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THE PEP BOYS - MANNY, MOE & JACK

3111 West Allegheny Avenue

Philadelphia, Pennsylvania 19132

LETTER TO OUR SHAREHOLDERS

2009 was a rewarding year for The Pep Boys — Manny, Moe & Jack, thanks to our associates and their passionate commitment to our customers.  We started the year by making a “Back in Black” commitment to return to profitability, and we met that commitment by making more money in 2009 than we had in the previous twelve years combined.  We have also started to grow again, adding 25 new locations in 2009.

VISION AND STRATEGIES

Our vision is to be The Automotive Solutions Provider of Choice for the Value Oriented Customer, and we have four strategies to achieve this vision:

Earn the TRUST of our Customers every day .   We do this by delivering a customer experience that is based on Speed, Expertise, Respect and Value.

The customer experience starts with our associates.  We have focused on hiring, training and development, and converting compensation to performance-based plans.  Our associate retention continues to improve, as does our associates’ level of pride in their workplace and their company.  We will continue to focus on building the expertise of our advisors, mechanics and technicians, and providing appropriate incentives to put Customers First.

Customers First is our commitment, and we have made great strides with better looking and easier to shop stores, more consistent execution and an improved customer experience. As a result, our customer service scores continue to improve.  Our rallying cry for 2010 is to “Get to Great” through even more consistent execution.  It starts with our associates, but process is also important.  That is why we continue to simplify and streamline our operations, so that our associates are in a better position to put Customers First.

The changes we have made in our marketing messaging and media are also resonating with our customers, and we are spending less but touching more customers.  Our Rewards program is a one of kind in the industry, in that it benefits customers whether they choose to do it themselves or have us do it for them.  We now have over five million members, which is helping to drive customer count increases and repeat business through discounted towing, free services and rewards points for purchases.

The sum of these initiatives and those below positions us to produce sustainable sales increases going forward.

Lead with our Service business and grow through our Service & Tire Centers .  We do this by being a full service - tire, maintenance and repair - shop that DOES EVERYTHING.  FOR LESS .

We have full service capability in our bays.  We have ASE certified technicians in every store.  We invest significantly in training and equipment.  Our most recent service additions this year were advanced diagnostic equipment to service today’s more complex vehicles, training and equipment to service hybrid vehicles and 29 minute oil changes to serve time-starved customers.

When customers rely on us every day to keep their cars and trucks running properly, we do it for less because our size and business model allow us to buy quality parts at lower prices and pass those savings onto our customers.

We opened 25 new stores in 2009 — 24 Service & Tire Centers and one smaller prototype Supercenter.  Our plans call for 40 more new locations in 2010, followed by 80 in 2011.  This growth plan allows us to leverage our Supercenters - inventory, delivery operations and marketing - while improving our market density. The typical

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Service & Tire Center is full service with approximately six service bays and $1 million in expected sales.  Our Supercenters were built to be destination stores.  Our Service & Tire Centers offer customer convenience, allowing us to be close to our customers’ home or work.  They are also lower in cost and more efficient.

Establish a differentiated Retail experience by leveraging our Automotive Superstore .  Because of the size of our stores we are able to provide the highest level of replacement parts coverage and the broadest range of maintenance, performance and appearance products and accessories.  Our combination of service and retail makes us a leading installer of automotive aftermarket products also.  Category management is the process we use to make sure that we have the right offering for our customers in each store.

We are focused on core automotive and we have three enhanced automotive offerings in different stages of rollout.  Superhubs are stores with enhanced parts coverage to maximize parts availability in the market.  Speed Shops serve automotive enthusiasts - whether muscle car, import performance or sport truck - with niche products and expert associates. And sales and installation technicians install automotive after-market products like electronics and accessories.

Leverage our Automotive Superstore to provide the most complete offering for our Commercial customers .  We support other installers also, not just with parts and fluids but also with tires, equipment, accessories and services.  Like our Service & Tire Centers, this leverages our inventory and delivery operations.

OPERATIONAL TURNAROUND

We have started year three of our plan to turnaround The Pep Boys, which has enjoyed such a rich history since its founding in 1921.  2008 was our “year of disruptive change”, as we made the foundational changes we knew we needed to make despite their disruption to our operations.  2009 was our “year of positive change”, as our organization and business underwent a second year of dramatic change, but with a positive impact on our associates, our customers and our results.  And now we enter 2010, our “year of optimization and execution”, which is characterized by putting together most of the remaining pieces to our business model and improving the consistency of our execution.

We still have more opportunities to improve our profitability.  Over time, we are targeting a mid and then highsingle digit operating margin by continuing to improve our operational disciplines and through growth in our Service & Tire Centers.  In addition to returning to profitability, our balance sheet is also healthy, as we have reduced inventory levels while improving parts coverage.  We also continue to sell and leaseback operating stores when advantageous and to sell the remaining surplus properties in our portfolio.  As of year-end, we had no borrowings against our line of credit and $39 million of cash on hand.

In summary, we love what we do, we are very positive about our future, and we are driven to achieve our vision to become The Automotive Solutions Provider of Choice for the Value Oriented Customer.

Michael R. Odell

Chief Executive Officer

April 30, 2010

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THE PEP BOYS - MANNY, MOE & JACK

3111 West Allegheny Avenue

Philadelphia, Pennsylvania 19132

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To our Shareholders:

It is our pleasure to invite you to Pep Boys 2010 Annual Meeting of Shareholders.  This year’s meeting will be held on Thursday, June 17, 2010, at the Hilton Philadelphia City Avenue, 4200 City Avenue, Philadelphia, Pennsylvania.  The meeting will begin promptly at 9:00 a.m.

At the meeting, shareholders will act on the following matters:

(Item 1)                     The election of the full Board of Directors for a one-year term.

(Item 2)                     The ratification of the appointment of our independent registered public accounting firm.

(Item 3)                      The approval of the amendment and restatement of our 2009 Stock Incentive Plan to allow grants of performance-based awards to be deductible under Section 162(m) of the Internal Revenue Code.

(Item 4)                     A shareholder proposal regarding the vote required to amend our bylaws, if presented by its proponent.

The shareholders will also consider any other business that may properly come before the meeting.  The attached proxy statement provides further information about the matters to be acted on at the meeting.  All shareholders of record at the close of business on Friday, April 9, 2010 are entitled to vote at the meeting and any postponements or adjournments.  Your vote is important to us.  Please vote as soon as possible in one of the following ways:

·            By Internet by visiting the website shown on your Notice of Internet Availability of Proxy Materials or proxy card.

·            By telephone by calling the toll-free telephone number shown on your Notice of Internet Availability of Proxy Materials or proxy card.

·            By mail, if you requested printed proxy materials, by returning the proxy card in the postage-paid envelope provided.

·            By following the instructions on your proxy materials if your shares are held in the name of your bank, broker or other holder of record.

Whether or not you plan to attend the meeting, please make sure that your shares are represented by voting in advance of the meeting using one of these methods.

Brian D. Zuckerman

Secretary

April 30, 2010

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THE PEP BOYS - MANNY, MOE & JACK

3111 West Allegheny Avenue

Philadelphia, Pennsylvania 19132

PROXY STATEMENT

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GENERAL INFORMATION

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors for use at this year’s Annual Meeting.  The meeting will be held on Thursday, June 17, 2010, at the Hilton Philadelphia City Avenue, 4200 City Avenue, Philadelphia, Pennsylvania and will begin promptly at 9:00 a.m.

The Company’s Proxy Statement and 2009 Annual Report are available at www.proxyvote.com.

We are pleased to be using a procedure approved by the Securities and Exchange Commission (SEC) that allows companies to furnish their proxy materials to shareholders over the Internet instead of mailing full sets of the printed materials.  We believe that this procedure will reduce costs, provide greater flexibility to our shareholders and reduce the environmental impact of our Annual Meeting.  On or about April 30, 2010, we started mailing to our shareholders a Notice of Internet Availability of Proxy Materials.   The Notice of Internet Availability contains instructions on how to access and read our Proxy Statement and our 2009 Annual Report on the Internet and to vote online.   If you received a Notice of Internet Availability by mail, you will not receive paper copies of the Proxy Materials in the mail unless you request them.  Instead, the Notice of Internet Availability instructs you on how to access and read the Proxy Statement and Annual Report and how you may submit your proxy over the Internet.  If you would like to receive a printed copy of the materials, please follow the instructions on the Notice of Internet Availability for requesting the materials, and we will promptly mail the materials to you.

We are mailing to shareholders, or making available to shareholders via the Internet, this Proxy Statement, form of proxy card, and our 2009 Annual Report on or about April 30, 2010.

What is the purpose of the meeting?

At the meeting, shareholders will vote on:

·             The election of directors.

·             The ratification of the appointment of our independent registered public accounting firm.

·             The approval of the amendment and restatement of our 2009 Stock Incentive Plan to allow grants of performance-based awards to be deductible under Section 162(m) of the Internal Revenue Code.

·             A shareholder proposal regarding the vote required to amend our bylaws, if presented by its proponent.

In addition, we will report on our business operations and will answer questions posed by shareholders.

Who may vote at the meeting?

Common stock is the only class of stock that Pep Boys has outstanding and is referred to in this Proxy Statement as “Pep Boys Stock.”  You may vote those shares of Pep Boys Stock that you owned as of the close of business on the record date, April 9, 2010.  As of the record date, 52,451,086 shares were outstanding.

What are the voting rights of Pep Boys’ shareholders?

Each shareholder is entitled to one vote per share on all matters including in uncontested elections of directors.

In contested elections of directors, elections where the number of nominees exceeds the number of directors to be elected, each shareholder is entitled to vote cumulatively.  Cumulative voting entitles each shareholder to the number of votes equal to the number of shares owned by the shareholder multiplied by the number of directors to be elected.  Accordingly and without satisfying any condition precedent, a shareholder may cast all of his votes for one nominee for director or allocate his votes among all the nominees.

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How do I vote?

You may vote using any of the following methods:

·              Internet .  You may vote your shares by the Internet.  You will need the control number printed on your Notice of Internet Availability, on your proxy card or in the instructions that accompany your proxy materials, as applicable.  The web site for Internet voting is also listed on your Notice of Internet Availability, on your proxy card or in the instructions that accompany your proxy materials.  Internet voting is available 24 hours a day and will be accessible until 11:59 P.M. Eastern Time on June 16, 2010.  You will be able to confirm that the system has properly recorded your vote.  If you vote via the Internet, you do NOT need to return a proxy card or voting instruction form.

·              Telephone .  If located in the United States or Canada, you can vote your shares by telephone by calling the toll-free telephone number printed on your Notice of Internet Availability, on your proxy card or in the instructions that accompany your proxy materials, as applicable, and following the recorded instructions.  You will need the control number printed on your Notice of Internet Availability, on your proxy card or in the instructions that accompany your proxy materials, as applicable.  Telephone voting is available 24 hours a day and will be accessible until 11:59 P.M. Eastern Time on June 16, 2010.   You will be able to confirm that the system has properly recorded your vote.  If you vote by telephone, you do NOT need to return a proxy card or voting instruction form.

·              Mail .  If you received printed copies of the proxy materials by mail, you can vote by mail.  Simply complete and sign the proxy card and return it in the postage-paid envelope included in the materials.  If you hold your shares through a bank or brokerage account, please complete and mail the voting instruction form in the envelope provided.

·              Ballot at the Annual Meeting .  You may vote your shares at the meeting if you or your authorized proxy attends the meeting.  Even if you plan to attend the meeting, we encourage you to vote your shares by proxy using one of the foregoing methods.

Your shares will be voted as you direct.  If you sign and return a proxy card prior to the meeting that does not contain instructions, your shares will be voted as recommended by the Board of Directors.

Can I change my vote after I return my proxy card?

Yes.  You may revoke your proxy at any time prior to its exercise at the meeting by (i) providing a later dated vote by Internet or telephone, (ii) delivering either a written revocation notice or another signed proxy card with a later date to our corporate Secretary or (iii) attending the meeting, requesting that your previously delivered proxy be revoked and then voting in person.

How many votes must be present to hold the meeting?

In order to hold the meeting, a majority of the shares of Pep Boys Stock outstanding on the April 9, 2010 record date must be present at the meeting.  The presence of such a majority is called a quorum.  Since 52,451,086 shares were outstanding on the record date, at least 26,225,544 shares must be present to establish a quorum.

Your shares are counted as present at the meeting if you attend and vote in person or if you properly return a proxy card.  Abstentions will be counted as present for the purpose of determining whether there is a quorum for all matters to be acted upon at the meeting.

If a shareholder is the beneficial owner of shares held in “street name” by a bank or brokerage firm, such bank or brokerage firm, as the record holder of the shares, is required to vote those shares in accordance with such shareholder’s instructions.  If the shareholder does not give instructions to such bank or brokerage firm, it will nevertheless be entitled to vote the shares with respect to certain “discretionary” items, but will not be permitted to vote such shareholder’s shares with respect to “non-discretionary” items.   In the case of non-discretionary items, the shares will be treated as “broker non-votes.”  Shares treated as broker non-votes will be included for purposes of

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calculating the presence of a quorum.  Otherwise, shares represented by broker non-votes will be treated as shares not entitled to vote on a proposal.

How many votes are needed to elect directors?

In uncontested elections, a director nominee will only be elected if the number of votes cast “for” the nominee exceeds the number of votes cast “against” the nominee.  This is commonly referred to as a “majority vote.”  An “abstain” vote will have no effect on the outcome of the election, but will be counted for purposes of determining whether a quorum is present.  Under Pennsylvania law, if an incumbent director does not receive a majority vote, then the incumbent director will continue to serve on the Board of Directors until his or her successor is elected and qualified.  However, an incumbent director who does not receive the required majority vote for re-election is required to tender a resignation to the Board of Directors.  The Board of Directors will then accept or reject the resignation, or take other appropriate action, based upon the best interests of Pep Boys and our shareholders and will publicly disclose its decision and rationale within 90 days.

In contested elections, the nominees who receive the most votes cast “for” at the annual meeting will be elected.

How many votes are needed to approve the other matters to be acted on at the meeting?

Each of the other matters must be approved by a majority of the votes cast on such matter.   Abstentions are not considered votes “cast” for matters, and therefore will have no effect on the vote for matters and will not be considered in determining whether such proposals have received the requisite shareholder vote.

What are the Board of Directors’ recommendations?

Unless you give other directions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors.

The Board recommends a vote:

·             FOR election of the nominated slate of directors.

·             FOR the ratification of the appointment of our independent registered public accounting firm.

·             FOR t he approval of the amendment and restatement of our Stock Incentive Plan to allow grants of performance-based awards to be deductible under Section 162(m) of the Internal Revenue Code.

·             AGAINST the shareholder proposal regarding the vote required to amend our bylaws, if presented by its proponent.

We have not received proper notice of, and are not aware of, any other matters to be brought before the meeting.  If any other matters properly come before the meeting, the proxies received will be voted in accordance with the discretion of the proxy holders named on the proxy card.

A note about certain information contained in this Proxy Statement

Filings made by companies with the SEC sometimes “incorporate information by reference.”  This means that the company is referring you to information that has previously been filed with the SEC and that such information should be considered part of the filing you are then reading.  The Audit Committee Report and the Compensation Committee Report contained in this Proxy Statement are not incorporated by reference into any other filings with the SEC.

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SHARE OWNERSHIP

Who are Pep Boys’ largest shareholders?

Based solely on a review of filings with the SEC, the following table provides information about those shareholders that beneficially own more than 5% of the outstanding shares of Pep Boys Stock.

(a)                     Based upon information disclosed in a Schedule 13G/A filed on February 8, 2010.  Dimensional Fund Advisers LP disclaims beneficial ownership of such shares.

(b)                    Based upon information disclosed in a Schedule 13G filed on January 29, 2010.

(c)                     Based upon information disclosed in a Schedule 13G/A filed on February 16, 2010.

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How many shares do Pep Boys’ directors and executive officers own?

The following table shows how many shares our directors and executive officers named in the Summary Compensation Table beneficially owned on April 9, 2010.  The business address for each of such individuals is 3111 West Allegheny Avenue, Philadelphia, PA 19132.

+                  Represents less than 1%.

(a)           Includes shares for which the named person has sole voting and investment power and non-voting interests including restricted stock units and deferred compensation accounted for as Pep Boys Stock.  Also includes shares that can be acquired through stock option exercises through June 8, 2010:  Mitarotonda — 4,768; Odell — 76,934; Arthur — 80,001; Webb — 26,668; Cirelli 37,559; White — 4,732; Hotz — 11,850; Sweetwood — 24,350; Scaccetti — 20,350; Shull — 14,001; Williams — 4,768; Atkins — 11,850; Reid — 1,669; and as a group — 371,017.

(b)          Mr. Mitarotonda is the sole stockholder and director of LNA Capital Corp., which is the general partner of Barington Capital Group, L.P., which is the majority member of each of Barington Companies Investors, LLC (“Barington Investors”) and Barington Companies Advisors, LLC (“Barington Advisors”).  Barington Investors is the general partner of Barington Companies Equity Partners, L.P. (“Barington”).  Barington Advisors is the general partner of Barington Investments, L.P.  (“Barington Investments”).  Barington and Barington Investments beneficially own 1,443,899 and 991,780 shares of Pep Boys Stock, respectively.   Mr. Mitarotonda disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein.

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(ITEM 1)     ELECTION OF DIRECTORS

What is the makeup of the Board of Directors?

Our Board of Directors currently consists of 10 members, nine non-management directors and our Chief Executive Officer.  All of our current directors have been nominated for re-election.

Nominees for Election

The Board of Directors proposes that the following nominees be elected.  If elected, each nominee will serve a one-year term expiring at the 2011 Annual Meeting and until such director’s successor has been duly elected and qualified.  Each of the nominees has consented to serve, if elected.  Unless contrary instructions are given, the proxy holders named on the enclosed proxy card will vote for the election of these nominees.  If any nominee becomes unavailable to serve as a director, the proxy holders will vote for the election of any substitute nominee designated by the Board.

The nominees standing for election are:

Ms. Scaccetti, 56, a CPA, is the Chief Executive Officer of Drucker & Scaccetti PC, a public accounting and business advisory firm, of which she has a been a principal since 1990.  Ms. Scaccetti currently serves as a director of Nutrition Management Services Company and, during the past five years, served as a director of Di Giorgio Corporation.  Ms. Scacetti’s financial expertise, public-company director experience, familiarity with Pep Boys’ business garnered through her tenure as a Director and diversity were the primary qualifications resulting in her nomination for re-election.

Mr. Sweetwood, 62, is a principal and the President of Woods Investment, LLC, a private real estate investment firm.  From 1995 through 2002, Mr. Sweetwood served as an officer, and ultimately as President of The Americas, of Six Continents Hotels (currently, Intercontinental Hotels Group), a division of Six Continents PLC (currently IHG PLC) that operates hotels under the InterContinental, Crown Plaza, Holiday Inn and other brands.   Mr. Sweetwood’s marketing and service industry expertise, together with his familiarity with Pep Boys’ business garnered through his tenure as a Director were the primary qualifications resulting in his nomination for re-election.

Ms. Atkins, 53, a CPA and Chartered Accountant, is Managing Director of Chetrum Capital LLC, a private investment firm.  From 1996 through 2001, Ms. Atkins served as an officer, and ultimately as Executive Vice President — Strategic Initiatives, of Sears Roebuck & Co.  Ms. Atkins currently serves as a director of Shoppers Drug Mart Corporation, Spartan Stores, Inc. and Tim Hortons Inc.  Ms. Atkins’ retail industry, operations, strategic planning and financial expertise, public-company director experience, familiarity with Pep Boys’ business garnered through her tenure as a Director and diversity were the primary qualifications resulting in her nomination for re-election.

Mr. Hotz, 65, is Senior Managing Director, Co-Head of Investment Banking, a member of the Operating Committee and Co-Chairman of Houlihan Lokey Howard & Zukin, Inc, where he has been employed since 2002.  Mr. Hotz currently serves as a director of Universal Health Services, Inc.   Mr. Hotz’ financial, M&A and regulatory expertise, public-company director experience and familiarity with Pep Boys’ business garnered through his tenure as a Director were the primary qualifications resulting in his nomination for re-election.

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Mr. Mitarotonda, 55, is the Chairman of the Board, President and Chief Executive Officer of Barington Capital Group, L.P., an investment firm that he co-founded in 1991.  Mr. Mitarotonda served as the President and Chief Executive Officer of Dynabazaar, Inc. from May 2006 until April 2007 and January 2004 until December 2004.  Mr. Mitarotonda also served as the Co-Chief Executive Officer and Co-Chairman of L Q Corporation, Inc. from April 2003 until May 2004 and as its sole Chief Executive Officer from May 2004 until October 2004.  Mr. Mitarotonda currently serves as a director of A. Schulman, Inc., Griffon Corporation and Sielox, Inc. and, during the past five years, served as a director of Dynabazaar, Inc. and L Q Corporation, Inc.  Mr. Mitarotonda’s status as a significant shareholder, financial and corporate governance expertise, experiences as a chief executive officer, public-company director experience and familiarity with Pep Boys’ business garnered through his tenure as a Director and former Chairman of the Board were the primary qualifications resulting in his nomination for re-election.

Mr. White, 65, is President and Chief Executive Officer of White & Associates, a management consulting firm that he founded in 2000.  From 1973 through 2000, Mr. White held numerous executive and management level positions with Wal-Mart Stores, Inc., including Executive Vice President and General Manager of the Supercenter division from 1990 to 2000 and Executive Vice President and General Manager of Sam’s Wholesale Club from 1985 through 1989.   Mr. White currently serves as a director of Dillard’s, Inc and, during the past five years, served as a director of Gold Toe Corporation, Oneida Ltd. and Playtex Products, Inc.  Mr. White’s retail industry, operations and merchandising expertise, public-company director experience and familiarity with Pep Boys’ business garnered through his tenure as a Director were the primary qualifications resulting in his nomination for re-election.

Mr. Williams, 67, retired in 2008 from his position of Corporate President and Vice Chairman of GoldToeMoretz, LLC, the resultant parent company formed as a result of the merger of Gold Toe Brands, Inc. and Moretz Sports, Inc. in October 2006.  From 1990 through October 2006, Mr. Williams served as the President and Chief Executive Officer of Gold Toe Brands, Inc., the largest branded sock manufacturer in the United States .  During the past five years, Mr. Williams served as a director of Gold Toe Corporation.  Mr. Williams’ experiences as a chief executive officer, supply chain and financial expertise, public-company director experience and familiarity with Pep Boys’ business garnered through his tenure as a Director were the primary qualifications resulting in his nomination for re-election.

Dr. Reid, 69, is the President Emeritus and Eugene Applebaum Professor, Community Engagement, at Wayne State University, an urban research university located in Detroit, Michigan and served two three-year terms on the Board of the Federal Reserve Bank of Chicago (Detroit Branch).   Mr. Reid currently serves as a director of A. Schulman, Inc. and Mack-Cali Realty Corporation and, during the past five years, served as a director of Handleman Corporation.  Mr. Reid’s financial and regulatory expertise, public-company director experience, familiarity with Pep Boys’ business garnered through his tenure as a Director and diversity were the primary qualifications resulting in his nomination for re-election.

Mr. Odell, 46, has been our Chief Executive Officer since September 22, 2008.  He joined Pep Boys in September 2007 as Executive Vice President—Chief Operating Officer, after having most recently served as the Executive Vice President and General Manager of Sears Retail & Specialty Stores.  Mr. Odell joined Sears in its finance department in 1994 where he served until he joined Sears operations team in 1998. There he served in various executive operations positions of increasing seniority, including as Vice President, Stores—Sears Automotive Group.  Mr. Odell’s position as our Chief Executive Officer and his automotive aftermarket, retail

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industry, service industry, operations and financial expertise were the primary qualifications resulting in his nomination for re-election.

Mr. Lukens, 62, is retired.  He was the President and Chief Executive Officer of Stewart & Stevenson Services, Inc., a company primarily engaged in the design, manufacture and service of military tactical vehicles, from March 2004 until May 2006 when the company was sold.  He served as Interim Chief Executive Officer and President of Stewart & Stevenson from September 2003 until March 2004, and as Chairman of the Board from December 2002 to March 2004.  From 1981 until January 2000, Mr. Lukens worked for Baker Hughes Incorporated, an oilfield services company, in a number of capacities, including Chairman of the Board, President and Chief Executive Officer.  Mr. Lukens served on our Board of Directors from August 2006 until October 2007, when he resigned for personal reasons due to the illness of a family member.  Mr. Lukens currently serves as a director of Westlake Chemical Corporation and, during the past five years, served as a director of NCI Building Systems Inc.  Mr. Lukens’ experiences as a chief executive officer, service industry and financial expertise, public-company director experience and familiarity with Pep Boys’ business garnered through his tenure as a Director were the primary qualifications resulting in his nomination for re-election.

Each of Messrs. Mitarotonda, Reid, White and Williams was originally appointed to the Board pursuant to the terms of an agreement between the Company and a group of investors led by Barington Capital Group, L.P.  Such agreement has since expired.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE

“FOR”

EACH OF THESE NOMINEES FOR DIRECTOR

Corporate Governance

Our Board of Directors’ governance principles are embodied in our corporate Code of Ethics (applicable to all Pep Boys associates including our executive officers and members of the Board), the Board of Directors Code of Conduct and the various Board committee charters, all of which are available for review on our website, www.pepboys.com, or which will be provided in writing, free of charge, to any shareholder upon request to: Pep Boys, 3111 West Allegheny Avenue, Philadelphia, PA 19132, Attention: Secretary.  The information on our website is not part of this Proxy Statement.  References to our website herein are intended as inactive textual references only.

As required by the New York Stock Exchange (NYSE), promptly following our 2009 Annual Meeting, our CEO certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing standards.

Diversity.  While the Board has not adopted a formal diversity policy, in accordance with the Board’s Code of Conduct, the Nominating and Governance Committee annually reviews with the full Board, the appropriate skills and characteristics required of Directors and nominees in the context of the current make-up of the Board, including diversity of age, gender, ethnicity and personal experiences.

Independence.  An independent director is independent from management and free from any relationship with Pep Boys that, in the opinion of the Board, would interfere in the exercise of independent judgment as a director.  In reaching such an opinion, the Board considers, among other factors, the guidelines for independent directors promulgated by the NYSE.  The independence of the outside directors is reviewed annually by the full Board.  In accordance with NYSE guidelines, our Board consists of a majority of independent directors.  In fact, all of our current directors, except our Chief Executive Officer, Mr. Odell, are independent.  All Committees of the Board consist entirely of independent directors.

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Executive Sessions of the Independent Directors .  Our non-executive Chairman, Mr. Lukens, presides over all such sessions, which are held, at a minimum, immediately following all regularly scheduled Board meetings.

Board Leadership Structure and Role in Risk Oversight .  Pep Boys currently separates the roles of Chairman of the Board and Chief Executive Officer.  Given the relatively short tenure of both our current Chairman of the Board and Chief Executive Officer, the Board believes that the separation of these roles currently allows the Chief Executive Officer to focus his efforts primarily on the successful short and long-term operations of the Company for the benefit of all its constituents, while allowing the Chairman of the Board to manage the operation of the Board in its oversight of the Chief Executive Officer and Pep Boys’ strategic direction.

Pep Boys has adopted an enterprise risk oversight program pursuant to which management, lead by Pep Boys’ Chief Financial Officer and General Counsel, together with the Audit Committee identifies the most significant risks faced by the Company.  On a quarterly basis, management assesses the status of these risks and the Company’s mitigation efforts against them, which are reporting in writing to the full Board and discussed in detail with the Audit Committee and in summary fashion with the full Board.

Compensation Policies and Practices Risk.   Pep Boys’ compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Personal Loans to Executive Officers and Directors.  Pep Boys has no personal loans extended to its executive officers or directors.

Director Attendance at the Annual Meeting.         All Board members are strongly encouraged to attend the Annual Meeting of Shareholders.   All nominees then standing for election attended the 2009 Annual Meeting.

Communicating with the Board of Directors.  Interested parties should address all communications to the full Board or an individual director to the attention of our corporate Secretary.  Our corporate Secretary reviews all such communications to determine if they are related to specific products or services, are solicitations or otherwise relate to improper or irrelevant topics.  All such improper communications receive a response in due course.  Any communication directed to an individual director relating solely to a matter involving such director is forwarded to such director.   Any communication directed to an individual director relating to a matter involving both such director and Pep Boys or the Board of Directors, as a whole, is forwarded to such director and the Chairman of the Board.  The balance of the communications are forwarded to the Chairman of the Board.  Except for improper communications, all interested party communications to the Board of Directors or an individual director received by the corporate Secretary are kept in confidence from management.  These procedures were adopted unanimously by the independent directors.

Compensation Committee Interlocks and Insider Participation

Ms. Atkins and Messrs. Hotz and Mitarotonda are the current members of our Compensation Committee.  None of these members is or has been an officer or employee of Pep Boys or has any relationship with Pep Boys requiring disclosure under Item 404 of SEC Regulation S-K.  No executive officer of Pep Boys serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of Pep Boys’ Board of Directors or Compensation Committee.

Meetings and Committees of the Board of Directors

The Board of Directors held eight meetings during fiscal 2009.  During fiscal 2009, each director standing for re-election attended at least 75% of the aggregate number of meetings held by the Board and all committee(s) on which such director served.  The Board of Directors has standing Audit, Compensation and Nominating and Governance Committees.  All Committee members are “independent” as defined by the listing standards of the NYSE.

Audit Committee.  Ms. Scaccetti (chair), Mr. Hotz, Dr. Reid and Mr. Williams are the current members of the Audit Committee.  The Audit Committee reviews Pep Boys’ consolidated financial statements and makes recommendations to the full Board of Directors on matters concerning the audits of Pep Boys’ books and records.  The Audit Committee met 8 times during fiscal 2009.

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Compensation Committee.  Ms. Atkins (chair) and Messrs. Hotz and Mitarotonda are the current members of the Compensation Committee.  The Compensation Committee recommends the compensation structure, components and levels for all of Pep Boys’ officers.  The Compensation Committee met 13 times during fiscal 2009.

Nominating and Governance Committee.  Messrs. Sweetwood (chair), Mitarotonda and Reid are the current members of the Nominating and Governance Committee.  The Nominating and Governance Committee recommends candidates to serve on the Board and serves as the Board’s representative on all corporate governance matters.  The Nominating and Governance Committee met six times during fiscal 2009.

Operating Efficiency Committee.  The Board has appointed a special committee that meets from time-to-time to assist management with identifying and realizing opportunities to improve operational performance.  The Committee currently consists of Mr. White (chair), Ms. Atkins and Mr. Williams.

Can a shareholder nominate a candidate for director?

The Nominating and Governance Committee considers nominees recommended by our shareholders.  Written recommendations should be sent to our offices located at 3111 West Allegheny Avenue, Philadelphia, PA 19132, Attention: Secretary.  The recommendation should state the qualifications of the nominee to be considered.

A shareholder may also nominate candidates to be considered for election as directors at an upcoming shareholders’ meeting by timely notifying us in accordance with our By-laws.  To be timely, a shareholder’s notice must be received at our principal executive offices not less than 50 nor more than 75 days prior to the date of the scheduled shareholders’ meeting.  If the public announcement of the holding of the shareholders’ meeting was given less than 65 days prior to the date of such meeting, then a shareholder’s notice received at our principal executive offices within ten days of the date of such public announcement will be considered timely.  The shareholder’s notice must also set forth all of the following information:

·              the name and address of the shareholder making the nomination;

·            a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the proposed nominee;

·            the name of the proposed nominee;

·            the proposed nominee’s principal occupation and employment for the past 5 years;

·            a description of any other directorships held by the proposed nominee; and

·            a description of all arrangements or understandings between the nominee and any other person or persons relating to the nomination of, and voting arrangements with respect to, the nominee.

How are candidates identified and evaluated?

Identification.  The Nominating and Governance Committee considers all candidates recommended by our shareholders, directors and senior management on an equal basis.  The Nominating and Governance Committee’s preference is to identify nominees using our own resources, but has the authority to and will engage search firms(s) as necessary.

Qualifications .  The Nominating and Governance Committee evaluates each candidate’s professional background and experience, judgment and diversity (age, gender, ethnicity and personal experiences) and his or her independence from Pep Boys.  Such qualifications are evaluated against our then current requirements, as expressed by the full Board and our Chief Executive Officer, and the current make up of the full Board.

Evaluations .  Candidates are evaluated on the basis of their resume, third party references, public reputation and personnel interviews.  Before a candidate can be recommended to the full Board, such candidate is generally interviewed by each member of the Nominating and Governance Committee and meets, in person, with at least one member of the Nominating and Governance Committee, the Chairman of the Board and the Chief Executive Officer.

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How are directors compensated?

Base Compensation.  Each non-management director (other than the Chairman of the Board) receives an annual director’s fee of $35,000.  Our Chairman of the Board receives an annual director’s fee of $80,000.

Committee Compensation.  Directors serving on our committees also receive the following annual fees.

Equity Grants.  The 2009 Stock Incentive Plan provides for an annual equity grant having an aggregate value of $45,000 to non-management directors.  The Stock Incentive Plan is administered, interpreted and implemented by the Compensation Committee of the Board of Directors.

The table details the compensation paid to non-employee directors during the fiscal year ended January 30, 2010.

Director Compensation Table

Certain Relationships and Related Transactions

The Audit Committee, which is comprised of independent directors, has established a written Related Party Transaction Policy.  Such policy provides that to help identify related-party transactions and relationships (i) all transactions between the Company and another party are reviewed by the Company’s legal and finance departments prior to the execution of definitive transaction documents and (ii) each director and executive officer completes a questionnaire that requires the disclosure of any transaction or relationship that the person, or any member of his or her immediate family, has or will have with the Company.   The full Board of Directors reviews and approves, ratifies or rejects any transactions and relationships of the nature that would be required to be disclosed under Item 404 of Regulation S-K.  In reviewing any such related-party transaction or relationship, the Board considers such information as it deems important to determine whether the transaction is on reasonable and competitive terms and is fair to the Company.   No such relationships or transactions of a nature required to be disclosed under Item 404 of Regulation S-K currently exist.

Involvement of Certain Legal Proceedings

None of our directors or executive officers are currently involved, or have been involved during the last ten years, in a legal proceeding of the type required to be disclosed under Item 402 of Regulation S-K.

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Report of the Audit Committee of the Board of Directors

The Audit Committee reviews Pep Boys’ financial statements and makes recommendations to the full Board of Directors on matters concerning the audits of Pep Boys’ books and records.  Each committee member is “independent” as defined by the listing standards of the New York Stock Exchange.  Ms. Scaccetti (chair), Mr. Hotz, Mr. Reid and Mr. Williams are the current members of the Audit Committee.  Ms. Scaccetti has been designated by the full Board as an Audit Committee Financial Expert as defined by SEC regulations.  A written charter adopted by the full Board governs the activities of the Audit Committee.  The charter is reviewed, and when necessary revised, annually.

Management has primary responsibility for Pep Boys’ internal accounting controls and financial reporting process.  The independent registered public accounting firm is responsible for performing an independent audit of Pep Boys’ consolidated financial statements and internal control over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) and to issue a report as a result of such audit and to issue an attestation of management’s assertion of Pep Boys internal control over financial reporting.   The Audit Committee’s responsibility is to monitor and oversee these processes.  The Audit Committee serves as a focal point for communication among the Board of Directors, the independent registered public accounting firm, management and Pep Boys’ internal audit function, as the respective duties of such groups, or their constituent members, relate to Pep Boys’ financial accounting and reporting and to its internal controls.

In this context, the Audit Committee reviewed and discussed the audited consolidated financial statements with management and the independent registered public accounting firm.  These discussions included the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).  The Audit Committee also reviewed and discussed with management, the internal auditors and the independent registered public accounting firm, management’s report, and the independent registered public accounting firm’s attestation, on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

The Audit Committee also discussed with the independent registered public accounting firm its independence from Pep Boys and its management, including the written disclosures submitted to the Audit Committee by the independent registered public accounting firm as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).

Based upon the discussions and reviews referred to above, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements and management’s report on internal control over financial reporting in Pep Boys’ Annual Report on Form 10-K for the fiscal year ended January 30, 2010 filed with the SEC.

This report is submitted by: Jane Scaccetti; Robert H. Hotz; Irvin D. Reid; and James A. Williams.

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Independent Registered Public Accounting Firm’s Fees

The following table summarizes the aggregate fees billed to us by our independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.

Audit Fees.  Audit Fees billed in fiscal 2009 and fiscal 2008 consisted of (i) the audit of our annual financial statements, (ii) the audit of our internal control over financial reporting, (iii) the reviews of our quarterly financial statements and (iv) comfort letters, statutory and regulatory audits, consents and other services related to SEC matters.

Audit-Related Fees.  Audit-Related Fees billed in fiscal 2008 consisted of providing third party access to work papers.

Tax Fees.  Tax Fees billed in fiscal 2009 and 2008 consisted of tax compliance services in connection with tax audits and appeals.

The Audit Committee annually engages Pep Boys’ independent registered public accounting firm and pre-approves, for the following fiscal year, their services related to the annual audit and interim quarterly reviews of Pep Boys’ financial statements and all reasonably related assurance and services.  All non-audit services are considered for approval by the Audit Committee on an as-requested basis by Pep Boys.  For fiscal 2009, the Audit Committee discussed the non-audit services with Deloitte & Touche LLP and management to determine that they were permitted under the rules and regulations concerning the independence of independent registered public accounting firms promulgated by the SEC and the American Institute of Certified Public Accountants.  Following such discussions, the Audit Committee determined that the provision of such non-audit services by Deloitte & Touche LLP was compatible with maintaining their independence.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction.

In June 2009, in accordance with our Committee Chair rotation policy, Ms. Atkins became the new chair of our Compensation Committee.  At the same time, due to changes in the makeup of our full Board, Messrs. Hotz and Mitarotonda were appointed to the Compensation Committee.  In recognition of this reconstitution of our Compensation Committee, regulatory changes to executive compensation disclosures and the heightened public scrutiny on executive compensation, the Compensation Committee commenced a full review of all of our executive compensation policies and practices.  This review resulted in certain modifications to our executive compensation policies and practices (effective commencing in fiscal 2010), which are designed to continue to align executive compensation with our short and long-term financial objectives and performance including, building shareholder value.  Enhancements made to our compensation polices and practices are detailed in this discussion and analysis under the subheading “ 2010 Update .”  Unless otherwise indicated, all other discussion and analysis relates to our compensation policies and practices in place during, and compensation paid in consideration of service rendered in, fiscal 2009.

Summary .

The compensation provided to the executives listed in the Summary Compensation Table, whom we refer to as our named executive officers, consists of base salaries, short-term cash incentives, long-term equity incentives, retirement plan contributions and health and welfare benefits.  Our executive compensation program for fiscal 2009 was designed to attract and retain highly-qualified individuals and to reward such individuals for their efforts in achieving our corporate objectives, and was based upon four principles:

·                   Performance-oriented.  Ensuring the alignment of shareholder, corporate and individual goals.

·                   Value-oriented. Ensuring optimum value creation, while considering tax effectiveness, accounting impact, overhang and dilution considerations.

·                   Fairness.   Ensuring compensation is equitable relative to an individual’s role and contribution.

·                   Corporate Ownership.  Building executive stock ownership to demonstrate commitment to and faith in the future of Pep Boys.

For fiscal 2009, all program components were designed to be competitive with our peer group, with the opportunity to earn more or less based on performance.  Our 2009 peer group consisted of the following competitors and comparably-sized specialty retailers: AutoZone, Advance Auto Parts, Monro Muffler & Brake, O’Reilly Automotive, Border’s, Cost Plus, Dick’s Sporting Goods, Hibbett Sports, Jo-Ann Stores, PetSmart and Williams-Sonoma.  The compensation mix as a percentage of total compensation was designed to reflect market competitiveness and job level responsibility.  The Compensation Committee recommended to the full Board the annual total compensation levels for all of the named executive officers (other than the Chief Executive Officer), based on recommendations made by the Chief Executive Officer and the Senior Vice President - Human Resources and in consultation with management consultants.  The Compensation Committee recommended to the full Board the annual total compensation level for the Chief Executive Officer, based on recommendations made by the Senior Vice President - Human Resources and the General Counsel and in consultation with our compensation consultant Towers Perrin.  To arrive at such recommendations, the chair of the Compensation Committee scheduled and developed the agenda for committee meetings in consultation with the Senior Vice President - Human Resources.  The Senior Vice President - Human Resources was responsible for developing appropriate materials for the Compensation Committee’s review and consideration, including recommendations as to the amount and form of executive compensation, and for reviewing these materials and recommendations with the chair of the Compensation

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Committee and our compensation consultants.  Our Chief Executive Officer had input on the recommendations to the Compensation Committee with respect to the compensation of our named executive officers (other than himself) and other officers.  The Compensation Committee considered, but was not bound to and did not always accept, management’s recommendations with respect to executive compensation.  The Senior Vice President — Human Resources, regularly, and the Chief Executive Officer, on occasion, attended committee meetings, excluding portions of meetings where their own compensation was discussed.

In connection with establishing compensation levels for fiscal 2009, Towers Perrin advised the Compensation Committee on the then current competitiveness of program design and award values.  The compensation consultant periodically attended committee meetings and also communicated with the chair of the Compensation Committee outside of meetings.  The compensation consultant worked with management (including the Chief Executive Officer, Senior Vice President - Human Resources and General Counsel) from time to time for purposes of gathering information and reviewing and providing input to management on recommendations, proposals and materials that management took to the Compensation Committee.  In fiscal 2009, Towers Perrin, who was engaged directly by the Compensation Committee, did not provide any additional services to the Company.

The Compensation Committee and the Board of Directors consider our overall compensation levels for the named executive officers to be reasonable and appropriate.

2010 Update .  Effective for fiscal 2010, the Compensation Committee adopted the following statement of Executive Compensation Philosophy to further define and detail the objectives of our executive compensation program:

Pep Boys’ executive compensation program is designed to:

·                   Enable Pep Boys to attract, retain, and motivate key executives who are critical for current and long-term success;

·                   Provide targeted compensation levels which are competitive as to base salary, annual incentives and long-term incentives, and which are reflective of current and/or expected future company performance levels;

·                   Support Pep Boys’ long-range business strategy;

·                   Establish a clear linkage between individual performance objectives and corporate or business unit financial performance objectives; and

·                   Align executive compensation with shareholder interests by linking long-term incentives to increasing shareholder value, utilizing performance metrics where appropriate.

In order to maintain a competitive total compensation program, Pep Boys compares itself with a custom peer group comprised of similar-sized companies in the automotive service and retail business as well as the broader hardlines retail industry.  In some cases, Pep Boys analyzes competitive practices in general industry for those positions that may be occupied by officers and executives recruited from outside of these industries.

Additional Considerations:

·                   Short term incentives will be structured in a manner which gives primary emphasis to meeting or exceeding the company’s annual financial objectives;

·                   Long-term incentives will be designed to reward performance over a multi-year time frame, with vesting of awards to occur over a corresponding time period;

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·                   The Compensation Committee may determine that payout on any short term bonus component will be contingent upon achievement of the annual budget.  This decision will be made annually, when targets are set for the ensuing year;

·                   If the long-term incentive plan includes more than one performance dimension, the Compensation Committee may decide to treat performance on one element as a prerequisite to payout on other goals (i.e. as a ‘qualifier’), whether or not threshold performance is achieved on those other dimensions;

·                   The Compensation Committee believes that requiring achievement of full target performance in order to trigger any payout under the annual incentive plan is generally inappropriate due to the risk of incenting poor decision making at the margin.   The Compensation Committee will annually set a “threshold” performance level which is below the target objective, at which point some amount of incentive compensation will be paid;

·                   From time to time the Compensation Committee may decide to grant a discretionary, individual short or long term incentive award based on a specific individual’s performance;

·                   In the spirit of encouraging over-performance against annual targets, performance above target may be rewarded disproportionately; i.e. marginal rewards for over-performance may exceed the marginal penalty for under-performance; and

·                   All payouts are subject to the discretion of the Compensation Committee even if targets are achieved.

Working with Towers Watson (formerly Towers Perrin), the Compensation Committee also revised our executive compensation peer group to provide an expanded set of data points from those companies with whom we compete for both customers and executive talent.   The peer group expanded from 11 to 17 companies and now consists of Aarons, Advance Auto Parts, Autozone, Big 5 Sporting Goods, Cabela’s, Conn’s, Dick’s Sporting Goods, Gander Mountain, hhgregg, Midas, Monro Muffler & Brake, O’Reilly Automotive, PetSmart, RadioShack, Rent-A-Center, Tractor Supply and West Marine.

Components of Compensation .

Base Salary .  The Compensation Committee reviews base salaries annually to reflect the experience, performance and scope of responsibility of the named executive officers and to ensure that the salaries are at levels that are appropriate to retain high quality individuals.  The Compensation Committee measures each named executive officer’s individual performance during the applicable fiscal year on a five-point scale (1-unacceptable; 2-requires improvement; 3-satisfactory; 4-commendable; 5-outstanding) in the areas of leadership, impact and functional skills, based upon such executive officer’s supervisor’s assessment.  An average performance value is then applied against the relative position of the named executive officer’s current salary within the market range for his position and the budgeted percentage increase for all officers as a group.  For example, a named executive officer with an average performance value of 5 whose current salary was at the lowest end of the market range for his position would receive the highest salary increase.  While a named executive officer with an average performance value of 1 whose current salary was at the highest end of the market range for his position would theoretically receive the lowest salary increase (in practice, such executive would not receive any increase and likely would be terminated).  These performance values are then applied against the relative position of the named executive officer’s current salary within the market range for his position and the budgeted percentage increase for all officers as a group.  Consistent with Pep Boys stated fiscal 2009 goal to return to profitability, no percentage increase for officers as a group was budgeted, and no named executive officer was awarded a merit-based increase to their base salary, for fiscal 2009.

2010 Update.   Towers Watson provided the Compensation Committee with peer group base salary data for its named executive officers, which was considered by the Compensation Committee when it determined whether or not to award merit-based increases to named executive officers for fiscal 2010.

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Short-Term Incentives .  The named executive officers participate in our Annual Incentive Bonus Plan, which is a short-term incentive plan designed to reward the achievement of pre-established goals.  In order to directly align our named executive officers’ short-term incentive compensation with that of our overall performance, these pre-established goals consist entirely of corporate (as opposed to individual) objectives.  For fiscal 2009, the named executive officers’ potential participation levels were as follows:

(a)      Amounts achieved above the “cash cap” percentage up to the “maximum” percentage are earned and paid out over the subsequent three years, assuming the executive remains employed by the Company.

For fiscal 2009, the corporate objectives, those financial measures deemed most important to Pep Boys’ overall success, and their weightings were as follows:

(a)  Calculated before unusual non-operating gains and losses and corporate bonus and retirement plan expense.
(b)  A customer satisfaction score that measures the likelihood of referring others to Pep Boys.  Payout on these objectives was conditioned upon achieving the Pre-Tax Income objective at or above threshold.

For fiscal 2009, the Compensation Committee established target levels that it believed were achievable.  However, it also believed, at the time the target levels were established, that the achievement of the targets was substantially uncertain.  The Compensation Committee retains full discretion to either award or withhold in its entirety, or increase or decrease the amount of, short-term incentive plan compensation regardless of the attainment, or failure to attain, the relevant performance goal(s) (except that short-term incentive plan compensation cannot be increased in the case of compensation meant to qualify as “performance based” compensation under Section 162(m) of the Internal Revenue Code).

For fiscal 2009, the Company achieved its corporate objectives in the areas of (i) pre-tax income at $43,859,000, (ii) service net promoter score at 67 and (iii) retail net promoter score at 75, resulting in an aggregate potential payout of 162% of target.  Accordingly, for fiscal 2009, the Compensation Committee approved short-term incentive plan compensation for Mr. Odell at 162%, Mr. Arthur at 121% and each of Messrs. Cirelli, Shull and Webb at 73% of their respective 2009 annual salaries.   Since the Company achieved its corporate objectives in excess of the Cash Cap, a portion of each named executive officer’s short-term incentive plan compensation will only be earned and paid out over the subsequent three years if the applicable named executive officer remains employed by the Company.  Mr. Odell declined $150,000 of his fiscal 2009 short-term incentive plan compensation that he was otherwise entitled to receive, which amount, at Mr. Odell’s request, was allocated to an account set aside by Pep Boys to provide associates’ children with educational scholarships.

2010 Update.  Having achieved the stated corporate objective of returning to profitability in fiscal 2009, the Compensation Committee recommended and the Board approved a wider range of short-term objectives for fiscal 2010.  The fiscal 2010 corporate objectives and weightings are as follows:

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(a)  Payouts may be increased or decreased by a factor up to 10% based upon net promoter scores.

(b)  Calculated before unusual non-operating gains and losses.

In addition, a further change was made to the Annual Incentive Bonus Plan which requires that any amounts achieved above the Cash Cap level by an officer who has not yet achieved his required share ownership level (see below) be placed into a Pep Boys Stock account, rather than a money market account.

Long-Term Incentives .  Compensation through equity grants directly aligns the interests of management with that of its shareholders.  The Stock Incentive Plan provides for the grant of stock options, at exercise prices equal to the fair market value (the mean between and the high and low quoted selling prices) of Pep Boys stock on the date of grant, and the grant of restricted stock units.

For the fiscal 2009 equity grants, the Compensation Committee established target grants designed to be competitive at market median of our peer group and to assist the named executive officers in achieving our established share ownership guidelines, described below.  In order to further incent our named executive officers to improve our operating performance, such target grants consisted solely of stock options that expire seven years from the date of grant and become exercisable in thirds on the first three anniversaries of the date of grant.  In fiscal 2009, in respect of fiscal 2008 performance, the Compensation Committee recommended, and the full Board approved, stock option grants to each of the named executive officers at their target levels.

2010 Update.  Working with Towers Watson, the Compensation Committee surveyed our peer group’s practices and emerging trends in long-term incentive compensation in an effort to further align this component of the compensation program with the interests of shareholders, namely building long-term shareholder value.   Accordingly, beginning with the fiscal 2010 equity grants, the annual long-term incentive grants will consist of 40% time-based vesting stock options and 60% performance-based vesting restricted stock units (RSUs).   The RSUs will only vest if predetermined objectives are achieved over a three-year period.  Two-thirds of the RSUs will be linked to return on invested capital and the one-third will be linked to total shareholder return measured against the new, 17 company peer group.

Share Ownership Guidelines .  We have had share ownership guidelines in place for our officers since 2004.  Under these guidelines, each officer was expected to acquire and then hold a multiple of their annual salary in Pep Boys shares.  For Senior Vice Presidents and above, the expected multiple was at least two times annual salary.  For Vice Presidents, the expected multiple was at least one times annual salary.  These share ownership guidelines could be satisfied through direct share ownership and/or by holding RSUs and officers were given five years to attain the required level of ownership.

2010 Update.  To be consistent with the changes made to the long-term incentive component of executive compensation and to better reflect current market norms, we revised our share ownership guidelines in fiscal 2010.   Each officer is now expected to hold shares equal to the following multiples of their annual salary: Chief Executive Officer 5x; Executive Vice President 3x; Senior Vice President 2x; and Vice President 1x.  The share ownership levels may be satisfied through direct share ownership and/or by holding unvested time-based RSUs and vested “in the money” stock options.  Officers have five years from the later of the establishment of the new higher guidelines for their position or their appointment as an officer to achieve their expected ownership levels.  If in a shortfall position, an officer may not sell Pep Boys Stock and all net after-tax shares acquired upon the exercise of stock options or the vesting of RSUs must be retained.

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Retirement Plans .  We maintain The Pep Boys Savings Plan, which is a broad-based 401(k) plan.  Participants make voluntary contributions to the savings plan, and we match 50% of the amounts contributed by participants under the savings plan, up to 6% of salary.  Due to low levels of participation in the savings plan, the plan historically did not meet the non-discriminatory testing requirements under Internal Revenue Code regulations.  As a result, the savings plan was required to make annual refunds of contributions made by our “highly compensated employees” (including the named executive officers) under the savings plan.  Beginning in 2004, we limited our officers’ contributions to the savings plan to ½% of their salary per year.  In order to assist our officers with their retirement savings, we adopted a non-qualified deferred compensation plan that allows participants to defer up to 20% of their annual salary and 100% of their annual bonus.  In order to further encourage share ownership and more directly align the interests of management with that of its shareholders, the first 20% of an officer’s bonus deferred into Pep Boys Stock is matched by us on a one-for-one basis with Pep Boys Stock that vests over three years.

In order to keep our executive compensation program competitive, we also maintain a Supplemental Executive Retirement Plan, or SERP, known as our Account Plan.  The Account Plan provides fixed annual contributions to a retirement account based upon the participant’s age and then current compensation in accordance with the following:

Provided, however, that for the first four years of a participant’s employment, their contribution percentage is limited to 10%.  As an inducement to hire Mr. Arthur, this limitation was waived.

In fiscal 2009, all named executive officers participated in the Account Plan.

Consistent with the Company’s objective of returning to profitability in fiscal 2009, all Company contributions to the savings plan and Account Plan (on account of all associates, including the named executive officers) that would otherwise have been made during calendar 2009 were conditioned upon the Company’s achievement of threshold performance against the pre-tax income objective established under the Annual Incentive Bonus Plan.  Because this objective was achieved, all such calendar 2009 contributions were made.

2010 Update.  In order to incentivize the achievement of incremental profitability, all Company contributions to the savings plan and Account Plan (in respect of all associates, including the named executive officers) that would otherwise be made during calendar 2010 are conditioned upon the Company’s achievement of a level of pre-tax income in fiscal 2010, which meets or exceeds 2009’s level.

Health and Welfare Benefits .  As one element of a market-competitive compensation package, we also provide our named executive officers with health and welfare benefits, including medical and dental coverage, life insurance valued at one times salary, long term disability coverage, an auto allowance and a tax/financial planning allowance.

2010 Update.   For fiscal 2010, the tax/financial planning allowance has been discontinued and the auto allowance will not be provided to newly hired officers.

Employment Agreements .  We have entered into Non-Competition and Change of Control Agreements with each of the named executive officers as described in “Employment Agreements with Named Executive Officers ” below.   The purpose of our Non-Competition Agreements is to prevent our named executive officers from soliciting our

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employees or competing with us if they leave Pep Boys of their own volition.  As consideration for such restrictive covenants, the Non-Competition Agreements provide for a severance payment to be made to a named executive officer if he is terminated by the Company without “cause.”  The purpose of the Change of Control Agreements is to provide an incentive for our officers to remain in our employment and continue to focus on the best interests of Pep Boys without regard to any possible change of control.

2010 Update.   Consistent with the newly-constituted Compensation Committee’s objective of reviewing all elements of our executive compensation plan, the Compensation Committee will undertake a review of our Non-Competition and Change of Control Agreements, in light of recent trends in executive compensation with respect to these types of agreements.  The Compensation Committee also plans to consider implementing a “clawback policy” that would seek to recoup certain incentive based compensation paid to any Officer in certain circumstances.

Tax and Accounting Matters.

We consider the tax and accounting impact of each type of compensation in determining the appropriate compensation structure. For tax purposes, annual compensation payable to the named executive officers generally must not exceed $1 million in the aggregate during any year to be fully deductible under Section 162(m) of the Internal Revenue Code.  The Stock Incentive Plan is currently structured with the intention that stock option grants will qualify as “performance based” compensation that is not subject to the $1 million deduction limit under Section 162(m).  At the 2010 Annual Meeting, the Company is seeking shareholder approval of the performance criteria to be utilized in awarding performance-based RSUs with the intention that they will similarly qualify.  In addition, bonuses paid to the named executive officers under the Annual Incentive Bonus Plan qualify as “performance based” compensation that is not subject to the $1 million deduction limit under Section 162(m).  Time-based RSUs, which had been granted in the past, generally do not qualify as “performance based” compensation for this purpose and are therefore subject to the $1 million deduction limit.  In order to compete effectively for the acquisition and retention of top executive talent, we believe that we must have the flexibility to pay salary, bonus and other compensation that may not be fully deductible under Section 162(m).  Accordingly, the Compensation Committee retains the authority to authorize payments that may not be deductible under Section 162(m) if it believes that such payments are in the best interests of Pep Boys and our shareholders.  All compensation paid to the named executive officers in fiscal 2009 was fully deductible.

Compensation Committee Report

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management.  Based upon our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Pep Boys’ Annual Report on Form 10-K for the fiscal year ended January 30, 2010 filed with the SEC.

This report is submitted by M. Shân Atkins, Robert H. Hotz and James A. Mitarotonda.

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Summary Compensation Table

                    The following table provides information regarding the fiscal 2009 compensation for Pep Boys’ CEO, CFO and the three other executive officers that received the highest compensation in fiscal 2009.  These executives are referred to herein as the “named executive officers.”  As explained in our Compensation Discussion and Analysis, the compensation provided to our named executive officers consists of base salaries, short-term cash incentives, long-term equity incentives, retirement plan contributions and heath and welfare benefits.

(a)              Represents the grant date fair value calculated under SFAS No. 123(R).

(b)             Represents the grant date fair value calculated under SFAS No. 123(R).

(c)              Represents amounts earned under our Annual Incentive Compensation Plan in the year reported, that were paid, or payable but deferred at the executive officer’s election, in the following fiscal year.  For fiscal 2009: $44,813; $16,134; $17,208; and $21,510 of such amounts attributable to Messrs. Arthur, Cirelli, Shull and Webb, respectively, will only be earned and paid out over the subsequent three years if the applicable named executive officer remains employed by the Company.  For fiscal 2009, the amount reflected for Mr. Odell does not include $150,000 that he was otherwise entitled to receive, but declined.  Such amount, at Mr. Odell’s request, was allocated to an account set aside by Pep Boys to provide associates’ children with educational scholarships.

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(d)    For fiscal 2009, consists of the following dollar amounts:

For fiscal 2009, for Mr. Arthur also includes $27,844 in relocation expenses.

(e)              Mr. Odell joined Pep Boys on September 17, 2007 as EVP — COO.  Mr. Odell was appointed interim CEO on May 24, 2008 and permanent CEO on September 22, 2008.

(f)                Mr. Arthur joined Pep Boys on May 1, 2008.

(g)             Mr. Shull joined Pep Boys on September 2, 2008.

(h)             Mr. Webb joined Pep Boys on September 10, 2007.

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Grants of Plan Based Awards

The following table shows (i) potential payouts under our short-term incentive program assuming specified pre-established corporate objectives were achieved in fiscal 2009 and (ii) the customary annual equity grants made at the beginning of fiscal 2009 in respect of fiscal 2008 service.

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Outstanding Equity Awards at Fiscal Year-End Table

The following table shows information regarding unexercised stock options and unvested RSUs held by the named executive officers as of January 30, 2010.