Staples 2004 Annual Report Download - page 50

Employment, Termination of Employment and Change-in-Control Agreements with Senior Executives
We have entered into Severance Benefit Agreements (the ‘‘Severance Agreements’’) with each of
Messrs. Anderson, Doody, Mahoney, Miles and Sargent. Under the Severance Agreements, following termination of
employment by us without cause (or ‘‘constructive discharge’’ as provided in the Severance Agreements), Mr. Sargent
would be entitled to continuation of salary and other benefits for 18 months and Messrs. Anderson, Doody, Mahoney
and Miles would be entitled to continuation of salary and other benefits for 12 months. Each executive named above
would receive such benefits for an additional period of six months if such termination occurred within two years
following a ‘‘change in control’’ of Staples (as defined in the Severance Agreements). A change in control of Staples
would also result in a partial acceleration of the exercisability of outstanding options held by the executives named
above (and all of our associates), and a discharge without cause (or resignation for good reason) within one year after
a change in control results in the acceleration in full of all options and PARS held by the executives (and all of our
associates). In the event Mr. Mahoney is terminated without cause within one year after a change of control, we have
guaranteed him that the sum of all severance payments to be paid to him plus the total gain realized and realizable
upon the sale and/or exercise of his PARS and/or options would equal at least $2,000,000.
Compensation Committee Report on Executive Compensation
Our executive compensation program is administered by our Compensation Committee which is composed of
three independent directors, Ms. Barnes and Messrs. Blank and Currie. The Committee’s membership is determined
by the Board. All Committee decisions relating to the compensation of our executive officers are reviewed by the full
Board. Since 2002, we have retained a national compensation consulting firm, reporting to the Committee, to provide
independent advice regarding executive compensation. This report is submitted by the Committee and addresses our
compensation policies for fiscal 2004 and thereafter as they affected and will affect our executive officers, including
our Chief Executive Officer.
Executive Compensation Objectives and Philosophy
The objectives of our 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
and retain executive officers who contribute to the long-term success of Staples.
The Committee’s executive compensation philosophy is that a significant portion of compensation should be tied
directly to the performance of Staples as a whole. This philosophy is reflected in our practice of leveraging equity to
align executive compensation with the interests of our stockholders and placing greater emphasis on Total Direct
Compensation (base salary, cash bonus and long-term stock incentives) than on each of the separate components of
Total Direct Compensation.
The Committee targets Total Direct Compensation 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 Retail
Composite Index contained in the stock performance graph contained in this Proxy Statement). Since the Committee
believes that bonus awards tied to achievement of pre-approved performance goals and equity awards that strongly
link the executives’ compensation to the success of Staples’ stock in the marketplace serve as influential motivators to
its executives and help to align the executives’ interests with those of the stockholders, the Committee seeks to provide
its executives with ‘‘at risk’’ opportunities for compensation through performance-based cash bonuses, stock options
and Performance Accelerated Restricted Stock (‘‘PARS’’). Stock options and PARS have historically provided the
desired linkage with stockholders’ interests.
As in prior years, our judgments regarding executive compensation last year were based primarily upon our
assessment of each executive officer’s leadership performance and potential to enhance long-term stockholder value.
We rely upon judgment and not upon rigid guidelines or formulas or short-term changes in our stock price in
determining the amount and mix of compensation elements for each executive officer. Key factors affecting our
judgments included the nature and scope of the executive officers’ responsibilities, their effectiveness in leading our
initiatives to increase earnings per share, return on net assets, customer satisfaction and growth, and their success in
creating a culture of integrity and compliance with applicable law and our ethics policies. We also considered data
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