Pier 1 2009 Annual Report Download - page 134

median level of a selected peer group, then they design any annual and long-term incentive plan
performance criteria and benchmarks to deliver a significant portion of the total compensation target
regardless of the company’s performance relative to its peers. High total compensation targets
combined with less than rigorous performance benchmarks yield a pattern of superior-pay-for-average-
performance. The problem is exacerbated when companies include annual bonus payments among
earnings used to calculate supplemental executive retirement plan (SERP) benefit levels, guaranteeing
excessive levels of lifetime income through inflated pension payments.
We believe the Company’s Plan fails to promote the pay-for-superior-performance principle. Our
Proposal offers a straightforward solution: The Compensation Committee should establish and disclose
performance criteria and set peer group-related performance benchmarks that permit awards or
payouts in its annual and long-term incentive compensation plans only when the Company’s
performance exceeds the median of its peer group. A senior executive compensation plan based on
sound pay-for-superior-performance principles will help moderate excessive executive compensation and
create competitive compensation incentives that will focus senior executives on building sustainable
long-term corporate value.
Pier 1 Imports’ Response
As noted above, the proposal is substantially the same as the proposals that Pier 1 Imports
shareholders defeated at our annual meetings held on June 28, 2007 and June 20, 2008. The proposal
requests that the board of directors implement a performance-based incentive plan for senior executives
(covering both annual performance-based incentive and long-term compensation) using defined
financial performance criteria that are benchmarked against peer companies. Under the proposal,
annual performance-based incentive and long-term compensation would be payable only if Pier 1
Imports’ performance were to exceed the peer group’s mean or median performance with respect to
the selected financial performance criteria.(1)
In our opinion, the proposal continues to be unnecessary in light of Pier 1 Imports’ current
turnaround efforts and general operating environment. Moreover, it duplicates certain elements of
Pier 1 Imports’ existing incentive compensation policies and practices. Pier 1 Imports’ current incentive
plans (annual and long-term) already utilize financial performance criteria that are tied to an
improvement of Pier 1 Imports’ profits and value. Although these plans do not condition awards on
performance exceeding the mean or median of peer performance on the selected financial performance
criteria, Pier 1 Imports nevertheless must surpass certain financial performance objectives before any
annual performance-based incentive payments are made or long-term compensation has compensatory
value to a senior executive. Pier 1 Imports believes that the tying of annual performance-based
incentive payments and long-term compensation to the financial performance measures set forth in its
executive compensation program will focus senior executives on building sustainable, long-term
corporate value because Pier 1 Imports’ profits and value actually would have to improve before the
annual performance-based incentive payments are made or the long-term compensation has any
compensatory value.
Further, Pier 1 Imports believes that its current incentive plans provide more stringent standards
for performance-based incentive plans than those set forth in the proposal. Indeed, the proposal, as
written, could permit Pier 1 Imports to reward its senior executives when its financial performance
exceeds that of its peers but has not resulted in any improved financial performance or stock
appreciation at Pier 1 Imports. In other words, as long as Pier 1 Imports performs less poorly relative
to its peers, its senior executives could be entitled to incentive compensation, a result contrary to the
(1) The Supporting Statement of the proposal, however, conflicts with the proposal by limiting the
peer group’s performance to a ‘‘median’’ performance with respect to the selected financial
performance criteria.
36