Ross Stores (ROST)

Executive Officers’ 2005 Compensation

Salary.  Base salaries for executive officers are initially determined by competitive requirements to recruit the executive.  Salaries are then reviewed annually with recommended adjustments made 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. 

Annual Incentive Bonus.  The Company’s Incentive Compensation Plan was originally adopted by the Board of Directors effective May 1987, and was most recently approved by the Company’s stockholders in May 2001.  The Second Amended and Restated Incentive Compensation Plan was approved by the Board of Directors on March 16, 2006 and is being submitted for stockholder approval at the Annual Stockholders Meeting on May 18, 2006 for the purpose of complying with 162(m).  The Incentive Compensation Plan is designed to incent performance and achievement of specified target levels of pre-tax earnings.  At the commencement of each fiscal year, the Committee determines the incentive awards payable at target levels of pre-tax earnings that may be achieved by the Company.  Such awards are expressed as a percentage of year-end base salary and are payable in the form of cash bonuses after fiscal year-end pursuant to this formula, subject to an overriding limitation on the maximum dollar amount that may be paid to any participant.  Potential awards now range from 0% to 150% of executive officers’ base salaries, based on the actual level of pre-tax earnings achieved each year relative to the targeted goal, as well as the position of the executive officer.

For our fiscal year ended January 28, 2006, the Committee granted awards under the Incentive Compensation Plan that provided the opportunity for executive officers to receive cash incentive bonuses ranging from 55% to 75% of base salary provided that the targeted pre-tax earnings goal pre-established by the Committee was achieved, and for higher or lower bonus percentages if the target was exceeded or was not achieved.  During fiscal 2005, the Company’s results were above the minimum threshold but below the targeted pre-tax earnings goal.  Total payments made under the Plan for fiscal 2005 to all executive officers as a group represented approximately 55% of their total salaries as a group.    Actual awards over the last three fiscal years have ranged from 0% to 74% of executive officers’ base salaries as a group. 

Stock Award Programs.  In fiscal year 2005, the Company’s executive officers were eligible for restricted stock awards and stock option grants under the 2004 Equity Incentive Plan (the “Equity Plan”).  Restricted stock awards and stock option grants under the Equity Plan are executive compensation vehicles that have two important objectives: (i) to align the financial interests of the Company’s stockholders and the executive officers by providing incentives that focus management’s attention on the successful long-term strategic management of the business and appreciation in stockholder value; and (ii) to recruit, motivate and retain a high-performing group of senior and middle managers.

The Committee approves the granting of restricted stock and stock option awards to executive officers under the Equity Plan.  The levels of stock option awards granted to executive officers under the Equity Plan are based on the following factors: the executive officer’s position, past and expected future contributions to the achievement of the Company’s strategic objectives, existing stock ownership position and the level and performance of previous stock awards.  The levels of restricted stock awards granted to executive officers under the Equity Plan are determined primarily by the retentive value of the grant necessary to retain key executives over the long term and to protect the Company against outside offers of employment to key individuals, as well as the factors listed for stock option awards.  The officers must satisfy vesting requirements, typically of at least three years, in order to retain their stock awards.

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.  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 2005 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. 

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