Pier 1 2008 Annual Report Download - page 108

For fiscal 2008, Pier 1 Imports’ long-term incentive plan for executives was comprised of stock option
awards and restricted stock awards (time based) issued under our 2006 stock incentive plan which was
approved by our shareholders on June 22, 2006. This plan is administered by the compensation committee.
Pursuant to the plan, the committee adopted a mix of stock options and time based restricted stock as long-
term incentives for Pier 1 Imports’ executives for fiscal 2008. The stock option awards were granted at an
exercise price equal to the market price on the date of grant and vest equally over four years beginning one
year after grant. The time based restricted stock awards vest 33%, 33%, and 34% over three years beginning
one year after the date of grant. Each of these grants was subsequently approved by our board of directors.
Pier 1 Imports’ stock option awards are designed to promote Pier 1 Imports’ success by providing value
to our executives only when there is a corresponding increase in value to shareholders. Pier 1 Imports believes
that time based restricted stock provides a long-term incentive opportunity that is both competitive in the retail
industry and serves as a retention tool. To remain competitive, given our turnaround efforts, Pier 1 Imports
must also design its executive incentive package to ensure our ability to attract and retain a highly skilled and
motivated executive team, which is critical to our future success and to maximizing shareholder value. Pier 1
Imports’ executive pay, therefore, includes a healthy mix of annual cash incentive award and long-term
compensation components. Overall pay is heavily weighted with incentive based awards that are realized only
when the established performance goals are achieved. Using targets that are benchmarked to exceed peer group
performance is, however, unrealistic given the turnaround environment in which Pier 1 Imports currently
operates. Further, benchmarking the performance of a peer group of companies would be difficult given the
size of the home furnishings industry and the fact that no one company competes directly in all aspects of
Pier 1 Imports’ business.
As stated, no senior executive or key management employee earned or received a performance cash
incentive award for fiscal years 2004, 2005, 2006 and 2007 because the established performance goals for
those years were not met. Additionally, all stock option awards granted during those time periods and in fiscal
2008 have an exercise price higher than the closing price of Pier 1 Imports’ common stock at the end of fiscal
2008, which was $5.24. In order to remain competitive and return Pier 1 Imports to profitability and beyond,
we need to design a pay program that is both motivational and realistically achievable. Pier 1 Imports remains
committed to utilizing rigorous performance goals as a measure of executive compensation and benchmarking
those goals to peer group studies and surveys. As reflected in the Compensation Discussion and Analysis
below, the Pier 1 Imports’ designed program for fiscal 2008 was successful in moving Pier 1 Imports toward
its goal of profitability and beyond.
It would be unwise at this time to condition payment of incentives to executives and key management on
meeting or exceeding performance standards of other peers which bear no relation to Pier 1 Imports’ focus on
a return to profitability. Pier 1 Imports needs flexibility to design and implement both realistic and achievable
annual and long-term incentive plans for its executives and key management team, while taking the factors
suggested by the shareholder proposal into consideration, as needed.
The board of directors unanimously recommends a vote “AGAINST” this proposal.
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