HD » Topics » SUPPORTING STATEMENT

This excerpt taken from the HD DEF 14A filed Apr 15, 2009.

SUPPORTING STATEMENT

Investors are increasingly concerned about mushrooming executive compensation especially when it is insufficiently linked to performance. In 2008, shareholders filed close to 100 “Say on Pay” resolutions. Votes on these resolutions have averaged 43% in favor, with ten votes over 50%, demonstrating strong shareholder support for this reform.

An Advisory Vote establishes an annual referendum process for shareholders about senior executive compensation. We believe the results of this vote would provide the board and management with useful information about shareholder views on the company’s senior executive compensation.

In its 2008 proxy Aflac submitted an Advisory Vote resulting in a 93% vote in favor, indicating strong investor support for good disclosure and a reasonable compensation package. Daniel Amos, Chairman and CEO said, “An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.”

To date eight other companies have also agreed to an Advisory Vote, including Verizon, MBIA, H&R Block, Blockbuster, and Tech Data. TIAA-CREF, the country’s largest pension fund, has successfully utilized the Advisory Vote twice.

Influential proxy voting service RiskMetrics Group recommends votes in favor, noting: “RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability.”

The Council of Institutional Investors has endorsed advisory votes and a bill to allow annual advisory votes passed the House of Representatives by a 2-to-1 margin. As presidential candidates, Senators Obama and McCain supported the Advisory Vote.

We believe that existing U.S. Securities and Exchange Commission rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the United Kingdom, public companies allow shareholders to cast a vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that could help shape senior executive compensation.

We believe that a company that has a clearly explained compensation philosophy and metrics, reasonably links pay to performance, and communicates effectively to investors would find a management sponsored Advisory Vote a helpful tool.

We urge our board to allow shareholders to express their opinion about senior executive compensation through an Advisory Vote.

 

18


Table of Contents

RESPONSE TO PROPOSAL REGARDING EXECUTIVE OFFICER COMPENSATION

 

The Company recommends that you vote against this shareholder proposal. Shareholders of the Company rejected this proposal at the 2008, 2007 and 2006 annual shareholder meetings. The Company has ongoing, direct communication with shareholders through investor conferences, daily telephone calls and letters. These interactions provide the Company and the Leadership Development and Compensation Committee, comprised of independent directors, with specific and detailed insights on shareholder concerns as to executive compensation policies and processes. As a result, the Company has changed its compensation programs to focus to a significantly greater extent on “Pay for Performance,” where compensation paid to senior executives is based on the attainment of pre-established performance goals.

 

Furthermore, the Company provides in the Compensation Discussion and Analysis section of this Proxy Statement a significant amount of detailed information as to how it sets compensation for its senior officers, which provides a basis for informed discussion with shareholders. This proposal, on the other hand, would provide only a blunt, yes-or-no, after-the-fact referendum on management compensation. It would lack the timeliness, detail and analysis of our current communications with shareholders, and would be a significant reduction in the quality of shareholder feedback on this important topic. The shareholders have clearly indicated their preference on this issue by rejecting a similar proposal at each of the last three annual shareholder meetings.

This excerpt taken from the HD DEF 14A filed Apr 11, 2008.

SUPPORTING STATEMENT

        Investors are increasingly concerned about mushrooming executive compensation which sometimes appears to be insufficiently aligned with the creation of shareholder value. Additionally, recent media attention to questionable dating of stock options grants by companies has raised related investor concerns.

        The SEC has created a new rule, with record support from investors, requiring companies to disclose additional information about compensation and perquisites for top executives. The rule goes into effect this year. In establishing the rule the SEC has made it clear that it is the role of market forces, not the SEC, to provide checks and balances on compensation practices.

        We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not provide shareholders with enough mechanisms for providing input to boards on senior executive compensation. In contrast to U.S. practices, in the United Kingdom, public companies allow shareholders to cast an advisory vote on the "directors' remuneration report," which discloses executive compensation. Such a vote isn't binding, but gives shareholders a clear voice that could help shape senior executive compensation.

        Currently U.S. stock exchange listing standards require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Shareholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages. (See Lucian Bebchuk & Jesse Fried, Pay Without Performance 49 (2004))

        Similarly, performance criteria submitted for stockholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives. Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.

        Accordingly, we urge The Home Depot, Inc.'s board to allow shareholders to express their opinion about senior executive compensation at The Home Depot, Inc. by establishing an annual referendum process. The results of such a vote would, we think, provide The Home Depot, Inc. with useful information about whether shareholders view the company's senior executive compensation, as reported each year, to be in shareholders' best interests.

        We urge shareholders to vote for this proposal

23



RESPONSE TO PROPOSAL REGARDING EXECUTIVE OFFICER COMPENSATION

The Company recommends that you vote against this proposal, which shareholders rejected at the 2006 and 2007 annual shareholder meetings. The Company has ongoing, direct communication with shareholders through investor conferences, daily telephone calls and letters. These interactions provide the Company with specific and detailed insights on shareholder concerns as to executive compensation. Shareholder input was proven effective during Fiscal 2006 as the Company discussed executive compensation with shareholders and made changes to its compensation programs. As a result, the Company now relies to a greater extent on at-risk compensation when creating compensation programs for its executive officers.

Furthermore, the Company provides in this Proxy Statement a significant amount of detailed information as to how it sets compensation for its senior officers, which provides a basis for informed discussion with shareholders. On the other hand, this proposal would provide only a blunt, yes or no, after-the-fact referendum on management compensation. It would lack the timeliness, detail and analysis of our current communications with shareholders, and would be a significant reduction in the quality of shareholder feedback on this important topic.

This excerpt taken from the HD DEF 14A filed Apr 13, 2007.

SUPPORTING STATEMENT

        Home Depot CEO Robert Nardelli currently serves as chairman of Home Depot's board of directors. This arrangement is reflected in Article III section 2 of Home Depot's bylaws, which require that the chairman also be the company's CEO. This Proposal would eliminate that requirement and would also provide that the chairman must be a director who is independent from Home Depot.

        We believe that independent board leadership would benefit Home Depot and its stockholders. At the 2006 annual meeting of stockholders, with Mr. Nardelli presiding, debate was stifled at a time when stockholders were demanding accountability for decisions about executive compensation (holders of over 30% of shares withheld support for certain Home Depot directors) and not a single outside director attended the meeting. Stockholder outrage and intense negative publicity followed. The Corporate Library, which assigns Home Depot an F rating, noted that "Home Depot's shareholders are just about as angry and unhappy with their board and CEO as any other group of shareholders in recent American history."

        In our view, the disastrous 2006 stockholders' meeting and the disconnect between CEO pay and performance illustrate the dangers of having the same person occupy the top management position and serve as board chairman. Independent board leadership would help ensure that the board's focus remains on the interests of Home Depot's stockholders.

        We urge stockholders to vote for this Proposal.

32


RESPONSE TO PROPOSAL REGARDING CHAIRMAN AND CEO

WHAT IS THE RECOMMENDATION OF THE COMPANY?

The Company believes its Lead Director provides strong leadership of the independent directors and effective oversight of management. The Company therefore recommends that you vote against adoption of this proposal.

WHY DOES THE COMPANY OPPOSE THIS PROPOSAL?

The Company's shareholders, in 2003 and 2006, rejected a similar proposal. The Company agrees with its shareholders and believes that it is in the best interests of the shareholders for the Board to have the flexibility to identify the director to serve as Chairman. The Company also believes that its Board, which is elected annually by shareholders under a majority vote standard, is best situated to determine which director should serve as Chairman. Moreover, the Company has already addressed the concerns identified by the proposal by having a Lead Director who helps maintain the Board's independence and ability to fulfill its management oversight responsibilities.

WHAT MEASURES HAVE BEEN TAKEN TO ENSURE THE BOARD FULFILLS THESE RESPONSIBILITIES?

Since 1998, the Company has had a Lead Director who helps maintain the Board's independence and ability to fulfill its management oversight responsibilities. The Lead Director is an independent director elected by the independent members of the Board. Unlike the Chairman's role, which is to set the strategic priorities for the Board, preside over its meetings and communicate the Board's findings and guidance to management, the Lead Director serves as the liaison between non-employee directors and senior management. In addition, the Lead Director duties include: (i) chairing the executive sessions of non-employee directors, (ii) chairing Board meetings when the Chairman is not present, (iii) consulting with the Chairman and approving the schedules, agendas and information provided to the Board for each meeting and (iv) consulting with the Chairman on such other matters pertinent to the Company and the Board. The Lead Director may also call meetings of non-employee directors and is available for direct communication and consultation with major shareholders. The Company believes this structure provides the appropriate balance between the need for consistent strategic direction and the need for objectivity and independence of non-employee directors.

DOES THE CHAIRMAN CONTROL THE INFORMATION PROVIDED TO THE BOARD?

The Chairman is not the sole source of information for the Board. As provided in the Company's Corporate Governance Guidelines, directors have full access to management and to information about the Company's operations. In addition, the non-employee members of the Board, led by the Lead Director, regularly meet without management present to consider Company matters, including the performance of the CEO.

WHAT ARE THE ADVANTAGES OF HAVING THE CHIEF EXECUTIVE OFFICER SERVE AS CHAIRMAN OF THE BOARD?

Since the Company was formed in 1978, the Company has primarily used the governance model of having one person serve as Chairman and Chief Executive Officer. This model has been widely adopted by public companies as good corporate governance, with a leading executive search firm finding that 74% of the companies comprising the S&P 500 have one person serving as Chairman and CEO. The Company believes that the stability and consistency in leadership that this good practice provides was a key part of its growth into the world's largest home improvement specialty retailer and the second largest retailer in the United States. The Board believes that the Company is best served by continuing to have the CEO also serve as Chairman. In his position as Chairman and CEO, Mr. Blake is able to promote communication, synchronize activities and provide consistent leadership to both the Board and the Company by acting as a conduit between the Board and the operating organization and coordinating the strategic objectives of both groups.

WE RECOMMEND THAT YOU
VOTE AGAINST THE ADOPTION OF
THIS SHAREHOLDER PROPOSAL

33


EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION & ANALYSIS

This excerpt taken from the HD DEF 14A filed Apr 14, 2006.

SUPPORTING STATEMENT

In our view, senior executive compensation at Home Depot has been excessive in recent years. In each of the last three years, CEO Robert Nardelli has been paid a base salary of more than $1,800,000, well in excess of the IRS cap for deductibility of non-performance-based compensation. His bonus in each of those years has been at least $4,000,000, and he was awarded restricted stock valued at over $8,000,000 in 2002, 2003 and 2004. Mr. Nardelli has also received a disturbingly large amount of compensation in form of "loan forgiveness" and tax gross-ups related to that forgiveness, which totaled over $3,000,000 in each of the past three years.

We believe that the current rules governing senior executive compensation do not give stockholders enough influence over pay practices. In the United Kingdom, public companies allow stockholders to cast an advisory vote on the "directors remuneration report." Such a vote isn't binding, but allows stockholders a clear voice which could help reduce excessive pay. U.S. stock exchange listing standards do require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Stockholders do not have any mechanism for providing ongoing input on the application of those general standards to individual pay packages. (See Lucian Bebchuk & Jesse Fried, Pay Without Performance 49 (2004))

Similarly, performance criteria submitted for stockholder approval to allow a company to deduct compensation in excess of $1 million are also broad and do not constrain compensation committees in setting performance targets for particular executives. Withholding votes from compensation committee members who are standing for reelection is a blunt instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.

Accordingly, we urge Home Depot's board to allow stockholders to express their opinion about senior executive compensation practices by establishing an annual referendum process. The results of such a vote would, we think, provide Home Depot with useful information about whether stockholders view the company's compensation practices, as reported each year in the Leadership Development and Compensation Committee Report, to be in stockholders' best interests.

We urge stockholders to vote for this proposal.

11


COMPANY RESPONSE TO SHAREHOLDER PROPOSAL REGARDING COMMITTEE REPORT

WHAT IS THE RECOMMENDATION OF THE COMPANY?

THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS SHAREHOLDER PROPOSAL.

WHAT IS THE COMPANY'S EXECUTIVE COMPENSATION PHILOSOPHY?

The Company's Leadership Development and Compensation Committee, a committee of the Board of Directors comprised entirely of independent directors, is responsible for maintaining an executive compensation program designed to attract, motivate and retain the most highly talented and experienced leadership for the Company. The program is designed around various components of compensation, including base salaries, incentive bonuses, and various equity awards, and the Committee reviews and approves annually the compensation for all executive officers of the Company.

HOW DOES THE COMMITTEE DISCLOSE EXECUTIVE COMPENSATION MATTERS TO THE COMPANY'S SHAREHOLDERS?

The Company provides detailed and complete disclosure of compensation for executive officers in its proxy statement each year, in full compliance with the regulations of the Securities and Exchange Commission. These regulations require the reporting of all compensation arrangements for the Company's chairman, president and chief executive officer, as well as its four other highest paid executive officers. Also, as required by the SEC, the Committee publishes a detailed report each year in the proxy statement, setting forth its approach and philosophy with respect to executive compensation. The Committee's report, along with the other information provided in the Company's proxy statement, fully and fairly describes the compensation structure for the Company's executive officers, as well as furnishes an informed basis for Company shareholders to evaluate the Company's use of compensation to motivate and retain its key personnel.

WHY DOES THE COMPANY OPPOSE THIS PROPOSAL?

The Company believes that an advisory resolution would not change the contents of the Committee's report nor have any legal consequence on any compensation arrangement. Most importantly, an advisory vote would not provide the Committee with any meaningful insight into specific shareholder concerns regarding executive compensation that it could address when considering the Company's remuneration policies. Finally, an advisory vote is impractical when more effective means of communicating concerns to the Committee are available to shareholders.

HOW MAY SHAREHOLDERS COMMUNICATE CONCERNS TO THE COMMITTEE IN A MEANINGFUL WAY?

Shareholders may contact the Committee via e-mail at HD_Directors@homedepot.com, or by writing to the following address:

Leadership Development and
Compensation Committee
c/o Secretary to the Board of Directors
The Home Depot, Inc.
2455 Paces Ferry Road, N.W.
Atlanta, Georgia 30339

Through these means, the Committee can receive, understand and respond to specific concerns of shareholders instead of trying to react to an advisory vote.

WE RECOMMEND THAT YOU
VOTE AGAINST THE ADOPTION OF
THIS SHAREHOLDER PROPOSAL

12


SHAREHOLDER PROPOSAL REGARDING EMPLOYMENT DIVERSITY REPORT DISCLOSURE

(ITEM 4 ON THE PROXY CARD)

Certain shareholders have informed the Company that they intend to present the following proposal at the Meeting. The Company will provide its shareholders with the proponent names and addresses and the number of shares of Company common stock held by the proponents promptly upon receipt of an oral or written request.

Whereas: Equal employment opportunity (EEO) is a fair employment practice and an investment issue. We believe that companies with a good EEO record have a competitive advantage in employee recruitment and retention. Moreover, U.S. customers are becoming increasingly diverse. A representative work force is more likely to anticipate and respond effectively to evolving consumer demand.

Conversely, allegations of discrimination in the workplace have created a significant burden for shareholders due to the high cost of litigation and the potential loss of government contracts. Such litigation may also damage a company's reputation.

Specifically, the cost to Home Depot shareholders for settling discrimination lawsuits has exceeded $100 million in the last 10 years. While Home Depot's most significant EEO settlement of $87 million was in 1997, allegations of discrimination have persisted. In August 2004, Home Depot agreed to pay $5.5 million to settle U.S. Equal Employment Opportunity Commission charges of class-wide discrimination based on gender, race and national origin in its Colorado stores.

In U.S. corporations, women and minorities comprise 47% and 27% of the workforce, respectively, yet they represent less than 19% and 11% of the executive-level positions. Representation in management is better, but still disproportionately low at 36% for women and 17% for minorities (Peopleclick Research Institute, Feb. 2004, using U.S. Census Bureau's Census 2000 Special Equal Employment Opportunity Tabulation).

We agree with a recommendation of the 1995 bipartisan Glass Ceiling Commission report that "public disclosure of diversity data – specifically data on the most senior positions – is an effective incentive to develop and maintain innovative, effective programs to break the glass ceiling barriers."

Many major U.S. corporations provide diversity reports with detailed EEO information, including some that have previously experienced discrimination lawsuits, such as Chevron-Texaco and Coca-Cola.

In 2001 Home Depot, in an agreement with a coalition of more than two dozen institutional investors, began providing comprehensive EEO information to investors upon request. Since then, however, Home Depot has reversed its policy on disclosures of this information.

In 2005, 30% of Home Depot shareholders voted for a resolution requesting a comprehensive diversity report – the highest level of support ever on this issue – sending a strong signal to management that shareowners desire increased accountability on EEO.

Home Depot has demonstrated leadership on corporate social responsibility issues. We ask the company to expand upon that leadership by honoring its previous commitment to comprehensive EEO disclosure.

RESOLVED: The shareholders request that Home Depot prepare a diversity report, at reasonable cost and omitting confidential information, available to investors by September 2006, including the following:

        1.    A chart identifying employees according to their gender and race in each of the nine major EEOC-defined job categories for the last three years, listing numbers or percentages in each category;

        2.    A summary description of any affirmative action policies and programs to improve performance, including job categories where women and minorities are underutilized; and

        3.    A description of any policies and programs oriented specifically toward increasing the number of managers who are qualified females or minorities.

13


COMPANY RESPONSE TO SHAREHOLDER PROPOSAL REGARDING EMPLOYMENT DIVERSITY REPORT DISCLOSURE

WHAT IS THE RECOMMENDATION OF THE COMPANY?

THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS SHAREHOLDER PROPOSAL.

HAS THIS PROPOSAL BEEN SUBMITTED BEFORE?

Yes, substantially the same proposal was presented at the 2005 shareholder meeting. At that meeting, a majority of the Company's shareholders rejected the proposal.

WHAT IS THE COMPANY'S POLICY ON BEING AN EQUAL OPPORTUNITY EMPLOYER?

The Company's core values include an unwavering commitment to having respect for all people. The Company's success is defined by the talented and diverse workforce of women and men who stock its shelves, serve its customers and foster diversity throughout the Company. As an equal opportunity employer, the Company is committed to ensuring that its associates work in an environment of mutual respect, free from harassment and discrimination. The Company maintains a formal policy that it will not discriminate against any associate or applicant with regard to race, color, sex, sexual orientation, age, religion, national origin, disability or any other characteristic protected by applicable law. In addition, the Company's commitment to equal employment opportunity and diversity extends beyond the workplace. The Company is proud to support the efforts of many diversity-oriented organizations, including but not limited to, the Hispanic Association on Corporate Responsibility, the National Association for the Advancement of Colored People, the National Black MBA Association, the National Urban League, the Rainbow/PUSH Coalition, the United Negro College Fund and Catalyst U.S. and Canada. The Company has partnered with the AARP and four of the country's leading Hispanic organizations – The ASPIRA Association, Hispanic Association of Colleges and Universities, National Council of La Raza and SER – Jobs for Progress National – to promote the hiring of mature workers and Hispanic-Americans, respectively, in our stores. The Company is proud to have been honored for its commitment to being an equal opportunity employer through it being recognized as (i) No. 4 on the Hispanic Association for Corporate Responsibility's Corporate Responsibility Index, (ii) the Corporation of the Year by the Georgia Hispanic Chamber of Commerce and (iii) the premier partner of the AARP Featured Employer Program.

HOW DOES THE COMPANY RESPOND TO DISCRIMINATION CLAIMS?

In 1998, the Company resolved two significant gender-based class action discrimination claims. Part of the resolution involved commitments by the Company to implement enterprise-wide programs to help ensure equality in the Company's practices of hiring, promotions, job assignments, training, compensation and terminations. Based on the successful implementation of such programs, the Company was pleased when the court and plaintiffs' legal counsel supported the termination of one of the related consent decrees a full year earlier than its scheduled expiration.

WHAT SPECIFIC ACTIONS OR PROGRAMS HAS THE COMPANY UNDERTAKEN TO ENSURE EQUAL EMPLOYMENT OPPORTUNITY?

Over the past five years, the Company has continued to add programs and safeguards above and beyond those commitments made as part of the consent decrees described above. For example, during 2001 and 2002, the Company standardized and improved all employment-related processes. In 2003, the Company appointed a Vice President of Diversity and Inclusion to provide focused leadership and to develop an inclusive work environment in which all associates are valued members of the Company and are respected and supported to do their best work. Under such leadership, the Company formed an Inclusion Council comprised of all levels of associates, including senior management. The Council helps to shape the Company's policies on inclusion, determines key initiatives to support ongoing awareness and improvement and oversees the implementation of the Company's related practices and processes. Significantly, during 2004, the Company developed and implemented affirmative action plans for each of its 1800+ stores – more than any employer in America. Today, continuing in this commitment, the Company has affirmative action plans in all of its 2000+ stores. The Company believes that these actions have established it as a leader in equal employment opportunity.

14


WHY DOES THE COMPANY CONTINUE TO HAVE SOME DISCRIMINATION CLAIMS?

As one of America's largest employers, there is likely to be some dissatisfaction among certain associates. In the limited circumstances where legitimate issues arise, the Company takes appropriate action with respect to those involved. The Company maintains a zero tolerance policy with respect to discrimination.

WHY DOES THE COMPANY OPPOSE THIS PROPOSAL?

The Company takes seriously its commitment to being an equal opportunity employer and has created an Inclusion Council to focus on diversity issues affecting the Company, and established a hotline to promote the anonymous reporting of concerns regarding the Company's Business Code of Conduct and Ethics. In addition, as required by law, the Company prepares and files its EEO-1 report with the Equal Employment Opportunity Commission each year. The Company does not believe that public dissemination of this information, which could be manipulated or misinterpreted by those with interests adverse to the Company, would further promote the goal of equal employment opportunity in any meaningful way. Having demonstrated its leadership and support for the real issues presented by this proposal, the Company does not believe that adoption of the proposal would enhance its values or its unwavering commitment to equal employment opportunities.

WE RECOMMEND THAT YOU
VOTE AGAINST THE ADOPTION OF
THIS SHAREHOLDER PROPOSAL

15


SHAREHOLDER PROPOSAL REGARDING CHAIRMAN AND CEO

(ITEM 5 ON THE PROXY CARD)

A shareholder has informed the Company that it intends to present the following proposal at the Meeting. The Company will provide its shareholders with the proponent's name and address and the number of shares of Company common stock held by the proponent promptly upon receipt of an oral or written request.

This excerpt taken from the HD DEF 14A filed Apr 11, 2005.

SUPPORTING STATEMENT

In our opinion, severance agreements as described in this resolution, commonly known as "golden parachutes", are excessive in light of the high levels of compensation enjoyed by senior executives at the Company and U.S. corporations in general.

We believe that requiring shareholder approval of such agreements may have the beneficial effect of insulating the Board of Directors from manipulation in the event a senior executive's employment must be terminated by the Company. Because it is not always practical to obtain prior shareholder approval, the Company would have the option if this proposal were implemented of seeking shareholder approval after the material terms of the agreement were agreed upon.

For those reasons, we urge shareholders to vote for this proposal.

24


COMPANY RESPONSE TO STOCKHOLDER PROPOSAL REGARDING FUTURE SEVERANCE AGREEMENTS

WHAT IS THE RECOMMENDATION OF THE COMPANY?

THE COMPANY RECOMMENDS THAT YOU VOTE AGAINST THE ADOPTION OF THIS STOCKHOLDER PROPOSAL.

WHY DOES THE COMPANY PROVIDE SEVERANCE ARRANGEMENTS TO CERTAIN EMPLOYEES?

In the competitive recruiting environment in which the Company operates, severance arrangements are an integral part of the employment of senior executives. Severance arrangements, in particular, are critical in order to attract, motivate and retain the most highly talented executives with a demonstrated history of leadership and operating performance. In many instances, the best leaders must forfeit accumulated equity compensation and retirement and pension benefits with their current employer in order to accept a new position. Moreover, all executives understand that the Company retains its fiduciary responsibility to terminate any executive for any reason the Company, in its sole discretion, determines. Potential termination may also arise through a change in control of the Company or other unanticipated circumstances through no fault of the executive. Consequently, most highly experienced executives would not accept the risks inherent in a new position and the loss of accumulated benefits without the protection of competitive severance arrangements. As the Company continues to implement its growth strategy both within and beyond its traditional store formats, it will be imperative to the Company's success to have the compensation tools necessary to competitively attract and maintain the very best leadership in these industries.

WHAT IS THE COMPANY'S PROCESS FOR APPROVING SEVERANCE ARRANGEMENTS?

The Company's corporate governance requirements provide that the Leadership Development and Compensation Committee, a committee of the Board of Directors comprised entirely of independent directors, approve all severance arrangements for principal executive officers of the Company. In addition, all of the independent members of the Board of Directors must approve the severance arrangements of the Company's Chairman, President and Chief Executive Officer. In determining these severance arrangements, the Committee and the independent members of the Board undertake a formal comprehensive review process, including the significance of the leadership position being evaluated, past and current performance, consultation with nationally recognized compensation advisors, benchmarking against other companies of similar size and complexity of operation and, generally, the competitive economic environment.

HOW WOULD ADOPTION OF THE PROPOSAL AFFECT THE COMPANY'S ABILITY TO ATTRACT AND RETAIN THE BEST LEADERSHIP?

The Company believes that adoption of the proposal would have a significant adverse impact on the Company's ability to recruit and retain the best leadership talent available. The Company's view is that the executive compensation process needs to be sufficiently flexible to allow the Company's Board of Directors to make binding offers and commitments on a timely basis. Requiring stockholders' approval of severance arrangements that exceed 2.99 times an executive's base salary and bonus would prevent this and is unrealistic for several reasons. First, the proposed limit of 2.99 is an arbitrary and artificial limitation that has no support in any market data or competitive reality. Second, it is unrealistic that the best leaders would agree to be recruited under these circumstances because the stockholder pre-approval process would make such negotiations public and would jeopardize the executive's current employment arrangements. Third, even if stockholder approval followed an offer or commitment of employment, the offer would have to become public long in advance of a stockholders' meeting, again jeopardizing the executive's current employment. Further, since the Company, like most other public companies, conducts its stockholders' meeting annually, this process would prevent the Company from hiring or retaining leadership talent at the time these challenges and opportunities arise. Put another way, the Company would be limited to making binding offers once a year. Such process would be crippling to the Company. For all of these reasons, the Company believes that day-to-day decisions of hiring and compensating senior leaders should continue to be managed by the Board of Directors that is elected annually by the Company's stockholders.

WHY DOES THE COMPANY OPPOSE THIS PROPOSAL?

The Company has a formal policy and process for the review and determination of severance arrangements for its senior leaders. The process is conducted by the Company's Leadership Development and Compensation Committee, which is comprised entirely of independent directors, and by all of the Company's independent directors in the case of the Company's Chairman, President and Chief Executive Officer. The Company believes that adoption of the proposal would choke the Company's ability to timely attract, motivate and retain the senior leadership critical for the Company's future success. Consequently, we do not believe that the proposal is in the best interest of the Company's stockholders.

WE RECOMMEND THAT YOU
VOTE AGAINST THE ADOPTION OF
THIS STOCKHOLDER PROPOSAL

25


STOCKHOLDER PROPOSAL REGARDING PERFORMANCE AND TIME-BASED RESTRICTED SHARES

(ITEM 9 ON THE PROXY CARD)

Laborers Local Union and District Council Pension Fund, located at 905 16th Street, Washington, D.C. 20006, is the beneficial owner of 43,000 shares of the Company's common stock, and has submitted the following resolution:

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