Neiman Marcus 2007 Annual Report Download - page 56

Table of Contents
In addition, Mr. Tansky and Ms. Katz have employment agreements, described in more detail below that set a minimum
salary upon execution of the agreement.
• Annual Incentive Compensation
Annual bonus incentives keyed to short-term objectives form the second building block of our compensation program and are
designed to provide incentives to achieve certain financial goals of the Company and personal objectives. These financial goals,
which are used to determine annual bonus incentives for all employees, emphasize profitability and asset management. The
Compensation Committee believes that a significant portion of annual cash compensation for the named executive officers should be
at risk and tied to our operational and financial results. "Pay for performance" for the named executive officers has been significantly
enhanced in recent years by putting a larger part of their potential compensation at risk in the annual bonus incentive program.
All named executive officers are eligible to be considered for annual bonus incentives. Target annual performance
incentives, stated as a percentage of base salary, are established for each of the named executive officers. The objectives set for
Mr. Tansky and other senior officers with broad corporate responsibilities are based on financial results of the overall company.
When an employee has responsibility for a particular business unit or division, the performance goals are heavily weighted toward the
operational performance of that unit.
Actual awards earned by the named executive officers are determined based on an assessment of our overall performance
versus the annual objectives, a review of each named executive officer's contribution to our overall achievement and an assessment of
each named executive officer's performance versus their individual objectives. Mr. Tansky recommends bonus awards for other
named executive officers for the Committee's approval.
The employment agreements of Mr. Tansky and Ms. Katz contain provisions regarding target levels and the payment of
annual incentives and are described in more detail below.
• Long-Term Incentive
Long-term incentives in the form of stock options are intended to promote sustained high performance and to align our
executives' interests with those of our equity investors. The stock options, which vest over five years (other than in the case of
Mr. Tansky whose options vest over four years), will only create value for the executives if the value of the Company increases. This
creates a direct correlation to the interests of our equity investors.
An initial stock option grant was made in fiscal year 2006 under the Neiman Marcus, Inc. Management Equity Incentive Plan
(referred to as the Management Incentive Plan) to each of the named executive officers. The initial grant was made following the
consummation of the Acquisition in order to retain the senior management team and enable them to share in the growth of the
Company along with our equity investors. All grants of stock options under the Management Incentive Plan have an exercise price
equal to the fair market value of our common stock on the date of grant. No grants of stock options have been made to the named
executive officers since the initial grant in fiscal year 2006 and currently, none are anticipated except in the event of a promotion or
new hire.
In addition, following the consummation of the Acquisition, the Neiman Marcus, Inc. Cash Incentive Plan (referred to as the
Cash Incentive Plan) was adopted in 2005 to aid in the retention of certain key executives, including our named executive officers.
Under the Cash Incentive Plan, a $14 million cash bonus pool was created to be shared by its participants. In the event of a change in
control or an initial public offering in which the internal rate of return to our investors is positive, each participant in the Cash
Incentive Plan, subject generally to continued employment, will be entitled to a cash bonus based upon the number of options that
were granted to the participant relative to the other participants in the Cash Incentive Plan under the Management Incentive Plan.
Mr. Tansky will be entitled to receive (subject, with certain exceptions, to continued employment) a cash bonus under the Cash
Incentive Plan in the amount of $3,080,911 pursuant to the terms of his employment agreement. If the internal rate of return to the
Sponsors is not positive following a change in control or an initial public offering, no amounts will be paid to those participating in the
Cash Incentive Plan. No amounts have been paid to date under the Cash Incentive Plan.
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