Staples 2003 Annual Report Download - page 30

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Compensation Committee Report on Executive Compensation
Our executive compensation program is administered by the Compensation Committee composed of Messrs. Trust, Blank
and Currie. Our executive compensation program is designed to retain and reward executives who are responsible for leading
us in achieving our business objectives. All decisions by the Committee relating to the compensation of our executive officers
are reviewed by the full Board. In 2002, the Committee retained a national compensation consulting firm, reporting to the
Committee, to provide advice to the Committee. This report is submitted by the Committee and addresses our compensation
policies for fiscal 2002 and thereafter as they affected the Chief Executive Officer and our other executive officers.
Compensation Philosophy
The objectives of the executive compensation program are to (i) align compensation with business objectives, individual
performance and the interests of Staples’ stockholders, (ii) motivate and reward high levels of performance, (iii) recognize
and reward the achievement of Company and/or business unit goals, and (iv) enable Staples to attract, retain and reward
executive officers who contribute to the long-term success of Staples.
The Committee’s executive compensation philosophy is that a significant portion of executive compensation should
be tied directly to the performance of Staples as a whole. Our compensation philosophy reflects our practice of leveraging
equity and aligning executive compensation with the interests of our stockholders. Accordingly, more emphasis is placed
on total direct compensation (base salary, cash bonus and long-term stock incentives) instead of each of the separate
components. The executive compensation philosophy is as follows:
•Base salary and cash bonus are targeted at the median of the market.
•Total direct compensation is highly leveraged with equity and is targeted to deliver above the median of the market,
based on performance.
Status of the Executive Compensation Program
The Committee targeted total annual compensation (base salary, cash bonus and long-term stock incentives) to fall above
the median relative to the pay practices of a peer group of publicly traded companies in the retail industry (including
companies in the Standard & Poor’s 500 Retailing Index contained in the stock performance graph contained in this Proxy
Statement). The Committee seeks to provide its executives with “at risk” opportunities for compensation in addition to base
salary through performance-based cash bonuses, stock options and Performance Accelerated Restricted Stock (“PARS”).
The Committee also believes that bonus awards tied to achievement of pre-approved performance goals serve as an influential
motivator to its executives and help to align the executives’ interests with those of the stockholders of Staples. The Committee
also continues to believe that a substantial portion of the compensation of Staples’ executives should be linked through
Staples’ stock option and PARS program to the success of Staples’ stock in the marketplace. Stock options and PARS further
align the interests of management and stockholders, build stockholder wealth and assist in the retention of valued executives.
Accordingly, total direct compensation of executive officers is highly leveraged with equity comprising up to 80% of targeted
total direct compensation.
•Base Salaries: Base salaries for the executive officers are generally at the median of comparable positions in the
retail peer group.
•Cash Bonus: Each of Staples’ executive officers was eligible to participate in Staples’ Executive Officer Incentive Plan
in fiscal 2002 (the “Bonus Plan”). The Bonus Plan provided for the payment of a range of cash bonuses to executive
officers based on pre-established objectives relating to company-wide earnings per share, return on net assets, and
customer service goals. For an executive officer to be eligible to receive any cash bonus under the plan, a minimum
earnings per share threshold had to be achieved. In addition, the return on net assets and customer service criteria had
minimum levels that had to be achieved before any payment related to these specific criteria could be made.
The earnings per share, return on net assets and customer service goals for the Bonus Plan were determined by
the Committee and approved by the Board of Directors at the beginning of fiscal 2002. The Committee established
target bonus payouts for executives in an attempt to bring the cash portion of total annual compensation (base salary
plus target bonus) to approximately the median of the cash compensation paid to the retail peer group.
For fiscal 2002, Staples surpassed the minimum thresholds for bonus eligibility for all three bonus criteria and
exceeded the 100% target for earning per share and return on net assets and the 90% target for customer service.
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