Restoration Hardware 2012 Annual Report Download - page 30

The named executive officers are eligible to receive an annual cash bonus based on a percentage of annual
base salary under the MIP. The compensation committee sets minimum, target and maximum levels for our
financial objectives each year and the payment and amount of any bonus is dependent upon whether we achieve
those performance goals. The compensation committee generally establishes financial objectives for our
Company that it believes can be reasonably achieved with strong individual performance over the fiscal year.
In particular, the compensation committee sets the minimum, target and maximum levels based upon our
achievement of specified company results with respect to adjusted EBITDA, subject to the compensation
committee’s oversight and modification of those levels. Minimum levels are set below the target level, while
maximum levels are set above the target level. In making the determination of minimum, target and maximum
levels, the compensation committee may consider the specific circumstances facing our Company during the year
and our strategic plan for the year. We define EBITDA as consolidated net income (loss) before depreciation and
amortization, interest expense and provision for income taxes. In accordance with the terms of the MIP, our
adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including
non-cash or other items that we do not consider representative of our ongoing operating performance, as
discussed in more detail in the section entitled “Selected Historical Consolidated Financial and Operating Data”
contained in our Annual Report on Form 10-K for the fiscal year ended February 2, 2013.
The MIP bonus for our named executive officers is based on the achievement of corporate goals, rather than
individual performance, in order to focus the entire senior management team on the attainment of such corporate
goals.
For fiscal 2012, the amount that could have been received by Mr. Alberini under the MIP ranged from
between 0% of annual base salary to up to 125% of annual base salary, with a target bonus amount of 100% of
annual base salary. For our other named executive officers, the amount such officers could have received ranged
from 0% of annual base salary to up to 60% of annual base salary, with a target bonus amount of 50% of annual
base salary.
The exact amount of the bonus payable under the MIP was based on a scale with respect to the level of
achievement of our adjusted EBITDA for fiscal 2012. No bonuses would be paid under the MIP for fiscal 2012
unless we met the threshold of at least a 20% achievement level with respect to our adjusted EBITDA. The target
adjusted EBITDA amount under the MIP was the 100% achievement level. The following table sets forth the
bonuses payable under the MIP to Mr. Alberini, Ms. Boone and Mr. Dunaj at each achievement level:
Bonus as a Percentage of Base Salary
Achievement Level Carlos Alberini Karen Boone Ken Dunaj
0% — — —
20% 20% 10% 10%
100% 100% 50% 50%
120% 125% 60% 60%
The compensation committee retains wide discretion to interpret the terms of the MIP and to interpret and
determine whether our adjusted EBITDA objectives have been met in any particular fiscal year. The
compensation committee also retains the right to exclude extraordinary charges or other special circumstances in
determining whether our adjusted EBITDA objectives were met during any particular fiscal year. The
compensation committee exercises such discretion based on its business judgment and the experience and
familiarity of its members with both recurring and extraordinary factors affecting performance of companies in
our industry of a similar scale to ours. Accordingly, for purposes of determining whether certain MIP goals have
been met, the compensation committee may determine to exclude from the adjusted EBITDA calculation isolated
items that the compensation committee does not believe are indicative of future Company performance or other
items that the compensation committee does not believe should impact the amount of the bonuses paid to
employees under the MIP. The compensation committee may consult with our board of directors or seek
ratification from our board of directors with respect to interpretations of the terms of the MIP.
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