Pier 1 2009 Annual Report Download - page 139

• The plan was designed to reward a meaningful earnings level before a cash incentive award is
paid; and
• The plan was designed to reinforce the previous fiscal year’s short-term incentive plan which
achieved its desired effect of turning Pier 1 Imports toward profitability.
These factors were discussed with the compensation committee and, as a result, the compensation
committee and board of directors approved the plan and set $40,000,000 as the Profit Goal for fiscal
2009. This goal represented significant progress in returning Pier 1 Imports to profitability given the
comparable Profit Goal measure achieved in fiscal 2008 of $10,400,000. The plan would pay 100% of
an individual’s target cash incentive award at a Profit Goal of $40,000,000, and a maximum of 150% of
an individual’s target cash incentive award at a Profit Goal of $48,000,000. The incentive plan was
designed to pay an initial 10% of an individual’s target cash incentive award when the Profit Goal
reached $25,600,000, or a $15,200,000 improvement over the prior year. A participant’s target cash
incentive award for fiscal 2009 was expressed as a percentage of the participant’s base salary. In fiscal
2009, those were 100% of annual base salary for Pier 1 Imports’ chief executive officer and 75% of
annual base salary for the other named executive officers. The plan required participants to be
employed with Pier 1 Imports at the end of fiscal 2009 to receive a cash incentive award, if any. Pier 1
Imports believes that these target percentage levels are competitive when compared to Pier 1 Imports’
peer group as identified at the beginning of the fiscal year. Neither the threshold nor minimum level of
the Profit Goal was achieved in fiscal 2009; therefore, no participant in the plan, including the named
executive officers, received short-term incentive compensation.
Long-term Incentives—Pier 1 Imports designs its long-term incentive awards to support Pier 1
Imports’ overall objectives of long-term company success and performance, competitiveness in the retail
industry, and retention of executives. Pier 1 Imports’ long-term incentive plan for fiscal 2009 was
comprised of stock option awards and time-based restricted stock awards. Pier 1 Imports believes that
stock options promote Pier 1 Imports’ success by providing value to the executive only when there is a
corresponding increase in shareholder value. 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. During the vesting period, restricted stock awards have voting rights and are eligible to
receive cash dividends, should cash dividends be paid on Pier 1 Imports’ common stock.
Pier 1 Imports’ fiscal 2009 long-term incentive plan included two elements: (1) non-qualified stock
option awards that vest equally over a four-year period beginning on the first anniversary of the grant
date; and (2) time-based restricted stock awards that vest 33%, 33% and 34% over a three-year period
beginning on the first anniversary of the grant date.
For fiscal 2009, the mix of long-term incentive awards for each executive officer was determined
with consideration of both internal pay equity concerns as well as market data. The following factors
were taken into account in establishing that mix:
• setting the awards at the 50th peer group percentile;
• the historical grant practices of Pier 1 Imports;
• the difficulty of identifying a meaningful long-term performance target when executing a
business turnaround;
• the affordability of the awards in terms of share usage and accounting expense; and
• the desired message to participants and external constituents for leverage, risk, retention, and
performance.
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