Compensation Philosophy and Objectives for Ross

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Ross Stores (ROST)

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ROST » Topics » Compensation Philosophy and Objectives

This excerpt taken from the ROST DEF 14A filed Apr 13, 2009.

Compensation Philosophy and Objectives

We believe in strongly aligning executive compensation with stockholder interests. To achieve this end, the executive compensation program is designed to:

Attract, motivate, and retain a strong leadership team to create and sustain our business success in the challenging off-price apparel and home goods market.
Reinforce our high performance culture and values through programs focused on accountability that are also highly leveraged to deliver above market compensation opportunities for superior performance and results.
Create alignment of interests between the executive leadership team and stockholders, focused on longer-term stockholder value creation.
Differentiate executive pay to recognize critical skills, contributions, and current and future potential impact on the organization’s success.

We operate in the challenging off-price apparel and home goods industry, where we are the second largest retailer. To effectively compete in this environment, we need to attract and retain a senior management team with the necessary background, qualifications, expertise and experience to efficiently execute our off-price strategies in all facets of our operations.

The Company and the Compensation Committee of the Board of Directors (the “Committee”) have implemented executive compensation programs designed to align our executive officers’ pay with the long-term strategic goals of the Company, recognize individual initiative and achievements, and assist us in attracting, motivating and retaining high-performing executives.

These complimentary programs also create effective incentives for achievement of short and long-term corporate performance goals, promote the retention of key executives and help to optimize the financial returns to stockholders.

A significant portion of the total potential compensation of our executive officers (that is the executive officers named in the Summary Compensation Table on page 25 (the “NEOs”) and our other Executive Vice Presidents and Senior Vice Presidents) is linked to Company performance. It is paid in the form of annual incentive bonuses under the Incentive Compensation Plan that vary based on the Company's degree of achievement of pre-established pre-tax profit targets, and stock plan awards, which vary by position, individual performance and contribution levels.

We believe that the components of the total compensation program for executives outlined in this report work together to enable us to attract, motivate and retain the executive talent necessary to successfully execute our strategies over the longer term in a competitive retail environment.

To meet these objectives, our executive compensation packages include the following three primary elements, as well as other perquisites and benefits typically offered to senior executive officers.

Base Salary – A fixed cash compensation amount that is competitive within the markets in which we compete for executive talent. Base pay recognizes individual skills, competencies, experience, job accountabilities, and organizational impact. Pay is adjusted periodically via both an annual review process and individual circumstances. During fiscal 2008, the base salary paid to the NEOs as a group increased 4.3% over the prior year.

2.		Annual Cash Incentives – A short-term cash Incentive Compensation Plan designed to link compensation for the entire executive team to annual Company performance targets. The annual incentive bonus performance target is pre-tax earnings. All executive officers are motivated to achieve the same goals. Senior executive levels in our organization have an increasingly higher proportion of total compensation at risk compared to lower levels. For fiscal 2008, cash incentives earned by our NEOs as a group under the Incentive Compensation Plan averaged 123% of the base salary earned by them during the fiscal year. The amount payable to them was determined by formula based on the level of actual pre-tax earnings achieved relative to the target established and approved by the Compensation Committee at their meeting on March 19, 2008.

3.		Long-Term Equity Incentives – Historically these have consisted of equity awards in the form of restricted stock and non-qualified stock option grants that vest over several years. Highly differentiated by individual, these awards vary in amount by level, contribution, performance and uniqueness of skill set. These longer-term components have the potential to be one of the largest pieces of an executive’s total compensation. During 2008, we recognized total expense of $8.2 million for CEO compensation, of which $5.2 million or approximately 63% was related to longer-term equity plan awards, with 13% of the total cost in the form of guaranteed base salary. For all five NEOs as a group, approximately 50% of total compensation expense was related to longer-term equity awards, with 21% in the form of guaranteed base salary. These equity awards also help to ensure that the long-term interests of the Company remain our executives’ highest priority. They also are the primary tool for ensuring retention of key contributors and promoting executive continuity.

		In fiscal 2007, the Company transitioned to annual performance share awards in lieu of annual stock option grants for all executive officers, except the Chief Executive Officer (“CEO”). The performance share awards granted in 2008 had a performance period of one year with a performance goal based on an annual adjusted pre-tax profit target and vest over three years. Expected benefits from our shift toward performance share awards include potentially lower expense recognition, a reduction in share dilution, and lower annual equity plan run rate levels. These benefits are intended to reduce the overall shareholder investment impact from the Company’s equity plans.

		The objective of equity awards to our CEO is to provide focus on performance over a time horizon tied to his employment contract term. As a result, our CEO historically has not received annual equity awards. All equity grants to our CEO, consisting of restricted stock awards and stock option grants, have been made in conjunction with the renewal of his employment agreement. The options granted had a vesting schedule with no shares vesting in the initial two years after the option grant date, 40% of the shares vesting in the third year and 60% of the shares vesting in the fourth year. The weighting of this vesting schedule, with the majority of shares vesting in the fourth year, tied to the term of his employment agreement with the Company to enhance the retentive value of the award. In addition, this vesting structure strengthened the CEO’s focus on maximizing the longer-term financial performance and market value of the Company.

		Going forward, the Compensation Committee believes that full value awards can provide more effective incentives for both performance and retention at a comparable cost to stock option awards for all executive officers, including the CEO. For fiscal 2009, the CEO equity grant consisted of a mix of performance share awards and restricted stock. The performance share awards granted in 2009 have a performance period of one year with a performance goal based on an annual adjusted pre-tax profit target (the same performance period and performance goal as other executives receiving performance share awards). The performance shares earned will vest on January 28, 2012 and the restricted stock will vest on March 18, 2012. The Company expects this change to create more effective alignment of common goals across the leadership team.

		Another important objective for the Company is to minimize the amount of voting power dilution from its equity plans. We define voting power dilution as the sum of the shares available for future grant under the Company’s equity incentive plan plus all outstanding and unexercised stock option shares plus all unvested restricted and performance shares (the “potentially dilutive equity incentive plan shares”) divided by the sum of the shares of the Company’s common stock outstanding plus the potentially dilutive equity incentive plan shares. Although this metric may vary from year to year, the goal over the

long term is to keep average total voting power dilution from exceeding 10%. The Company anticipates that its decision to put more emphasis on full value awards will result in reduced voting power dilution, lower annual equity plan run rate levels and a decline in the overall shareholder investment impact from the Company’s equity plans.

In determining the appropriate levels of compensation for each executive position, we consider a variety of different elements, including competitive data, information from recruiters, and opinions and other information provided by compensation consultants. We review comparative market compensation practices data that reflect the competitive labor markets in which we compete for executive talent at retailers with similar complexity and financial characteristics, as well as at non-retail companies for functional leadership roles that are highly mobile across industry segments (e.g., finance, information technology, legal, human resources).

In addition, we consider each executive’s experience, background, and prior salary history plus our general knowledge of peer group practices. The combination of these resources provides sufficient data for us to determine the total compensation levels that will enable us to recruit, motivate and retain top talent and to establish competitive compensation packages for our NEOs and other executive officers. Individual total compensation is tied to the overall degree of success or failure of the Company and serves to motivate executive officers to meet relevant performance measures or targets, thereby maximizing total return to stockholders.

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

Compensation Philosophy and Objectives

We believe in strongly aligning executive compensation and stockholder interests. To achieve this end, the executive compensation program is designed to:

Attract, motivate, and retain a strong leadership team to create and sustain our business success in the challenging off-price apparel and home goods market.
Reinforce our high performance culture and values through programs focused on accountability that are also highly leveraged to deliver above market compensation opportunities for superior performance and results.
Create alignment of interests between the executive leadership team and stockholders, focused on longer-term stockholder value creation.
Differentiate executive pay to recognize critical skills, contributions, and current and future potential impact on the organization’s success.

We operate in the challenging off-price apparel and home goods industry, where we are the second largest retailer. To effectively compete in this environment, we need to attract and retain a senior management team with the necessary background, qualifications, expertise and experience to effectively execute our off-price strategies in all facets of our operations.

These complimentary programs also create effective incentives for achievement of short and long-term corporate performance goals, promote retention of key executives and the optimization of financial returns to stockholders.

A significant portion of the total potential compensation of our executive officers (that is the executive officers named in the Summary Compensation Table on page 35 (the “NEOs”) and our other Executive Vice Presidents and Senior Vice Presidents) is linked to Company performance. It is paid in the form of annual incentive bonuses under the Incentive Compensation Plan that vary based on the Company's achievement of pre-established pre-tax profit targets, and stock plan awards, which vary by position, individual performance and contribution levels.

To meet these objectives, our executive compensation packages include the following three primary elements, as well as other perquisites and benefits typically offered to senior executive officers.

Base Salary – A fixed cash compensation amount that is competitive with the markets in which we compete for executive talent. Base pay recognizes individual skills, competencies, experience, job accountabilities, and organizational impact. Pay is adjusted periodically via both an annual review process and individual circumstances. During fiscal 2007, the base salary paid to the NEOs as a group increased 3.0% over the prior year. Ms. Panattoni and Ms. Rentler each executed an employment agreement effective January 1, 2007, and received an increase in salary at that time. Consequently, neither received an increase in salary in fiscal 2007.

2.		Annual Cash Incentives – A short-term cash incentive compensation plan, the “Incentive Compensation Plan,” is designed to link the entire executive team to annual Company performance targets. The annual incentive bonus target is pre-tax earnings. All executive officers are motivated to achieve the same goals. Senior executive levels in our organization have an increasingly higher proportion of total compensation at risk than do lower levels. For fiscal 2007, cash incentives earned by our NEOs as a group under the Incentive Compensation Plan averaged 66% of the base salary earned by them during the fiscal year. The amount payable to them was determined by the level of actual pre-tax earnings achieved relative to the target established and approved by the Compensation Committee at their meeting on March 22, 2007. For fiscal 2007, our actual results were below the pre-tax earnings target, but above the threshold for minimum potential payout level (see Grants of Plan-Based Awards Table on page 40).

3.		Long-Term Equity Incentives – Historically these have consisted of equity awards in the form of restricted stock and non-qualified stock option grants that vest over several years. Highly differentiated by individual, these awards vary in amount by level, contribution, performance and uniqueness of skill set. These longer-term components have the potential to be one of the largest pieces of an executive’s total compensation. During 2007, we recognized total expense of $8.5 million for CEO compensation, of which $6.3 million or approximately 75% was related to longer-term equity plan awards, with 12% of the total cost in the form of guaranteed base salary. For all five NEOs as a group, approximately 60% of total compensation expense was related to longer-term equity awards, with 22% in the form of guaranteed base salary. These equity awards also help to ensure that the long-term interests of the Company remain our executives’ highest priority. They also are the primary tool for ensuring retention of key contributors and promoting executive continuity.

		In fiscal 2007, the Company transitioned to annual performance share awards in lieu of annual stock option grants for all executive officers, except the Chief Executive Officer (“CEO”). The performance share awards granted in 2007 had a performance period of one year with a performance goal based on an annual adjusted pre-tax profit target and vest over three years. Expected benefits from our shift toward performance share awards include potentially lower expense recognition, a reduction in share dilution, lower annual equity plan run rate levels, and a decline in the overall overhang from equity plans.

		Historically, the objective of equity awards to our CEO has been to increase focus on performance over a longer time horizon that has been tied to our CEO’s typical four-year employment contract term. As a result, our CEO historically has not received annual equity awards. All equity grants to our CEO consisting of restricted stock awards and stock option grants have been made in conjunction with the renewal of the CEO’s employment agreement, approximately every two years. The CEO’s option grants also typically had a longer vesting schedule than that provided to other executive officers, with no shares vesting in the initial two years after the option grant date, 40% of the shares vesting in the third year and 60% of the shares vesting in the fourth year. The weighting of this vesting schedule, with the majority of shares vesting in the fourth year, tied to the term of his employment agreement with the Company to enhance the retentive value of the award. In addition, this vesting structure strengthened the CEO’s focus on maximizing the longer-term financial performance and market value of the Company.

		For the future, the Compensation Committee believes that full value awards can provide more effective incentives for both performance and retention at a comparable cost to stock option awards for all executive officers including the CEO. The Company expects this change to create more effective alignment of common goals across the leadership team. In 2008 and subsequent years, the Committee expects to structure the mix of equity awards to all executive officers including the CEO with an emphasis on full value awards, including both restricted stock awards and performance share awards. As noted above, equity awards to the CEO are typically made in conjunction with the renewal of his employment agreement, with the next renewal expected in fiscal 2009.

		Another important objective for the Company is to minimize the amount of voting power dilution from its equity plans. We define voting power dilution as the sum of the shares available for future grant under the Company’s equity incentive plan plus all outstanding and unexercised stock option shares plus all

unvested restricted and performance shares (the “potentially dilutive equity incentive plan shares”) divided by the sum of the shares of the Company’s common stock outstanding plus the potentially dilutive equity incentive plan shares. Although this metric may vary from year to year, the goal over the long term is to keep average total voting power dilution from exceeding 10%. The Company anticipates that its decision to put more emphasis on full value awards will result in reduced voting power dilution, lower annual equity plan run rate levels and a decline in the total overhang from equity plans.

In determining the appropriate levels of compensation for each executive position, we consider a variety of different elements, including competitive data, information from recruiters, and opinions and other information provided by compensation consultants. We review market compensation practices that reflect the competitive labor markets in which we compete for executive talent at retailers with similar complexity and financial characteristics, as well as at non-retail companies for functional leadership roles that are highly mobile across industry segments (e.g., finance, information technology, legal, human resources).

This excerpt taken from the ROST DEF 14A filed Apr 17, 2007.

Compensation Philosophy and Objectives

The Executive Compensation Philosophy for the Company is intended to build a strong alignment between executive compensation and stockholder interests. To achieve this end, the executive compensation program is designed to:

Attract, motivate, and retain a strong leadership team to create and sustain our business success in the challenging off-price apparel retailing market.
Reinforce our high performance culture and values through focused accountability, in addition to rewards programs that are highly leveraged to deliver above market compensation opportunities for superior performance and results.
Create alignment of interests between the executive leadership team and stockholders focused on longer-term shareholder value creation.
Differentiate executive pay to recognize critical skills, contributions, and current and future potential impact on the organization’s success.

We operate in the challenging off-price apparel retailing industry, where we are the second largest retailer. To effectively compete in this environment, we need to attract and retain a senior management team that has the necessary background, qualifications, expertise and experience to effectively execute our off-price strategies in all facets of our operations.

The Company and the Compensation Committee of the Board of Directors (the “Committee”) have implemented executive compensation programs that are designed to align our executive officers’ pay with the longer-term strategic goals of the Company, recognize individual initiative and achievements, and assist us in attracting, motivating and retaining a group of high-performing executives.

The various components of our executive compensation program complement each other to form a comprehensive package that is intended to create effective incentives for achievement of short and longer-term corporate performance goals, promote long-term retention of key executives and optimize financial returns to stockholders.

A significant portion of the total potential compensation of our executive officers (that is, our NEOs and our other Executive Vice Presidents and Senior Vice Presidents) is in the form of annual incentive bonuses under the Incentive Compensation Plan that vary according to the Company’s achievement of pre-established pre-tax profit targets, and stock plan awards, which vary by position, individual performance and contribution levels. We believe that the components of the total compensation program for executives outlined in this report work together to enable us to attract, motivate and retain the executive talent necessary to successfully execute our strategies over the longer term in a challenging retail environment.

To meet these objectives, our executive compensation packages include the following three primary elements, as well as other perquisites and benefits offered to senior executive officers.

1.		Base Salary – A fixed cash compensation amount that is competitive with the markets in which we compete for executive talent. Base pay recognizes individual skills, competencies, experience, job accountabilities, and organizational impact. Pay is adjusted periodically via both an annual focal review process and individual circumstances. During fiscal 2006, the base salary paid to the NEOs as a group increased 4% over the prior year.

2.		Annual Incentives – A short-term cash incentive compensation plan, the “Incentive Compensation Plan,” designed to link executive rewards for the entire executive team with the achievement of annual Company performance targets. Our annual incentive bonus component focuses on achievement of a target for pre-tax earnings. All executive officers are incented by the same financial metric, driving common goals and alignment across the senior leadership team. Senior executive levels in our organization have an increasingly higher proportion of total compensation at risk than lower levels. For

		fiscal 2006, cash incentives earned by our NEOs as a group under the Incentive Compensation Plan averaged 99% of the base salary earned by them during the fiscal year. The amount payable to them was determined by the level of actual pre-tax earnings achieved relative to the target established and approved by the Compensation Committee at their meeting on March 16, 2006. For fiscal 2006, our actual results were above the pre-tax earnings target, but below the maximum potential payout level (see Grants of Plan-Based Awards Table on page 16).

3.		Long-Term Incentives – A longer-term, multi-year component that historically has consisted of equity awards in the form of restricted stock and non-qualified stock option grants. Highly differentiated by individual, these awards vary in amount by level, contribution, performance and uniqueness of skill set, reflecting our pay for performance and key talent philosophies. These longer-term components have the potential to be one of the largest pieces of an executive’s total compensation. During 2006, we recognized total expense of $8.2 million for CEO compensation, of which $5.9 million or approximately 72% was related to longer-term equity plan awards, with only 12% of the total cost in the form of guaranteed base salary. For all five NEOs as a group, approximately 56% of total compensation expense was related to longer-term equity awards, with 21% in the form of guaranteed base salary. These equity awards also help to ensure that the long-term interests of the Company remain our executives’ highest priority. They also are the primary tool for ensuring retention of key contributors and promoting executive continuity.

		For the future, we expect equity awards to remain a critical component of total executive officer compensation. No changes are planned going forward to the issuance of restricted stock, which functions as an important tool for retention of executive officers and key employees. However, starting in the fiscal year ending February 2, 2008 (“Fiscal 2007”), we expect to transition to annual performance share awards in lieu of annual stock option grants for all executive officers, except the Chief Executive Officer (“CEO”). Non-employee members of the Board of Directors (the “Board”) will continue to receive annual stock option grants pursuant to a formula in the 2004 Equity Incentive Plan that was approved by stockholders and will not receive performance share awards.

		The objective of equity awards to our CEO is to increase focus on performance over a longer time horizon that is tied to our CEO’s typical four-year employment contract term. As a result, our CEO does not receive annual equity awards. All equity grants to our CEO consisting of restricted stock awards and stock option grants are made in conjunction with the renewal of the CEO’s employment agreement approximately every two years. The CEO’s option grants also typically have a longer vesting schedule than is provided to other executive officers, with no shares vesting in the initial two years after the option grant date, 40% of the shares vesting in the third year and 60% of the shares vesting in the fourth year. The weighting of this vesting schedule, with the majority of shares vesting in the fourth year, ties to the term of his employment agreement with the Company to enhance the retentive value of the award. In addition, this option vesting structure is intended to closely align the CEO’s interests with the interests of our stockholders, as it strengthens the CEO’s focus on maximizing the longer-term financial performance and market value of the Company. Option awards have an exercise price determined by the fair market value on the date of grant and only deliver value to the option holder to the extent that the stock price appreciates over the market value on the date of grant, which benefits all stockholders. The Company believes that equity grants for the CEO continue to be an appropriate longer-term compensation vehicle that closely ties the interests of the CEO to those of the Company’s stockholders.

In determining the appropriate levels of compensation for each executive position, we consider a variety of different elements, including benchmarking data, information from recruiters, and opinions and other information provided by compensation consultants. We benchmark market compensation practices that reflect the competitive labor markets in which we compete for executive talent at retailers with similar complexity and financial characteristics, as well as at non-retail companies for functional leadership roles that are highly mobile across industry segments (e.g., finance, information technology, legal, human resources).

In addition, we consider each executive’s experience, background, and prior salary history plus our general knowledge of peer group practices. The combination of these resources provide sufficient data to establish a general sense of appropriateness for us to determine the total compensation levels that will enable us to recruit, motivate and retain top talent and to establish competitive compensation packages for our NEOs and other

executive officers. Total compensation is tied to the overall degree of success or failure of the Company and serves to motivate executive officers to meet relevant performance measures or targets, thereby maximizing total return to stockholders.

EXCERPTS ON THIS PAGE:

DEF 14A	Apr 13, 2009

DEF 14A	Apr 14, 2008

DEF 14A	Apr 17, 2007

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Ross Stores (ROST)

ROST » Topics » Compensation Philosophy and Objectives

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