Pier 1 2010 Annual Report Download - page 122

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 2010, however, Pier 1 Imports management,
through its human resources compensation group and Pier 1 Imports’ chief executive officer, recommended to the
compensation committee no base pay increase for Pier 1 Imports’ named executive officers at the beginning of the
fiscal year. The compensation committee agreed to support management’s recommendation and approved no
increases in base pay.
Short-term Incentives – Pier 1 Imports designs short-term incentive cash awards to motivate executives to
achieve superior quarterly and annual financial performance for Pier 1 Imports and to reward an executive’s
contribution to achieving that financial performance. During fiscal 2010, Pier 1 Imports’ short-term incentive plan
for its executives 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. For discussion purposes 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
performance 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 Pier 1 Imports in a competitive position in the marketplace because meeting quarterly and
annual financial goals are tied to the long-term success of Pier 1 Imports. Also, designing the short-term incentive
Profit Goal specifically around Pier 1 Imports’ improved financial performance reinforces Pier 1 Imports’
turnaround strategy thereby leading, as reflected below, to profitability over time.
The following important factors went into developing the short-term incentive plan for fiscal 2010:
• 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;
• The plan was designed to reward quarterly performance as well as annual performance;
• The plan was designed to reward a meaningful increase in the Profit Goal, on a year-over-year basis,
before a cash incentive award is paid; and
• The plan design allowed incentive targets for executive officers to vary by individual after consideration
of relevant market and peer group compensation information, individual job responsibilities and other
relevant information as appropriate given the needs of the business.
These factors were discussed with the compensation committee and, as a result, the compensation committee and
board of directors approved the plan and set quarterly and annual Profit Goal target levels for fiscal 2010. The quarterly
Profit Goals for fiscal 2010 were set at negative $31,300,000 for the first quarter, negative $21,900,000 for the second
quarter, negative $20,900,000 for the third quarter, and $25,100,000 for the fourth quarter. The annual Profit Goal for
fiscal 2010 was set at negative $49,000,000. This goal represented significant progress in returning Pier 1 Imports to
profitability given the comparable annual Profit Goal measure achieved in fiscal 2009 of negative $60,000,000.
The quarterly component of the plan would pay 100% of an individual’s quarterly cash incentive award potential
upon attainment of the Profit Goal for the applicable quarter. The annual component of the plan would pay 100% of an
individual’s annual cash incentive award potential at a Profit Goal of negative $49,000,000, and a maximum of 200%
of an individual’s annual cash incentive award potential at a Profit Goal of $25,000,000. A participant’s cash incentive
award potential for fiscal 2010 was expressed as a percentage of the participant’s base salary.
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