Pier 1 2008 Annual Report Download - page 109

EXECUTIVE COMPENSATION
Compensation Committee Report
The compensation committee has reviewed and discussed with management the Compensation Discussion
and Analysis below. Based on the review and discussion, the compensation committee has recommended to
the board of directors that the Compensation Discussion and Analysis be included in Pier 1 Imports’ proxy
statement.
COMPENSATION COMMITTEE
John H. Burgoyne, Chairman
Robert B. Holland, III
Karen W. Katz
Compensation Discussion and Analysis
The purpose of this Compensation Discussion and Analysis disclosure is to provide material information
about Pier 1 Imports’ compensation objectives and policies for its named executive officers and to put into
perspective the tabular disclosures and related narratives that follow it.
Compensation Policies, Principles, and Objectives
Pier 1 Imports has established business priorities as part of our ongoing strategy to return our business to
profitability. Pier 1 Imports’ success in effectively and efficiently executing these business priorities depends,
in large part, on being able to successfully attract, motivate and retain a qualified management team and
employees. Sourcing qualified candidates to fill important positions within Pier 1 Imports, especially executive
management, in the highly competitive retail environment is challenging, especially when coupled with our
ongoing turnaround efforts. Accordingly, Pier 1 Imports’ overall compensation philosophy is that our executive
compensation plan should be structured to attract and retain highly skilled and motivated individuals who will
lead Pier 1 Imports to successful performance that is consistent with shareholders’ expectations. We
accomplish this by creating total compensation packages which are competitive in the retail industry, fair and
equitable among the executives, and which provide strong incentives for the long-term success and
performance of Pier 1 Imports. Additionally, Pier 1 Imports provides both short-term and long-term incentives
to its executives for the effective management of major functions, teamwork, and effective expense control.
Success on these fronts leads to the overall success of Pier 1 Imports. Pier 1 Imports believes that as an
executive’s level of responsibility increases, a greater portion of that executive’s potential total compensation
should come from performance-based plans. This aligns management’s interests with shareholders’ interests as
the executive’s potential total compensation will only increase when Pier 1 Imports’ performance increases.
Putting this philosophy into operation results in a total compensation package for Pier 1 Imports’
executive officers approximately equal to the 50th percentile of Pier 1 Imports’ peer group when Pier 1
Imports achieves planned financial goals. Total compensation packages are designed to provide a 75th percen-
tile opportunity when Pier 1 Imports’ results significantly exceed planned financial goals.
In March 2007, Pier 1 Imports used a group of peer companies to benchmark the base salary, short-term
incentive and long-term incentive elements of total compensation. That group included Abercrombie & Fitch
Co., Ann Taylor Stores Corporation, Bed Bath & Beyond Inc., Blockbuster Inc., The Bombay Company Inc.,
Brinker International, Inc., Cash America International, Inc., Charming Shoppes, Inc., Crate & Barrel,
Linens ’n Things, Inc., Neiman Marcus, Petco Animal Supplies, Inc., RadioShack Corporation, Rent-A-Center,
Inc., Restoration Hardware, Inc., Ross Stores, Inc., Stein Mart, Inc., Tuesday Morning Corporation,
Williams-Sonoma, Inc., and Zale Corporation. Data for these companies was provided by Hewitt Associates
LLC, an outside consultant.
Upon the Compensation Committee’s engagement of Towers Perrin as its outside consultant in August of
2007 (as described above under the caption “Committees of the Board of Directors” — “Compensation
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