Item
5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
(e)
Annual Cash Incentive
Program
In establishing The Talbots, Inc. (the
“Company” or “Talbots”) fiscal 2008 incentive compensation program for the
Company’s management, including all executive officers, the Compensation
Committee of the Board of Directors (the “Committee”) worked extensively with
its independent compensation consultant and the Company’s CEO, CFO and Senior
Vice President, Human Resources. The new annual incentive program is
intended: (i) to better align incentive compensation with achieving
both significant near-term as well as longer-term operating changes as part of
Talbots strategic initiatives and plan to improve profitability and sustainable
long-term profitable growth, and (ii) to recognize the substantial changes made
in the Company’s senior management team during the fiscal 2007 second
half.
For fiscal 2008, and likely for fiscal
2009 and fiscal 2010, the Committee established two components of the Company’s
annual cash incentive program: (i) a modified Management Incentive
Plan (MIP) from that historically used and (ii) a new Turnaround Incentive Plan
(TIP) for fiscal 2008 (and which is also currently expected to apply for each of
fiscal 2009 and 2010) applicable to particular executives, including named
executive officers. For fiscal 2008, total target annual cash
incentive opportunity under this program will be weighted approximately 60% MIP
and 40% TIP.
If “target” performance is achieved for
fiscal 2008 under the annual cash incentive program (MIP and TIP), 100% of the
target incentive award opportunity for the year would be earned (that is, the
individual’s “incentive participation rate”) with 60% of the amount earned
attributable to the MIP and 40% of the amount earned attributable to the
TIP.
The individual “incentive participation
rates” under the annual cash incentive program (MIP and TIP) were reviewed for
market competitiveness by the independent compensation consultant and are
generally intended to be market median. For fiscal 2008, the new
individual participation rates, which replace the former award levels under the
former annual cash incentive program, were established as follows:
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CEO
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120%
of base salary
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COO
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75%
of base salary
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EVP
level
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50%
- 75% of base salary
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SVP
level
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35%
- 50% of base salary
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The Committee established the maximum
annual cash award opportunity under the annual incentive program (MIP and TIP)
at 200% of the “target” incentive award opportunity if the “maximum” performance
objectives are achieved. The Committee believed that this potential
maximum annual incentive award, if achieved against the maximum performance
targets set by the Committee, would provide added incentive to achieve maximum
performance goals and would likely generate material incremental value to
Talbots shareholders.
(i)
MIP component of annual cash
incentive program.
The MIP portion of the fiscal 2008 annual
cash incentive program will have three objective performance
goals: (1) income from ongoing operations; (2) return on invested
capital (ROIC); and (3) individual/business unit objectives. The
prior MIP program had included a separate multiplier tied to a subjective
grading of individual performance; this multiplier has been
eliminated.
(ii)
TIP component of annual cash
incentive program
. The new TIP portion of the annual cash
incentive program applies to certain senior executives, including named
executive officers. The TIP was specially created to address the
expected transition period under the Company’s strategic initiatives and
turnaround plan. The Committee determined that for this transition
period, the combination of the on-going MIP (above) and the TIP, would better
align annual incentive compensation with achievement against the turnaround
objectives and strategic initiatives. The objective performance goals
under the TIP for fiscal 2008 are based on realized cost savings expected to be
generated from particular strategic initiatives being implemented by the
Company.
Long-Term
Equity Incentive Program
The Committee also reviewed the
Company’s long-term equity incentive program for fiscal 2008 and determined that
the equity program would consist of: (i) time-based restricted stock
awards for all participants, including all named executive officers
and (ii) stock options for senior executive levels.