BSET » Topics » Annual Bonuses

This excerpt taken from the BSET DEF 14A filed Mar 10, 2008.

Annual Bonuses

The primary objectives of our annual incentive bonuses are to provide an incentive for superior work, to motivate our executives toward higher achievement and business results, to tie our executives’ goals and interests to ours and our stockholders’ and to enable us to attract and retain highly qualified individuals. Annual incentives are established for each executive in the form of a maximum percentage of base salary and are earned based on our attainment of performance targets set by the Committee. These targets are typically set in the first three months of the fiscal year. Bonus targets are based primarily on corporate performance criteria, such as operating income, earnings per share, cash flow and sales. However, for executives whose responsibilities relate primarily to a division of our business, a portion of the bonus may be tied to the operating performance of that division, thus ensuring a direct link between the executive’s performance and the amount of bonus earned. For 2007, the performance targets for the named executives were based entirely on corporate operating income except that for one of the named executives, 25% of the bonus was based on the operating income of one of our divisions. The selection of operating income as the performance criteria for annual bonuses is consistent with the Company’s business emphasis in recent years on improving cash flow and managing the balance sheet, which is a reflection of our response to adverse market conditions and our efforts to position the Company for earnings growth when the overall market improves. The performance level required to earn the target level of bonus is based on the internal financial goals set in connection with our Board of Directors’ consideration and approval of our annual operating plan. Consistent with our emphasis on tying compensation to performance, maximum bonus levels for executives are set at a significant percentage of base salary, typically between 50% and 125%. The higher percentages are set for the executives with the greater levels of responsibility, thus furthering the Committee’s objective to have a greater percentage of compensation at risk as an executive’s level of responsibility increases. The threshold, target and maximum performance targets are set at levels that we believe will make it difficult for the executive to earn bonuses at the target or higher levels, particularly in view of the difficult economic conditions in our industry. However, in light of those conditions, the Committee deemed it appropriate to structure the bonuses so that executives can begin to earn a prorated portion of the target bonus so long as there is positive operating income. No performance-based cash bonuses were paid to our executive officers for fiscal year 2007 because we did not have positive operating income.

The Committee may also, in its discretion, award bonuses to executives based upon such other terms and conditions as the Committee may determine. For fiscal year 2007, the Committee awarded such a discretionary bonus to one executive officer in recognition of his role in the development and implementation of the Company’s long-term initiatives, such as the retail store prototype.

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