This excerpt taken from the ROST DEF 14A filed Apr 12, 2006.
The stockholders are asked to approve the Companys Second Amended and Restated Ross Stores, Inc. Incentive Compensation Plan (the Amended Plan). At the recommendation of the Compensation Committee, the Board of Directors adopted the Amended Plan on March 16, 2006, subject to stockholder approval. The Amended Plan further amends the Amended and Restated Incentive Compensation Plan (the Prior Plan), which was approved by the stockholders at the 2001 Annual Meeting of Stockholders. If the stockholders approve the Amended Plan, it will become effective on the date of the Annual Meeting, and awards outstanding under the Prior Plan will be treated as having been granted under the Amended Plan and will be subject to its terms.
The Amended Plan is designed to provide members of the Companys management and certain key employees with financial incentives to meet or exceed pre-determined corporate goals. As further described below, while the Prior Plan authorized only annual awards based solely on the achievement of a pre-tax earnings goal, the scope of the Amended Plan has been expanded to permit awards with longer time horizons and performance goals based on one or more measures of financial and operational performance measures.
Compensation paid to certain executive officers under the Amended Plan is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. Section 162(m) generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to the chief executive officer or to any of the four other most highly compensated officers of a publicly held corporation (the covered employees). However, certain types of compensation, including performance-based compensation, are generally exempt from this limit. To enable the Company to continue to provide incentive compensation to
its covered employees that qualifies for full federal income tax deductibility, the Amended Plan is being submitted to stockholders for their approval. By approving the Amended Plan, the stockholders will be approving, among other things, the participant eligibility requirements, the performance criteria on which incentive awards are based and the maximum dollar amount of compensation that may be paid to any participant under the Amended Plan for each fiscal year contained in the performance period applicable to an incentive award. If the stockholders do not approve the Amended Plan, compensation that otherwise would have been paid to covered employees under the Amended Plan will not be paid.