Pier 1 2009 Annual Report Download - page 138

Executive Compensation Components
In addition to base salary, short-term incentives, and long-term incentives, Pier 1 Imports’
compensation program in fiscal 2009 included retirement plans and employment and post-employment
agreements. With respect to Mr. Smith, who became Pier 1 Imports’ president and chief executive
officer on February 19, 2007, these elements are discussed separately below under the caption
‘‘Employment Agreements and Post-Employment Consulting Agreements’’. As discussed below, the
fiscal 2009 compensation program did not include the payment of allowances for certain perquisites.
Base Salary—Pier 1 Imports designs base salary to (i) reflect an individual’s experience, skills and
level of responsibility, (ii) provide a fixed amount of compensation commensurate with market
conditions for similar jobs, (iii) reflect an executive’s individual performance and contribution, and
(iv) aid in the retention of key personnel. The aspects of individual performance that may be
considered in the determination of each executive’s base salary include the individual’s contribution to
achieving operating goals, expense control and expense reduction, profitability, and performance as
compared to planned results. In addition, the following factors may be considered when assessing the
performance of each named executive officer: thought leadership (analysis, judgment, and financial
acumen), results leadership (planning and execution), people leadership (influence and execution), and
personal leadership (the ability to trust, adapt and learn). In fiscal 2009, however, Pier 1 Imports
management, through its human resources compensation group and Pier 1 Imports’ chief executive
officer, supplemented by data provided by Towers Perrin, recommended to the compensation
committee no base pay increase for Pier 1 Imports’ named executive officers at the beginning of the
fiscal year, other than a one-time adjustment to base pay for the named executive officers in
consideration of the discontinuance of the payment of pre-established amounts for the perquisites
described below. The current pay of these officers was considered in comparison to the 50th percentile
of the selected peer group. The data showed that the chief executive officer’s base salary was between
the 50th and 75th peer group percentiles, and the base salaries of the executive vice presidents as a
group approximated the 50th peer group percentile. The compensation committee viewed the one-time
base salary adjustment to be within a reasonable range around the 50th peer group percentile. As a
result, the compensation committee agreed to support management’s recommendation of these
one-time adjustments effective April 20, 2008.
Short-term Incentives—Pier 1 Imports designs short-term incentive cash awards to motivate
executives to achieve superior annual financial performance for Pier 1 Imports and to reward an
executive’s contribution to achieving that financial performance. During fiscal 2009, Pier 1 Imports
maintained a short-term incentive plan for its executives and key members of management. The
short-term incentive plan used a performance measure of adjusted consolidated operating cash earnings
before interest, taxes, depreciation, and amortization from all domestic and international operations,
but not including discontinued operations, unusual or non-recurring charges nor recurring non-cash
items, each as determined by the compensation committee, or a subcommittee. We refer to this
measure as the Profit Goal. This performance measure was selected as the underlying financial measure
because it focuses on factors that an individual participant’s actions can affect. In addition, the Profit
Goal is a better measure of core operating profitability because it eliminates the effects of financing
and tax decisions as well as unusual charges and more closely reflects cash being generated by Pier 1
Imports’ ongoing core operations. The offering of a short-term incentive plan maintains a competitive
position with Pier 1 Imports’ peer group because meeting annual financial goals leads to the long-term
success of Pier 1 Imports. Also, designing the short-term incentive Profit Goal specifically around Pier 1
Imports’ financial operations reinforces Pier 1 Imports’ turnaround strategy thereby leading to
profitability over time.
Three important factors went into developing the short-term incentive plan for fiscal 2009:
• The plan was designed to reinforce the financial turnaround efforts of Pier 1 Imports, and focus
management on making the organization more efficient in every way;
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