Pier 1 2010 Annual Report Download - page 120

negative $21,900,000 for the second quarter, negative $20,900,000 for the third quarter, and $25,100,000 for the
fourth quarter, for a senior executive to receive 100% of his or her quarterly cash incentive award potential for each
applicable quarter. For fiscal 2010, the committee set the annual Profit Goal target level of negative $49,000,000
based on projected company performance, for a senior executive to receive 100% of his or her annual cash incentive
award component. An annual Profit Goal of $25,000,000 would result in the senior executive receiving 200% of his
or her annual cash incentive award component. The Profit Goal targets and corresponding cash incentive award
levels recommended by the committee were subsequently approved by the board of directors.
For fiscal 2010, Pier 1 Imports’ long-term incentive plan for senior executives consisted of cash performance
awards issued under the Pier 1 Imports, Inc. 2006 Stock Incentive Plan. Under the award, long-term incentives in
the form of a cash award are payable if Pier 1 Imports attains the cumulative Profit Goal for fiscal years 2010, 2011
and 2012. Each year during the three-year period, a participant will earn one-third of the award if Pier 1 Imports
attains the annual Profit Goal for the fiscal year. All awards under the long-term incentive are payable at the end of
fiscal year 2012. The cash incentive award payable if Pier 1 Imports attains the cumulative Profit Goal is not
dependent on the attainment of the annual Profit Goals.
Pier 1 Imports believes that long-term cash incentive awards provide an incentive opportunity that is
competitive in the retail industry, effective as a retention tool, and supports Pier 1 Imports’ overall objective of
long-term company profitability. To remain competitive, given our turnaround efforts, Pier 1 Imports must also
design its executive incentive package to ensure its ability to attract and retain a highly skilled and motivated
executive team, which is critical to its future success and to maximizing shareholder value. Pier 1 Imports’
executive pay, therefore, includes a healthy mix of annual cash incentive awards and long-term compensation
components. Overall pay is heavily weighted toward incentive-based awards that are realized only when the
established performance goals are achieved or exceeded. Using targets that are benchmarked to exceed peer group
performance, however, is unrealistic given the turnaround environment in which Pier 1 Imports currently operates.
Further, benchmarking the performance of a peer group of companies would be difficult given the size of the home
furnishings industry, the fact that several businesses in that industry have failed and the fact that no single company
competes directly in all aspects of Pier 1 Imports’ business. In addition, in this economic environment, using
benchmarked targets that are tied to peer group performance may result in the payment of incentive awards for
performance unrelated to improved financial performance or stock value appreciation at Pier 1 Imports.
No senior executive or key management employee of Pier 1 Imports earned or received a performance cash
incentive award for fiscal years 2004, 2005, 2006, 2007 and 2009 because the established performance goals for
those years were not met. In order to remain competitive, our pay program must be motivational, realistically
achievable and tied to improved performance at Pier 1 Imports. We do not believe that a compensation plan
designed according to the proposal would fulfill these objectives. Pier 1 Imports remains committed to utilizing
rigorous performance goals as a measure of executive compensation and benchmarking its mix of base salary, short-
term incentives and long-term incentives as elements of total compensation to peer group studies and surveys. As
reflected in the Compensation Discussion and Analysis below, the Pier 1 Imports’ program as designed for fiscal
2010 was successful in moving Pier 1 Imports toward its goal of profitability.
It would be unwise at this time for Pier 1 Imports to choose to condition payment of incentives to senior
executives and key management on meeting or exceeding performance standards based on defined financial
performance criteria of other peers which bear no relation to Pier 1 Imports’ turnaround efforts, the general
operating environment and our focus on increasing profitability. Pier 1 Imports prefers to design and implement
both realistic and achievable annual and long-term incentive plans for its senior executives and key management
team. An incentive compensation program that could permit payments to senior executives in certain circumstances
when Pier 1 Imports has performed below its own expectations would fall well short of the objectives embodied in
Pier 1 Imports’ existing program, which has proven to be effective in Pier 1 Imports’ current turnaround efforts, the
general operating environment and our focus on a return to profitability. We believe that the performance measures
used by Pier 1 Imports are set at levels that embody a “pay-for-superior-performance” standard because the
financial performance of Pier 1 Imports would have to improve before any annual performance-based incentives
were paid or long-term compensation had any value.
The board of directors unanimously recommends a vote “AGAINST” this proposal.
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