Bed Bath & Beyond (BBBY)

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Historically, the Company used stock options for all equity incentive awards to its employees, including executive officers. During the fiscal year ended February 25, 2006, the Compensation Committee completed a study of possible changes to the Company’s sole reliance on stock options for equity incentive awards, including, among other things, the possibility of replacing stock options, in whole or in part, with awards of restricted stock. In conducting its evaluation, the Compensation Committee considered changes to the accounting rules pertaining to the compensation cost of stock-based payments to employees and the desirability of achieving various goals, including promoting long-term employee stock ownership, enhancing employee retention, minimizing dilution, providing employees with rewards for the Company’s success and linking employee pay to shareholder returns.

In light of the foregoing, the Compensation Committee has changed its overall approach to equity compensation for employees. As a result, equity awards are now made consistent with the following approach:

1.                                       The Company’s Co-Chairmen, the Chief Executive Officer, all other executive officers, and certain other executives reporting to the Company’s Chief Executive Officer receive incentive compensation comprised of a combination of stock options and restricted stock, with values to date that have typically been weighted toward grants of restricted stock. Consistent with the Company’s historic practice, the stock options vest over time, subject, in general, to the executive’s remaining in the Company’s employ on specified vesting dates. Vesting of the restricted stock awarded to these executives is dependent on (i) the Company’s achievement of a performance-based test for the fiscal year in which the grant is made, and (ii) assuming achievement of the performance-based test, time vesting, subject, in general, to the executive remaining in the Company’s employ on specified vesting dates. It is contemplated that the performance test meets the standard for performance-based compensation under the Internal Revenue Code, so that the restricted stock awards will be deductible compensation for certain executives if their annual compensation exceeds $1 million.

2.                                       All other employees awarded incentive compensation receive grants consisting solely of restricted stock. Vesting of restricted shares awarded to these employees is based solely on time-vesting with no performance test.

The foregoing changes in the Company’s equity incentive practices became effective with respect to awards granted in the Company’s fiscal year ending February 25, 2006. Awards are made under the Company’s 2004 Incentive Compensation Plan, approved by the Company’s shareholders at the 2004 annual meeting of shareholders.

Effective the beginning of the third quarter of the Company’s fiscal year ending February 25, 2006, the Company voluntarily adopted SFAS No. 123R, which requires companies to measure all employee stock-based compensation awards using a fair market value method and to record such expense in their consolidated financial statements. While SFAS No. 123R was not required to be effective until the Company’s fiscal year ending March 3, 2007, early adoption was encouraged and the Company elected to adopt it before the required effective date.

For the Company’s fiscal year ending February 25, 2006, the Compensation Committee approved salary increases for certain executive officers effective May 2005, including an increase from $1,050,000 to $1,150,000 for Mr. Temares, as CEO. The committee also approved a supplemental retirement benefit for Mr. Temares. Following the close of the fiscal year, the Committee

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approved increases for certain executive officers effective May 2006, including an increase in annual salary from $1,150,000 to $1,250,000 for Mr. Temares. The annual salaries of Messrs. Eisenberg and Feinstein, as Co-Chairmen, remained unchanged at $1,100,000 in each year. The increases in salary were deemed appropriate in view of the continued growth of the Company and the continued favorable results of operations. The Compensation Committee reviewed and took into account, among other things, the total compensation package of the Co-Chairmen, the CEO and the Company’s other executive officers, including retirement benefits and the grants of stock options and awards of restricted stock described herein.

For the fiscal years ending February 25, 2006 and March 3, 2007, in accordance with the approach described above, the Compensation Committee awarded all executive officers (and certain other executives) a combination of stock options and shares of restricted stock. All other employees receiving equity incentive were awarded grants consisting solely of restricted stock.

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