Dick's Sporting Goods (DKS)

critical elements to the Company’s overall success, we use earnings before taxes (“EBT”) as the primary metric to measure our business goals for compensation purposes.

 

Compensation Philosophy.  Our compensation programs are designed to attract and retain executive leaders who are results oriented, financially astute and focused on continuous performance improvement. Consequently, our compensation philosophy currently emphasizes “at risk” pay by providing for market median compensation at target performance and significant upside potential for above-target performance through our variable pay programs. The chart below provides the purpose and specific target market position for each pay element.

 

 

 

 

 

 

to continue to grow our business in a very disciplined way. Because we believe that financial discipline and focus are critical elements to the Company’s overall success, we use pre-tax earnings as the primary metric to measure our business goals for compensation purposes.

 

Changes.  Material increases or decreases in our named executive officers’ compensation (other than our Chairman and Chief Executive Officer) are determined by our Chairman and Chief Executive Officer (through his recommendations to the Compensation Committee). He determines these changes based on the circumstances related to the named executive officer and/or the overall performance of the named executives. Changes in our Chairman and Chief Executive Officer’s compensation are determined based on performance of our Company and our subsidiaries.

 

Components.  The Compensation Committee, in consultation with the Chairman and Chief Executive Officer, has designed our executive compensation program to reward the achievement of specific annual Company financial metrics and align executives’ interests with those of the stockholders by rewarding performance that increases stockholder value. We assess compensation to ensure that we continue to attract and retain best in class employees in key positions and remain competitive. With those goals in mind, the Company’s compensation program for executives consists of these elements:

 

 

As a result of our objectives and philosophy, historically a large portion of total executive compensation is allocated to incentives (cash bonus and stock options). Under this approach, compensation for our named executive officers involves a high proportion of pay that is “at risk,” in the form of the annual bonus, payment of which is based on our financial performance. In addition, stock options — the other significant component of our compensation — relate directly to stock price appreciation realized by all of the Company’s stockholders.

 

We historically have not had a pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. Rather, the Compensation Committee, in consultation with our Chairman and Chief Executive Officer, has maintained the flexibility to make allocation between these variables as circumstances dictate. Additionally, our historic use of stock option grants as long-term compensation has resulted in our not needing to make any determinations for allocating long-term compensation to different forms of awards. The Company has not historically adjusted or permitted recovery of awards or payments where the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment and the Company has no policy related to those matters. We use these elements because we believe they track and retain best in class employees. Our Chief Executive Officer and Compensation Committee determine amounts of compensation based on Company and individual performance.

 

Written Employment Arrangements.  We historically have not entered into employment agreements with our named executive officers. Except for some of the officers of Golf Galaxy, Inc. (which we acquired in February 2007) who had employment agreements in place prior to our acquisition of Golf Galaxy, and with whom we negotiated continuing employment agreements in connection with the acquisition, and in some limited instances for new hires, we have generally only provided our executive officers with limited severance payments upon termination of employment. In most cases, upon the termination of an officer’s employment by us we are only obligated to pay to that officer an amount equal to the greater of (i) four (4) weeks of pay at the officer’s base salary or (ii) one (1) week of pay for every year of employment with us. The severance payment is payable bi-weekly over the 12-month period following the officer’s termination. No severance payment is payable to the officer if the officer voluntarily terminates employment with us, retires or is terminated due to “cause” (as defined in the agreement), death, or permanent disability. The Company in its discretion may offer other arrangements to employees who end employment with the Company.

 

In some instances in connection with the negotiation of new hires we have entered into offer letters with our executive officers which have provided them written assurances of additional elements of compensation as they join our Company. In November 2005, the Company agreed to terms of employment with Gwen Manto, our Executive Vice President & Chief Merchandising Officer. Under her offer letter, Ms. Manto receives a gross annual salary of $600,000, and is be eligible to participate in the Company’s management bonus plan. Ms. Manto received a signing bonus of $385,000, payable in two (2) installments, which was required to be refunded if her employment was voluntarily terminated within one (1) year of starting employment, and an initial stock grant of 75,000 shares of common stock, which are cliff vested at three (3) years from her starting employment date. The Company has also agreed to pay to Ms. Manto the value of 8,000 units of unvested restricted stock held by Ms. Manto in connection with her previous employment at Sears, Roebuck & Company. These payments were made in two (2) installments during 2006 and 2007, with the first payment of $609,250 being paid on February 15, 2006 and the second installment of $450,000 being paid on February 15, 2007.

 

On February 13, 2007, we acquired Golf Galaxy as our wholly-owned subsidiary. Following our acquisition of Golf Galaxy, Randall K. Zanatta, Golf Galaxy’s President and Chief Executive Officer, continued to serve in that capacity. In connection with Mr. Zanatta’s continuation as President and Chief Executive Officer of Golf Galaxy (and the fact that Mr. Zanatta previously had an employment agreement in place with Golf Galaxy), we negotiated and entered into an employment agreement with him, which was based on his pre-merger agreement with Golf Galaxy, for an initial term of three (3) years. Under the terms of his employment agreement, Mr. Zanatta is entitled to receive a base salary (initially $355,000 per year), specified benefits, the option and restricted stock grants discussed below, and will be entitled to receive an annual bonus, based primarily on the performance of Golf Galaxy but also the performance of the overall Company goals, in an amount equal to 0 to 150% of base salary. Mr. Zanatta will also be entitled to severance if he is terminated without cause (as defined in the employment agreement), and is subject to certain non-compete and non-solicitation covenants set forth in the employment agreement. If Mr. Zanatta’s employment is terminated for a reason other than cause or he resigns under certain specified circumstances (good reason), he is entitled to a lump sum severance payment equal to two (2) times his then-current base salary and incentive bonus for the fiscal year in which termination occurred (if and to the extent certain specified performance targets are achieved), continuation of benefits for two (2) years, and all stock options previously granted that were exercisable for Golf Galaxy common stock prior to the merger (now converted to options exercisable for our common stock) will vest. Additionally, the shares of restricted stock described below that vest based only on the passage of time (i.e., no performance or other conditions are imposed) will also accelerate. The shares of restricted stock described below that vest only if certain performance targets are achieved will vest to the extent that the performance targets have been met and/or the Company is on target to meet the performance targets as of the termination date. The agreement has a term ending at the end of our third full fiscal year following February 13, 2007.

 

On November 16, 2006, Mr. Zanatta was granted, subject to the completion of the merger, a one-time special option exercisable for 165,000 shares of our common stock, which, subject to vesting, is exercisable at any time prior to February 13, 2012 or, if he is still employed by Golf Galaxy at that time, for such longer period as is prescribed by our 2002 Stock Plan. Additionally, under his employment agreement, Mr. Zanatta received 75,000 shares of our restricted common stock, which, if he continues to be employed by the Company on February 13, 2010, will, with respect to half of the shares, vest automatically, and will, with respect to the other half of the shares, vest if certain performance targets are achieved. This employment arrangement, including the elements of severance in the agreement, arose out of the assumption of Mr. Zanatta’s employment agreement with Golf Galaxy that existed prior to our acquisition of Golf Galaxy and as a result of negotiations between us and Mr. Zanatta.

 

The performance targets for Mr. Zanatta’s performance based restricted stock award was arrived at through negotiations with Mr. Zanatta. Those criteria are based on Golf Galaxy and Company earnings metrics and savings and synergies achievement. We believe that these targets represent goals developed as the result of arms’ length negotiations and as such are difficult to reach.

 

In February 2007, we agreed to employment terms with Timothy E. Kullman, whereby Mr. Kullman agreed to join us as Senior Vice President & Chief Financial Officer to replace Mr. Hines. Mr. Kullman joined the Company in April 2007. The offer letter provided to Mr. Kullman indicated that he would receive a gross annual salary of

$450,000, and is eligible to participate in the Company’s discretionary management incentive plan. Mr. Kullman also received an initial stock option grant exercisable for 50,000 shares, which vests at 25% per year starting on the first anniversary of the grant, and an option grant exercisable for 25,000 shares, which vests in its entirety on the fourth anniversary of the date of grant. Mr. Kullman is also eligible to participate in the full range of benefits and 401(k) plans offered to other Company officers.