Pier 1 2010 Annual Report Download - page 119

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, June 20, 2008 and July 1, 2009. 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. 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.
In our opinion, the proposal continues to be unnecessary in light of Pier 1 Imports’ current turnaround efforts,
its successes and the general operating environment in which the company competes. 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’ financial performance. 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’ financial performance 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 by Pier 1 Imports. In other words, if Pier 1 Imports performs poorly,
but less poorly relative to its peers, its senior executives could be entitled to incentive compensation, a result
contrary to the contention in the supporting statement that the proposal “will focus senior executives on building
sustainable long-term corporate value.” If Pier 1 Imports were to base the awarding of annual performance-based
incentive payments or other long-term compensation relative to the performance of companies that are losing value,
the probability of such compensation being payable could be higher than when compared to the requirements of Pier
1 Imports’ current executive compensation program that are specific to Pier 1 Imports.
Pier 1 Imports’ short-term incentive plan for senior executives is administered by the board of directors’
compensation committee, whose duties include establishing a performance measure and quantifying it for each year
for the payment of cash incentive awards. For fiscal 2010, pursuant to the Pier 1 Imports, Inc. 2006 Stock Incentive
Plan (which allows for cash performance awards in addition to stock based awards) the committee established 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 committee, or a subcommittee. Like
prior years, we refer to this measure as the Profit Goal. For fiscal 2010, the committee established an annual
performance-based incentive that allocated one-third of the total cash incentive award potential based on attainment
of quarterly Profit Goals and two-thirds of the total cash incentive award potential based on attainment of an annual
Profit Goal. The quarterly targets were based on projected company performance and were awarded on a “pass or
fail” basis. The committee set quarterly Profit Goal target levels of negative $31,300,000 for the first quarter,
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