Neiman Marcus 2012 Annual Report Download - page 57

Table of Contents
Stock options typically vest and become exercisable twenty or twenty-five percent on the first anniversary of the date of the grant and thereafter in
thirty-six (36) or forty-eight (48) equal monthly installments over the following thirty-six (36) or forty-eight (48) months, beginning one month after the first
anniversary of the date of grant until 100% of the option is fully vested and exercisable provided that the participant is still employed by the Company at such
time. In the prior fiscal year, outstanding options were adjusted in connection with the payment of the 2012 Dividend. For further information on the
adjustments, see “Outstanding Equity Awards at Fiscal Year End” on page 65.
On November 7, 2012, stock options were awarded pursuant to the Management Incentive Plan to each of the named executive officers and to twenty-
two (22) other senior officers. The number of stock options awarded to each individual was based on the job responsibility of each individual. The options
granted to each individual are Fixed Price Options that have an exercise price of $2,025 per share, vest over a five-year period, and expire seven years from the
date of grant.
In addition, following the consummation of the Acquisition, the Neiman Marcus Group LTD Inc. (formerly Neiman Marcus, Inc.) Cash Incentive
Plan (referred to as the Cash Incentive Plan) was adopted in fiscal year 2006 to aid in the retention of certain key executives, including our named executive
officers, except Messrs. Koryl and Schulman. Under the Cash Incentive Plan, a $14 million cash bonus pool was created to be shared by participating
members of senior management, including the named executive officers, except Messrs. Koryl and Schulman. In the event of a change of control, or an initial
public offering where at least 20% of the total outstanding shares are registered, as defined in the Cash Incentive Plan, and if the internal rate of return to the
Principal Stockholders is positive, each named executive officer, subject generally to continued employment, will be entitled to a pro rata portion of the cash
bonus pool based upon the number of options that were granted to the named executive officer in October 2005 and for Messrs. Koryl and Schulman, granted
in connection with their hire in 2011 and 2012, respectively, under the Management Incentive Plan relative to the other participants in the Cash Incentive Plan.
Pursuant to the terms of Mr. Tansky’s original employment agreement (as supplemented by his Director Services Agreement) described on page 76, his cash
bonus under the Cash Incentive Plan has been fixed in the amount of $3,080,911. If the internal rate of return to the Principal Stockholders is not positive
following a change of 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 to any of the participants under the Cash Incentive Plan, including to Mr. Tansky.
Risk Assessment of Compensation Policies and Programs
We have reviewed our compensation policies and programs for all employees, including the named executive officers, and we do not believe that these
policies and practices create risks that are reasonably likely to have a material adverse effect on the Company. The three major components of our overall
compensation program were reviewed and the following conclusions were made:
· Base salaries are determined by an industry peer group analysis and on the overall experience of each individual. Merit increases are based on
financial as well as individual performance and are generally kept within a specified percentage range for all employees, including the named
executive officers.
· Because of our non-public status, long-term incentive awards in the form of stock option grants can be exercised but the shares must be held
until such time as a public market exists for our common stock, thereby aligning the interests of participants with those of our equity investors.
· Annual incentive bonus awards are based on our sales, EBITDA and return on invested capital (ROIC). For Specialty Retail, annual incentive
bonus awards are based on sales, EBITDA, and inventory turnover for Neiman Marcus Stores and Bergdorf Goodman, for Neiman Marcus
Direct, the bonus awards are based on sales, EBITDA, conversion, and visitors, and for Bergdorf Goodman, sales, EBITDA, inventory
turnover, and Bergdorf Goodman online sales. The annual incentive bonus awards are all set at the beginning of each fiscal year based on the
achievement of goals that the Compensation Committee believes will be challenging. Maximum target payouts are capped at a pre-established
percentage of base salary.
The Compensation Committee has discretionary authority to adjust incentive plan payouts and the granting of stock option awards, which may
further reduce any business risk associated with such plan payouts and stock option grants. The Compensation Committee also monitors compensation
policies and programs to determine whether risk management objectives are being met.
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