 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 111 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
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