Office Depot 2003 Annual Report Download - page 92

Office Depot 2003 / Proxy Statement 90
Compensation Committee Report
on 2003 Executive Compensation
The following report of the Compensation Committee and the
Performance Graph shall not be deemed to be incorporated
by reference by any general statement incorporating all or
any portion of this proxy statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent we specifically incorporate this
information by reference.
What is our Philosophy of Executive Compensation?
Our compensation philosophy is to design and implement
compensation practices that motivate employees to enhance
shareholder value. Our compensation practices are designed to
attract, motivate and retain key personnel by recognizing indi-
vidual contributions as well as the achievement of specific pre-
determined goals and objectives, primarily through the use of
“ at risk” compensation strategies. Our compensation program
for executive officers consists of five (5) main components:
(i) competitive base salaries,
(ii) annual cash incentives based on our overall
Company performance under our bonus plans;
(iii) stock option awards intended to encourage the
achievement of superior results over time and to
align executive officer and shareholder interests; and
(iv) for our most senior executive officers, including our
Chairman and Chief Executive Officer, our Division
Presidents and our Executive Vice Presidents, (a)
performance accelerated stock options and (b) per-
formance shares.
The second, third and fourth components constitute “ at risk”
or “ performance based” elements of each executive’s total
compensation.
Base Salary. Our Compensation Committee determines
base salaries for executive officers utilizing market survey
data which focuses on other high performance and specialty
retail companies. A number of the companies included in the
comparison base are included in the S&P Retail Stores
Composite and in the S&P 500. The Committee generally
considers the median level of the executive market for compa-
rably sized companies within these surveys in determining
executive base pay levels.
Salary Adjustments in 2003. The 2004 base salary for
Bruce Nelson, our Chairman and Chief Executive Officer, will
remain the same as his base salary in 2003. Salaries for Mr.
van Kaldekerken will increase to $630,000* and for Mr.
Brown to $525,000 in 2004. As a group, the base salaries of
our NEOs increased by 6.8% for 2004 over 2003 levels.
*Note that Mr. van Kaldekerken is paid in euros rather than
dollars. The noted salary for 2004 reflects a euro-denominated
salary of 500,000 euros, which translates to $630,000 at an
exchange rate of $1.26 as of December 31, 2003.
Annual Bonus.The bonus compensation of our executive
officers is generally determined pursuant to our bonus plans,
which provide for cash awards to eligible participants, based
upon objectives determined each year. The objectives of our
bonus plans are to enhance shareholder value by rewarding
employees for the attainment of financial objectives and for
the attainment of specific work unit and individual goals
linked to specified strategic elements of the business. Our
Company utilizes a bonus plan formula which our sharehold-
ers approved at the 2002 Annual Meeting. By extending
annual bonuses deep into the organization, we seek to moti-
vate all managerial employees to help achieve our profit
objectives and other key strategic initiatives. Awards under
our Bonus Plan are expressed as a percentage of base salary
earnings. Awards to executive officers are a function of the
participant’s level of responsibility and our Company’s overall
financial performance for a given year. Awards to other man-
agement employees under our Bonus Plan are also based on
achievement of individual performance objectives.
Under our Bonus Plan, performance is measured in connec-
tion with attainment of specific financial objectives (including
earnings per share) and may also be based on individual goals,
where appropriate, that are established by the participant and
his or her immediate supervisor. Our Chairman and Chief
Executive Officer, as well as our other Executives are meas-
ured in connection with attainment of specific objectives
based on one or more of the following measurements: EPS,
TSR, RONA, ROI, relative performance against a peer group
or other measure, or some other criterion established by the
Compensation Committee of our Board of Directors at or near
the beginning of each year* pre-tax earnings, net earnings,
earnings per share, return on net assets and return on equity.
The Bonus Plan allows our Compensation Committee to
adjust these measurements under certain circumstances. Our
Compensation Committee approves the goals set for and
awards to our Chairman and Chief Executive Officer, our
Group Presidents, and our Executive Officers under our Bonus
Plan. This emphasis on “ at risk” compensation is consistent
with our compensation philosophy and supports continued cre-
ation of shareholder value.
In order to ensure the eligibility for deduction of annual bonus
payments (where the recipient’s total income exceeds $1 mil-
lion), under Section 162(m) of the Code, it is necessary that
our shareholders periodically approve the overall bonus plan
of our Company. Our current Bonus Plan was approved by our
shareholders at the Annual Meeting in 2002.
*EPS=earnings per share; TSR=total shareholder return,
measured as the increase in stock price (plus any dividends
paid on the company’s shares) over a period of time,
whether or not compared to the increase in stock price (plus
dividends) of other comparable companies; RONA=total
return on net assets of our Company; and ROI=total return
on investment of our Company.
Performance Shares. Prior to December 31, 2001, we had in
place a compensation program for certain senior executives
which permitted certain of such executives to receive a match-
ing bonus payment, deferred until a specified future date, and