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ROST » Topics » Components of the Executive Compensation Program

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

Components of the Executive Compensation Program

1.       Base Salary
   
Base salaries for executive officers are initially determined by competitive requirements to recruit the executive. Salaries are then reviewed annually with adjustments recommended by the CEO based upon competitive market information relating to salary levels, the individual performance of each executive officer and his or her relative contribution in achieving the Company’s strategic goals.
 
Effective April 2007, the Company entered into a Third Amendment to the Company’s 2001 Employment Agreement with the CEO which outlined, among other things, his compensation during the current term. Under this contract, the CEO’s base salary may be adjusted from time to time by the Board in accordance with normal business practices by the Company.
 
In March 2008, at the same time as the Company conducted its annual salary review cycle for all executive officers, our CEO’s base pay was increased, resulting in a 1.2% increase in total base salary paid to our CEO during the year. No other changes were made to our CEO’s base salary during fiscal 2008.

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2.       Annual Cash Incentives
 
  The Incentive Compensation Plan is designed to motivate individual and team performance toward achievement of pre-established targeted levels of pre-tax earnings. “Adjusted pre-tax earnings” is defined as the earnings before taxes as reported in the Company’s consolidated statement of earnings for the fiscal year coinciding with the performance period, adjusted to exclude the reduction in earnings resulting from the accrual of compensation expense for annual incentive awards and performance share awards, granted with respect to the performance period. The pre-tax earnings target is determined annually in accordance with the Company’s five-year planning process, its annual budget process and its long-term earnings per share growth objective. For fiscal 2008, the pre-tax earnings target was an amount that would generate earnings per share increases in line with these short and long term objectives.
 
  At the commencement of each fiscal year, the Compensation Committee determines the incentive awards payable at various levels of pre-tax earnings that may be achieved relative to its pre-established target. The awards are expressed as a percentage of base salary and are payable in the form of cash bonuses after fiscal year-end pursuant to this formula.
 
  For fiscal 2008, the amount payable to the NEOs was determined by the level of actual adjusted pre-tax earnings achieved relative to the target established and approved by the Committee at its meeting on March 19, 2008. The pre-tax profit target and incentive award payout formula was:

FY 2008 Adjusted Percent of Profit Target Percent of Target Bonus Paid
Pre-Tax Profit  
  <85% 0%
$426,255,205 85% 50%
$501,476,712 100% 100%
$601,772,054 120% 200%

        In fiscal 2008, the Company achieved a level of pre-tax profit relative to the target which will result in the payout of 166.7% of the target award (see Grants of Plan-Based Awards Table on page 32).
 
3. Long-Term Equity Incentives
 
  In fiscal 2008, our executive officers were eligible for performance share awards, restricted stock awards and stock option grants under the Equity Plan. Performance share awards, restricted stock awards and stock option grants have two important objectives: (1) to align the financial interests of our executive officers with the interests of our stockholders by providing incentives that focus management’s attention on the successful longer-term strategic management of the business, and (2) to attract, motivate and retain a high-performing group of managers.
 
  The Compensation Committee approves the granting of all equity awards to executive officers under the Equity Plan. The Compensation Committee takes into consideration the year-over-year financial impact on pre-tax earnings and earnings per share of such awards. During fiscal 2008, the Company recognized non-cash stock-based compensation expense of approximately $22.6 million, of which about $16.4 million related to amortization of restricted stock, $5.4 million related to stock options and employee stock purchase plan charges (“ESPP”) and $0.8 million related to amortization of performance share awards.
 
  CEO
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

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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.

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

Components of the Executive Compensation Program

1.       Salary
 
  Base salaries for executive officers are initially determined by competitive requirements to recruit the executive. Salaries are then reviewed annually with adjustments recommended by the CEO based upon competitive market information relating to salary levels, the individual performance of each executive officer and his/her relative contribution in achieving the Company’s strategic goals.
 
  In May 2005, the Company entered into a Second Amendment to the Company’s 2001 Employment Agreement with the CEO which outlined, among other things, his compensation during that renewal term. The CEO’s employment contract is typically renewed every two years. In accordance with this contract, the CEO’s base salary may be adjusted from time to time by the Board in accordance with normal business

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  practices by the Company. In March 2006, at the same time as the Company conducted its annual salary increase cycle for all executive officers, the CEO’s base pay was increased, resulting in a 2% gain in total base salary paid to the CEO during the year. No other changes were made to our CEO’s compensation during fiscal 2006.
 
2.       Annual Incentives
 
  The Incentive Compensation Plan is designed to incent performance and achievement of pre-established targeted levels of pre-tax earnings. The pre-tax earnings target is determined annually in accordance with the Company’s five-year planning process, its annual budget process and its longer-term earnings per share growth objective of 15% to 20%. For fiscal 2006, the pre-tax earnings target was an amount that would generate earnings per share increases within this targeted range.
 
  At the commencement of each fiscal year, the Compensation Committee determines the incentive awards payable at various levels of pre-tax earnings that may be achieved relative to its pre-established target. The awards are expressed as a percentage of base salary and are payable in the form of cash bonuses after fiscal year-end pursuant to this formula.
 
  Our Incentive Compensation Plan was updated in the form of the Second Amended and Restated Incentive Compensation Plan approved by the Company’s stockholders in May 2006 in order to assure compliance with Section 162(m) of the Internal Revenue Code (“IRC Section 162(m)”).
 
3. Stock Award Programs
 
  In fiscal 2006, our executive officers were eligible for restricted stock awards and stock option grants under the Equity Plan. Restricted stock awards and stock option grants under the Equity Plan have two important objectives: (1) to align the financial interests of our executive officers with the interests of our stockholders by providing incentives that focus management’s attention on the successful longer-term strategic management of the business, and (2) to attract, motivate and retain a high-performing group of senior and middle managers.
 
  The Compensation Committee approves the granting of restricted stock and stock option awards to executive officers under the Equity Plan. The Compensation Committee takes into consideration the year-over-year financial impact on pre-tax earnings and earnings per share of such awards. During fiscal 2006, the Company recognized non-cash stock-based compensation expense of approximately $26.7 million, of which about $13.5 million related to amortization of restricted stock and $13.2 million related to stock options and employee stock purchase plan charges (“ESPP”). The $13.2 million of expense (or about $.06 per share after tax) related to stock options and ESPP was recognized in connection with the adoption of FAS 123(R).
 
  During 2006, the stock option awards made to Mr. Call on April 13, 2006 and to Ms. Panattoni on March 16, 2006, and the stock option and restricted stock awards made to Ms. Rentler and Mr. Fassio on March 16, 2006 were part of our annual focal review process. Restricted stock awards were also made on January 2, 2007 to Ms. Rentler and Ms. Panattoni in connection with their promotions to more senior levels of responsibility in our merchandise organization. The size of annual stock option and restricted stock awards made to executive officers under the Equity Plan is based on the position each executive holds in the Company. More senior level positions are granted larger amounts of equity. The size of restricted stock awards granted to executive officers under the Equity Plan is also based on the grant value the Compensation Committee considers necessary to retain key executives over the long term and to protect the Company against outside offers of employment to key individuals. Additional grants of options and restricted stock may be made following a significant change in job responsibility or in recognition of a significant achievement.
 
  Our policy with regard to the timing of the grant of stock options and other equity compensation awards has been to issue equity awards in the form of options and restricted stock on the executive officer’s or associate’s hire date, promotion date, contract renewal date or as part of the Company’s annual performance review process conducted after fiscal year earnings are announced in March of each year. The performance and compensation for the majority of our executive officers and associates are reviewed annually at that time. All executive officer grants are approved by the Compensation Committee with the grant date on or after the

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  approval date. The timing of grant dates is not based on any favorable or unfavorable non-public information anticipated to be disclosed at a later date. Our Board and Compensation Committee also have delegated authority to the CEO to grant stock options to newly hired employees and/or employees who receive promotions outside of the normal annual focal review process for associates that are below the executive officer level. The issuance of options approved by the CEO and the grant date for all such stock options also is based on a pre-established monthly grant calendar, with a grant date on or after the approval date.
 
  All stock option awards are granted with an exercise price equal to the fair market value of the Company’s common stock on the date of grant. The exercise price for stock option grants and similar awards is equal to the closing price per share on the NASDAQ Stock Market on the date of grant. These awards provide value to the executive officers only when and to the extent that the value of the Company’s common stock appreciates over the value on the date of grant. All stock option awards made in fiscal 2006 to executive officers under the Equity Plan have a term of ten years and generally vest monthly in progressively increasing annual increments over a three or four year period. All or a portion of restricted stock awards for Executive Officers typically cliff vest over three to five years. The CEO historically receives grants of options and restricted stock as part of his contract renewal process, which has been approximately every two years. His employment agreement was last renewed in May 2005. In March 2007, subsequent to the end of the 2006 fiscal year, the Compensation Committee made new awards to the CEO of stock options and restricted stock as part of the bi-annual review of the terms of his employment agreement.
 
        Both stock option grants and restricted stock awards were made to the Company’s executive officers in fiscal 2006. To ensure long-term retention of its key executives, the Company plans to continue making restricted stock awards in fiscal 2007.
  
    With the recent adoption of FAS 123(R), the Compensation Committee, with the assistance of the Consultant and of senior management, performed a comparative analysis of stock option grants versus performance-based equity awards. The Compensation Committee determined that the annual award of performance-based equity awards to executive officers other than the CEO is more beneficial to the Company, in terms of both financial and retentive value, than the annual granting of stock options. Expected benefits from performance share awards include lower share dilution, lower annual equity plan run rate levels, and a reduction in the overall overhang from equity plans.
 
  As a result, starting in fiscal 2007, we expect to transition to the use of annual performance share awards in lieu of annual option grants for all executive officers except the CEO. Non-employee members of the Board of Directors will continue to be issued annual option grants pursuant to a formula in the 2004 Equity Incentive Plan that was approved by stockholders.

EXCERPTS ON THIS PAGE:

DEF 14A
Apr 13, 2009
DEF 14A
Apr 17, 2007

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