UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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THE BON-TON STORES, INC.

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THE BON uTON STORES, INC.

2801 East Market Street

York, PA 17402

www.bonton.com

 

May 4, 2010

 

Dear Shareholder:

 

You are cordially invited to attend our Annual Meeting of Shareholders to be held at the Company’s offices, 2801 East Market Street, York, Pennsylvania on Tuesday, June 15, 2010, beginning at 9:00 a.m. Enclosed is the official notice of meeting, the proxy statement, the proxy card and our 2009 Annual Report.

 

We are using the Securities and Exchange Commission rule that allows companies to furnish proxy materials over the internet. We are mailing to many of our shareholders a notice that the proxy materials, including our 2009 Annual Report, are available on our website rather than sending a paper copy of this proxy statement and our 2009 Annual Report. We believe this electronic proxy process will expedite shareholders’ receipt of proxy materials, conserve valuable natural resources and reduce the Company’s costs of printing and distributing proxy materials.

 

Your vote is important to us. Even if you plan to attend the meeting, please sign, date and return your proxy in the enclosed postage-paid envelope or vote by telephone or over the internet.

 

Sincerely,

 

Tim Grumbacher
Executive Chairman of the Board

THE BON uTON STORES, INC.
2801 East Market Street
York, PA 17402
www.bonton.com

 

NOTICE OF ANNUAL MEETING

 

The Annual Meeting of Shareholders of The Bon-Ton Stores, Inc. will be held on Tuesday, June 15, 2010, at 9:00 a.m., at the Company’s offices, 2801 East Market Street, York, Pennsylvania.

 

The purposes of the meeting are:

 

1. To elect an eight-member Board of Directors for a one-year term.

 

 

Shareholders who owned shares of our stock at the close of business on April 16, 2010 may attend and vote at the meeting. You may vote by telephone or over the internet or by mailing the proxy card in the enclosed postage-paid envelope. Any shareholder attending the meeting may vote in person, even if he or she has already returned a proxy card or voted by telephone or over the internet.

 

Robert E. Stern
Vice President,

General Counsel and Secretary

 

York, Pennsylvania

May 4, 2010

 

 

Please vote by telephone or over the internet as instructed on the enclosed proxy card or complete, sign and date the proxy card as promptly as possible and return it in the enclosed envelope. If you vote by telephone or over the internet, do not return your proxy card.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON JUNE 15, 2010

 

This proxy statement and the Company’s Annual Report for the fiscal year ended January 30, 2010 are both available in the Investor Relations section of the Company’s website at www.bonton.com.

 

TABLE OF CONTENTS

 

THE BON-TON STORES, INC.

 

We are providing this proxy statement to solicit your proxy for use at the Annual Meeting of Shareholders (the “meeting”) which will be held at 9:00 a.m. on Tuesday, June 15, 2010. The proxy materials, which consist of the Annual Report, the Notice of Annual Meeting, this proxy statement and the proxy card, are being made available to our shareholders on or about May 4, 2010.

 

The Company is furnishing proxy materials over the internet pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”). We are mailing to many of our shareholders a notice that the proxy materials are available on our website. The notice provides instructions on accessing the proxy materials and submitting your proxy on-line. The notice also provides instructions for requesting paper copies of the proxy materials, which are available free of charge.

 

We do not anticipate that any matters will be raised at the meeting other than those described in the notice. If any other matters come before the meeting, your proxies will be authorized to act in accordance with their best judgment.

 

When your proxy card is signed and returned, or you have submitted your proxy over the internet or by telephone, your shares will be voted in accordance with your instructions. If your proxy card is signed and returned without specifying choices, your shares will be voted “for” the Board nominees and “for” ratification of the appointment of KPMG LLP as independent registered public accounting firm.

 

You may revoke your proxy before its exercise by notifying the Secretary of the Company in writing, by delivering a properly executed, later-dated proxy card, by submitting your proxy again over the internet or by telephone or by voting in person at the meeting.

 

Your proxy is being solicited by the Board of Directors (the “Board”). We will bear the cost of this solicitation, including the charges of brokerage houses, nominees and fiduciaries in forwarding these materials to beneficial owners. This solicitation may be made in person, by telephone or by other means of communication by our directors, officers or employees.

 

References in this proxy statement to a year refer to our fiscal year, which is the 52 or 53 week period ending on the Saturday nearer to January 31 of the following calendar year (for example, a reference to 2009 is a reference to the fiscal year ended January 30, 2010).

 

Shareholders of record at the close of business on April 16, 2010 are entitled to vote at the meeting. At that time, there were 16,069,827 shares of common stock and 2,951,490 shares of Class A common stock outstanding. The common stock and the Class A common stock vote together on all matters. Holders of common stock are entitled to one vote per share and holders of Class A common stock are entitled to ten votes per share. There are no other classes of voting securities outstanding. In the election of directors, shareholders do not have cumulative voting rights.

 

The presence at the meeting, in person or by proxy, of persons entitled to cast a majority of the shareholder votes will constitute a quorum.

 

The eight nominees receiving a plurality of the votes cast (that is, the eight nominees receiving the greatest number of votes) will be elected. A proxy marked “withhold” with respect to the election of a director will not be voted as to the director indicated, but will be counted for purposes of determining whether there is a quorum.

 

Approval of any other matter requires the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes are counted to determine whether a quorum is present at the

meeting but are not counted as a vote in favor of or against a particular matter. A “broker non-vote” occurs when a holder of record for a beneficial owner does not vote on a particular matter because the holder of record does not have discretionary voting power as to that item and has not received voting instructions from the beneficial owner.

 

Please note that the rules that guide how most brokers vote your stock have changed. The rules provide that brokerage firms or other nominees may not vote your shares with respect to matters that are not “routine” under the rules. The rules were recently amended to provide that the election of directors is no longer a “routine” matter. Accordingly, most brokerage firms or other nominees may not vote your shares with respect to the election of directors without specific instructions from you as to how your shares are to be voted. The ratification and appointment of our independent registered public accounting firm for 2010 is considered a “routine” matter under the rules and, therefore, brokerage firms and other nominees have the authority under the rules to vote your unvoted shares with respect to this matter if you have not furnished voting instructions within a specified period of time prior to the meeting.

 

If you own common stock in your own name, you are an “owner of record.” This means you may direct the persons named as proxies how to vote your shares. If you fail to return your proxy, the proxies cannot vote your shares at the meeting.

 

You have four voting options:

 

 

If a broker, bank or other nominee holds your common stock for your benefit but not in your name, your shares are in “street name.” In that case, your bank, broker or other nominee will send you a voting instruction form to use in voting your shares. The availability of internet and telephone voting depends on their voting processes. Please follow the voting instruction form sent to you by your bank, broker or other nominee.

 

If you are a participant in The Bon-Ton Stores, Inc. Retirement Contribution Plan (the “401(k) Plan”), your proxy will incorporate all shares you own through the 401(k) Plan, assuming all your shares are registered in the same name. Your proxy will serve as a voting instruction for the trustee of the 401(k) Plan. If you own shares through the 401(k) Plan and you do not vote, the plan trustee will vote your shares in the same proportion as shares for which instructions were received from other shareholders under the 401(k) Plan.

 

The NASDAQ Stock Market listing standards provide that if more than 50% of the voting power in a company is held by an individual, group or another company, the company is a “controlled” company. Bon-Ton is a “controlled” company because Tim Grumbacher, Executive Chairman of the Board, is the beneficial owner of shares of common stock and Class A common stock entitled to vote more than 50% of the votes entitled to be cast at the meeting. Mr. Grumbacher has indicated that he will vote “for” each of the nominees for director and “for” ratification of the appointment of KPMG LLP. Consequently, the election of each nominee for director and the ratification of the appointment of KPMG LLP are assured.

 

This table shows owners of 5% or more of the Class A common stock or common stock as of March 12, 2010. Each person listed has sole voting power and sole investment power as to the shares indicated unless otherwise noted.

 

 

 

The holders of the Class A common stock have entered into an agreement granting Tim Grumbacher (or his personal representative) the right of first refusal to acquire any shares of Class A common stock proposed to be transferred.

 

This table shows, as of March 12, 2010, the holdings of our Chief Executive Officer, our Chief Financial Officer, the three other most highly compensated executive officers during 2009 (collectively, the “named executive officers”), each director, and all directors and executive officers as a group. Each person listed has sole voting power and sole investment power with respect to the shares indicated unless otherwise noted.

 

 

 

 

 

 

The Board proposes the following nominees for election as directors to hold office until the 2011 Annual Meeting of Shareholders and until their respective successors have been elected. Each is currently a director and has agreed to serve if elected. Should a nominee become unable or decline to serve before the meeting, the proxies may vote for a substitute recommended by the Governance and Nominating Committee of the Board, unless the Board reduces the number of directors.

 

LUCINDA M. BAIER — Director since 2007.  Age 45

Ms. Baier was Executive Vice President and Chief Financial Officer of Movie Gallery, Inc., a home entertainment specialty retailer that operates approximately 2,600 stores in the United States and Canada under the brands Movie Gallery, Hollywood Video and Game Crazy, until February 2010. In February 2010, Movie Gallery, Inc. filed for reorganization under Chapter 11 of the Bankruptcy Code. Prior to joining Movie Gallery, Inc. in July 2008, Ms. Baier served from 2006 as Chief Financial Officer of World Kitchen, LLC. From 2004 to 2005, Ms. Baier was President and Chief Operating Officer at Whitehall Jewelers, Inc., and from 2000 to 2004, she held senior management positions at Sears, Roebuck & Company.

 

BYRON L. BERGREN — Director since 2004.  Age 63

Mr. Bergren has been President and Chief Executive Officer of Bon-Ton since August 2004. Mr. Bergren joined Bon-Ton in November 2003 as Vice Chairman and served as President and Chief Executive Officer of Elder-Beerman from February 2002 through August 2004.

 

PHILIP M. BROWNE — Director since 2002.  Age 50

Mr. Browne has been Senior Vice President and Chief Financial Officer of Advanta Corp. since June 1998. Most recently, Advanta was one of the nation’s largest credit card issuers in the small business market. In November 2009, Advanta Corp. filed for reorganization under Chapter 11 of the Bankruptcy Code. Prior to joining Advanta Corp., Mr. Browne was a partner at Arthur Andersen LLP, where he was employed for more than 15 years.

 

SHIRLEY A. DAWE — Director since 2002.  Age 63

Ms. Dawe is a Corporate Director and President of Shirley Dawe Associates, Inc., a Toronto-based retail management consulting group, since 1986. Prior to 1986, she held progressively senior merchandising and marketing positions with the Hudson’s Bay Company, a Canadian national department store chain, for over 15 years. Ms. Dawe is a director of the National Bank of Canada and Birks & Mayors, Inc., a North American fine jewelry retail chain. From 1997 to 2005, she was a director of Oshkosh B’Gosh, Inc.

 

MARSHA M. EVERTON — Director since 2003.  Age 58

Ms. Everton has been President of Marsha Everton LLC, a York, Pennsylvania-based consulting firm, since September 2006. She was President of The Pfaltzgraff Co., a casual dinnerware manufacturer, from its acquisition by Lifetime Brands, Inc., a multi-channel retail company, in July 2005 to August 2006, and was President and Chief Executive Officer of The Pfaltzgraff Co. from January 2002 until its acquisition by Lifetime Brands. Ms. Everton was Vice President of The Pfaltzgraff Co. for more than ten years prior. Ms. Everton is also a director of the National Retail Federation Foundation and holds a Certificate of Director Education from the National Association of Corporate Directors.

 

MICHAEL L. GLEIM — Director since 1991.  Age 67

Mr. Gleim has been the Company’s Lead Director since January 1, 2010. He was Vice Chairman and Chief Operating Officer of Bon-Ton from December 1995 to February 2002. From 1991 to December 1995 he was Senior Executive Vice President of Bon-Ton, and from 1989 to 1991 he was Executive Vice President of Bon-Ton.

TIM GRUMBACHER — Director since 1967.  Age 70

Mr. Grumbacher has been Executive Chairman of the Board of Directors of Bon-Ton since February 2005. He served as Chairman of the Board of Directors of Bon-Ton from August 1991 to February 2005. He was Chief Executive Officer of Bon-Ton from 1985 to 1995 and from June 2000 to August 2004. From 1977 to 1989 he was President of Bon-Ton.

 

TODD C. MCCARTY — Director since 2007.  Age 44

Mr. McCarty became Senior Vice President, Human Resources of The New York Times Company effective December 31, 2009. Prior to that, Mr. McCarty served as Senior Vice President, Global Human Resources of Readers Digest Association, Inc. from March 2008 to December 2009. In August 2009, Readers Digest Association, Inc. filed for reorganization under Chapter 11 of the Bankruptcy Code. From 2005 to February 2008, he served as Senior Vice President — Human Resources of Rite Aid Corporation. Prior to joining Rite Aid in 2005, Mr. McCarty was Senior Vice President — Human Resources of Starwood Hotels & Resorts Worldwide, Inc. from 2000 to 2005.

 

The key documents that constitute our corporate governance framework are our:

 

 

Each of the committee charters and the Code of Ethical Standards and Business Practices is available on our website at www.bonton.com by clicking on “Investor Relations,” then “Corporate Governance.”

 

The Company maintains a Code of Ethical Standards and Business Practices (the “Code of Conduct”) that sets forth the Company’s policies and expectations. The Code of Conduct, which applies to every director, officer and employee, addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company’s assets. The Code of Conduct meets NASDAQ’s requirements for a code of conduct as well as the SEC’s definition of a code of ethics applicable to the Company’s senior officers.

 

The Board of Directors has determined that each of Messrs. Browne and McCarty and Mmes. Baier, Dawe and Everton is an “independent” director as that term is defined in the listing standards of the NASDAQ Stock Market. In determining independence, the Board of Directors carefully reviewed any possible related party transactions between the Company or any of its affiliates and each of the independent directors. From 2006 to July 2008, Ms. Baier was Chief Financial Officer of World Kitchen, LLC. In determining whether Ms. Baier is an independent director, the Board considered the Company’s transactions with World Kitchen and determined that purchases by the Company of merchandise from World Kitchen were made in arms-length transactions that were not material to either company. Further, the Board determined that Ms. Baier did not have any direct or indirect material interest in the transactions.

 

Since 2004, the Company has chosen to separate the roles of Chairman of the Board and Chief Executive Officer. The Company believes that this structure allows the Chairman of the Board to focus on leadership of the Board to ensure that the Board fulfills its duties and responsibilities while the Chief Executive Officer focuses on leadership of the Company, including its strategic direction, the quality of its management and continuous operational improvement to enhance shareholder value. In addition, beginning January 1, 2010, the Company has instituted the new position of Lead Director. The role of the Lead Director is described on page 11.

 

During 2009, the Board of Directors held 13 meetings and took action by unanimous consent without a meeting once. No director attended fewer than 75% of the total number of meetings of the Board and committees on which he or she served while in office.

 

The Board has an Audit Committee, a Human Resources and Compensation Committee, a Governance and Nominating Committee and an Executive Committee. Beginning in May 2008 the Board also established, on a temporary basis, the Ad Hoc Leadership Transition Committee. The primary functions of each committee, its members, the number of times the committee met during 2009, and certain other information regarding each committee, are described below.

 

Audit Committee

 

The current members of the Audit Committee are Philip M. Browne (Chair), Lucinda M. Baier and Todd C. McCarty. The Board has determined that each of Mr. Browne and Ms. Baier is an “audit committee financial expert” as defined by SEC rules and the listing standards of the NASDAQ Stock Market. The Audit Committee is comprised entirely of “independent” directors under applicable SEC rules and NASDAQ Stock Market listing standards and operates under a charter that was adopted by the Board of Directors. This charter is posted in the Investor Relations section of the Company’s website at www.bonton.com.

 

The Audit Committee appoints and establishes the compensation for the Company’s independent registered public accounting firm and approves in advance all engagements with the independent registered public accounting firm to perform audit or non-audit services. The Audit Committee oversees (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the qualification, independence and performance of the Company’s independent registered public accounting firm and (4) the performance of the Company’s internal audit function. The Audit Committee also oversees the financial reporting processes of the Company and the audits of the Company’s financial statements. To assist it in carrying out its responsibilities, the Audit Committee is authorized to retain the services of independent advisors.

 

The Audit Committee met eight times during 2009.

 

Human Resources and Compensation Committee

 

The members of the Human Resources and Compensation Committee (referred to in this proxy statement as the “HRCC”) are Marsha M. Everton (Chair), Shirley A. Dawe and Todd C. McCarty. The HRCC is comprised entirely of “independent” directors, as defined by the listing standards of the NASDAQ Stock Market, and all members are “non-employee directors” under applicable SEC rules and “outside directors” under applicable Internal Revenue Service Rules. The HRCC operates under a charter that was adopted by the Board of Directors. This charter is posted in the Investor Relations section of the Company’s website at www.bonton.com.

 

The HRCC reviews and evaluates the Company’s overall compensation strategy to ensure that it promotes shareholder interests, supports the Company’s strategic objectives and provides for appropriate rewards and incentives for the Company’s management and employees. The HRCC reviews, evaluates and provides recommendations to the Board regarding the plans, policies and programs relating to the compensation of the Company’s executive officers, the general compensation policies of the Company, succession planning, management development, and termination policies and arrangements. In addition, the HRCC reviews and approves the structure of the Company’s bonus plans, administers the Company’s stock option plans and oversees the Company’s retirement, defined benefit and health and welfare plans.

At the end of each year, the HRCC evaluates the performance of the Executive Chairman of the Board, the President and Chief Executive Officer, and the other executive officers of the Company with respect to approved goals and objectives, and establishes the compensation levels for the executive officers, including base pay, annual incentive compensation, long-term incentive plan participation, entrance into an agreement regarding employment and any special or supplemental benefits. The HRCC also establishes compensation levels for any newly-hired executive officer. (See “Compensation Discussion and Analysis” on page 17 for additional discussion of the elements of executive officer compensation.) The compensation of the President and Chief Executive Officer is also reviewed by the full Board of Directors. The HRCC annually reviews with the President and Chief Executive Officer the performance of the other executive officers and approves their compensation for the next year. The HRCC establishes the corporate goals under the Company’s Cash Bonus Plan and has the authority to determine whether the requirements for receipt of a bonus should be waived.

 

The HRCC may delegate its authority to a subcommittee comprised solely of its members. To assist it in carrying out its responsibilities, the HRCC is authorized to retain the services of advisors. During this past year, the HRCC engaged Hewitt Associates to provide counsel on executive compensation matters. The nature and scope of services rendered by Hewitt Associates was:

 

 

The HRCC did not direct Hewitt Associates to perform the above services in any particular manner or under any particular method. The HRCC has the final authority to hire and terminate the consultant, and the HRCC evaluates the consultant periodically. In 2010, Hewitt Associates spun off a portion of its executive compensation practice into an independent entity named Meridian Compensation Partners, LLC. To maintain consistent process and representation, the HRCC has retained Meridian as its independent executive compensation consultant.

 

(See “Compensation Discussion and Analysis” on page 17 for additional discussion of the processes and procedures for the consideration and determination of executive officer compensation.)

 

During 2009, the HRCC met seven times and took action by unanimous consent without a meeting twice.

 

Governance and Nominating Committee

 

The current members of the Governance and Nominating Committee (referred to in this proxy statement as the “Governance Committee”) are Michael L. Gleim (Chair) and Marsha M. Everton. Mr. Gleim is not an “independent” director as set forth under the NASDAQ Stock Market listing standards. As discussed above, the Company is a “controlled company” and, as such, the Company may elect, and has elected, not to have a Governance Committee comprised solely of independent directors. Mr. Gleim provides the Board with valuable insight with respect to both the governance of the Company and the nominations process, and, therefore, the Board believes that he should continue as a member, and Chair, of the Governance Committee.

 

The Governance Committee reviews, develops and makes recommendations to the Board of Directors regarding the Company’s governance processes and procedures. It also recommends candidates for election to fill vacancies on the Board, including renominations of members whose terms are due to expire. The Governance Committee is also responsible for making recommendations to the Board regarding the compensation of its non-employee members. The Governance Committee operates under a charter that was adopted by the Board of Directors. This charter is posted in the Investor Relations section of the Company’s website at www.bonton.com.

The Governance Committee met five times during 2009.

 

Executive Committee

 

The members of the Executive Committee are Tim Grumbacher (Chair), Shirley A. Dawe and Michael L. Gleim. The Executive Committee has the authority to act in place of the Board of Directors on specified matters.

 

The Executive Committee has the following responsibilities: to propose the Board agenda for each year and to refine the agenda prior to each Board meeting, to keep the members of the Board informed of pertinent issues that arise between regularly scheduled quarterly Board meetings and to act as a sounding board for the Company’s Chief Executive Officer when appropriate. The Executive Committee Charter under which the Executive Committee operates was adopted by the Board and is posted in the Investor Relations section of the Company’s website at www.bonton.com.

 

During 2009, the Executive Committee met nine times and took action by unanimous consent without a meeting once.

 

Ad Hoc Leadership Transition Committee

 

The Ad Hoc Leadership Transition Committee, which reviews, develops and makes recommendations to the Board of Directors regarding Chief Executive Officer succession, was established by the Board in May 2008 and completed its initial charge in November 2008. At the behest of the Board, the Committee was reconstituted in December 2009. The members of the Ad Hoc Leadership Transition Committee, prior to December 2009, were Shirley A. Dawe (Chair), Lucinda M. Baier and Marsha M. Everton, and after that date were Ms. Dawe (Chair), Philip M. Browne and Todd C. McCarty. The Ad Hoc Leadership Transition Committee met once during 2009.

 

As of January 1, 2010, the Board elected Michael L. Gleim as Lead Director of the Board. The primary duties of the Lead Director are, among other things, to:

 

 

The Board as a whole has responsibility for risk oversight, with reviews of certain areas conducted by relevant Board committees that report on their findings to the Board. The oversight responsibility of the Board and the Board committees is facilitated by management reporting processes designed to provide information to the Board concerning the identification, assessment

and management of critical risks and management’s risk mitigation strategies and practices. These areas of focus include compensation, financial (including accounting, reporting, credit, liquidity and tax), operational, legal, regulatory, compliance, environmental, political and strategic risks. The full Board (or the appropriate Board committee), in concert with the appropriate management within the Company, reviews management reports to formulate risk identification, risk management and risk mitigation strategies. When a Board committee initially reviews management reports, the Chairman of the relevant Board committee briefs the full Board on the specifics of the matter at the next Board meeting. This process enables the Board to coordinate the risk oversight role, particularly with respect to risks spanning more than one operational area.

 

The Governance Committee considers any appropriate recommendations for candidates for the Board. Any candidate recommended for the Board shall, at a minimum, possess a background that includes a solid education, sufficient business, professional or academic experience and the requisite reputation, character, integrity, skills, judgment and temperament and such other relevant characteristics, which, in the Governance Committee’s view, have prepared him or her for dealing with the multi-faceted financial, business and other issues that confront a board of directors of a corporation with the size, complexity, reputation and success of the Company. The Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. Candidates for Board membership are reviewed in the context of the current Board composition, the operating requirements of the Company and the long-term interests of the Company’s shareholders. The Governance Committee seeks to ensure that backgrounds and qualifications of the Company’s directors, as a group, provide a significant breadth of experience, knowledge and abilities that will assist the Board in fulfilling its responsibilities to shareholders.

 

Although the Governance Committee does not have a formal written policy regarding diversity in composition of the Board, the Governance Committee does consider the contribution of a candidate to the overall diversity of the Board. Diversity is considered broadly and includes variety in personal and professional backgrounds, experience and skills, geographic location, as well as differences in gender, race, ethnicity and age.

 

Each candidate for Board membership commits to participate fully in Board activities, including active membership on at least one Board committee and attendance at, and participation in, meetings of the Board and the committees of which he or she is a member.

 

When considering whether candidates for Board membership have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively, the Governance Committee focuses on the information provided in each of the Director’s individual biographies set forth on pages 6 — 7. The Governance Committee also carefully reviews the other factors used in selecting nominees to the Board as discussed above. In particular, with regard to Ms. Baier and Mr. Browne, the Governance Committee considered their significant experience, expertise and background with regard to accounting and financial matters, as well as their expertise in financial and strategic planning, regulatory compliance reporting and corporate financing. With regard to Ms. Dawe, the Governance Committee considered the broad perspective brought by her experience in consulting and providing strategic advisory services to clients in retail and other industries as well as her executive management and corporate governance expertise. With regard to Ms. Everton, the Governance Committee considered her substantial management and operations expertise gained through her experience as chief executive officer for a multi-channel retail company as well as her broad knowledge of compensation and corporate governance issues. With regard to Mr. McCarty, the Governance Committee considered his many years of experience in the field of human resources, specialized knowledge which is invaluable in assisting the Board of Directors in its formulation of compensation strategies and objectives. With regard to Messrs. Bergren, Gleim and Grumbacher, the Governance Committee considered their numerous years of executive leadership with the Company and management experience in the

department store industry as well as their expertise in strategic planning, business expansion, financing and corporate governance.

 

The Governance Committee will consider shareholder recommendations for candidates for the Board from any shareholder who has been a continuous record owner of at least 3% of the common stock of the Company for at least one year prior to submission of the recommendation and who provides a written statement that the shareholder intends to continue share ownership through the date of the meeting at which directors are to be elected. Any such shareholder recommendation should be sent to the Governance and Nominating Committee, c/o Office of the Secretary, The Bon-Ton Stores, Inc., P.O. Box 2821, York, Pennsylvania 17405. No shareholder recommendations have been received since the 2009 shareholder meeting.

 

In addition, the Governance Committee considers potential candidates recommended by current directors, Company officers, employees and others. When appropriate, the Governance Committee may retain executive recruitment firms to assist in identifying suitable candidates. The Governance Committee screens all potential candidates in the same manner regardless of the source of the recommendation.

 

In re-nominating incumbent directors to continue for an additional term, the Governance Committee determines whether the incumbent director is willing to stand for re-election. If so, the Governance Committee evaluates his or her performance in office to determine suitability for continued service, taking into consideration the value of continuity and familiarity with the Company’s business.

 

 

The Company has adopted a policy that encourages Board members in the York area to attend the annual meeting of shareholders. Four of the eight members of the Board attended the 2009 Annual Meeting of Shareholders.

 

 

Any shareholder who wishes to communicate with the Board of Directors, or any individual director, may do so by directing correspondence which prominently displays the fact that it is a shareholder-board communication, to such director or directors, c/o Office of the Secretary, The Bon-Ton Stores, Inc., P.O. Box 2821, York, Pennsylvania 17405. Until and unless a procedure is adopted by a majority of the independent members of the Board whereby it may be deemed unnecessary or inappropriate to relay certain shareholder communications to the appropriate parties, all shareholder communications will be relayed to the intended director or directors.

 

 

Messrs. Grumbacher and Bergren are employees of the Company and are not paid any separate compensation for serving as directors. They are the only employees who serve as directors.

 

In 2009, each non-employee director received both cash compensation and stock compensation comprised of the following:

 

 

One of the Company’s non-employee directors, currently Lucinda M. Baier, serves as the Board’s representative on the committee that oversees the Company’s Retirement Contribution Plan. For her service on this committee, Ms. Baier receives $1,250 for each meeting attended.

As of January 1, 2010, the Board elected Mr. Gleim as Lead Director of the Board. For his service as Lead Director, Mr. Gleim receives a supplemental fee of $150,000 per year. Mr. Gleim was previously paid a fee under a consulting agreement with the Company. That consulting agreement expired December 31, 2009.

 

Directors may defer all or any part of their cash compensation into additional RSUs.

 

The following table presents the compensation provided by the Company during 2009 to each non-employee director:

 

 

 

 

28,863 held by Ms. Baier

28,940 held by Mr. McCarty

39,246 held by each of Mmes. Dawe and Everton and Messrs. Browne and Gleim

 

 

In December 2007, the Company adopted guidelines requiring each director to maintain an equity stake in the Company equal to three times the annual cash retainer paid to the director. This links the directors’ interests with those of other shareholders. Shares actually owned and RSUs that are time-based count towards the equity ownership requirement. Each director is required to achieve this share ownership level by the later of five years after joining the Board or five years after adoption of the guideline. Accordingly, each non-employee director standing for election in 2010 must meet this guideline by December 2012.

 

All of the non-employee directors standing for election currently satisfy the guideline.

 

THE BOARD OF DIRECTORS RECOMMENDS

VOTING “FOR” THE ELECTION OF

THE NOMINEES LISTED ABOVE

 

The Audit Committee has recommended ratification of its appointment of KPMG LLP (“KPMG”), which served as our independent registered public accounting firm in 2009, to serve as our independent registered public accounting firm for 2010.

 

In making its selection of KPMG, the Audit Committee considered whether the non-audit services provided by KPMG are compatible with maintaining KPMG’s independence.

 

FEES PAID TO KPMG

 

 

 

 

The Audit Committee is responsible for the pre-approval of all audit services and non-audit services performed by the Company’s independent registered public accounting firm. All of the fees shown in the chart above were pre-approved by the Audit Committee. The Audit Committee may delegate to one of its members the authority to grant such pre-approvals, and any such approvals are presented to the full Audit Committee at its next scheduled meeting.

 

A representative of KPMG is expected to be present at the meeting, will have the opportunity to make a statement if he or she so desires, and will be available to respond to appropriate questions from shareholders.

 

THE BOARD OF DIRECTORS RECOMMENDS
VOTING “FOR” RATIFICATION OF THE APPOINTMENT
OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee is comprised of three independent directors. The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting, and rely, without independent verification, on the information provided to them and on the representations made to them by management and the Company’s independent registered public accounting firm.

 

The role of the Audit Committee is to assist the Board of Directors in its general oversight of the integrity of the Company’s consolidated financial statements and compliance with legal and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation and oversight of the Company’s independent registered public accounting firm, KPMG. Management is responsible for the preparation, presentation and integrity of the Company’s consolidated financial statements, for its accounting and financial reporting principles and for the establishment and effectiveness of internal controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations. KPMG is responsible for performing an independent audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board and expressing an opinion as to the conformity of such consolidated financial statements with accounting principles generally accepted in the United States and an opinion on the effectiveness of internal control over financial reporting based on criteria established in the Internal Control-Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission. KPMG has free access to the Audit Committee to discuss any matter it deems appropriate.

 

The Audit Committee has reviewed and discussed with management and KPMG the audited consolidated financial statements, management’s assessment of the effectiveness of the Company’s internal control over financial reporting and KPMG’s evaluation of the Company’s internal control over financial reporting. Management represented to the Audit Committee that the Company’s audited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee has discussed with KPMG the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees.”

 

KPMG also provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence and the Audit Committee discussed KPMG’s independence with them.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

 

Members of the Audit Committee:

 

Philip M. Browne, Chairperson

Lucinda M. Baier

Todd C. McCarty

 

Overview

 

This Compensation Discussion and Analysis primarily addresses the compensation of the Company’s Chief Executive Officer, the Chief Financial Officer and the three other highest paid executive officers. These five executive officers are referred to as the “named executive officers” throughout this proxy statement:

 

 

Our Compensation Philosophy and Objectives

 

The HRCC’s philosophy is to directly link an increasing portion of an executive officer’s compensation with corporate performance and in alignment with shareholder value and to decrease an executive officer’s base salary as a percentage of his total compensation as his scope of responsibility increases. The following are the objectives that guide the HRCC’s decisions regarding compensation:

 

 

Based on the foregoing objectives, the HRCC has structured annual and long-term executive compensation to provide incentives to executive officers to achieve the business goals set by the Company and reward them for achieving such goals. In addition, in structuring compensation, especially performance-based compensation, the HRCC conducts a risk assessment to ensure that the Company’s compensation program does not encourage unreasonable risk.

 

Share Ownership Guidelines

 

In December 2007, the Company adopted share ownership guidelines for our executive officers. The guidelines help ensure that our executive officers maintain an equity stake in the Company, and by doing so, appropriately link their interests with those of other shareholders. Shares beneficially owned, time-based restricted shares, time-based restricted share units and vested stock options with an exercise price below the market price count towards the equity ownership requirement. Outstanding non-vested stock options, performance-based restricted shares and

performance-based restricted stock units do not count towards the requirement. Executive officers are required to achieve these share ownership levels within five years of becoming an executive officer, or by December 2012 for those who were executive officers at the time we adopted the guidelines. The guidelines are:

 

 

Share ownership requirements for fiscal 2009 were measured based on the average price of the Company’s common stock during the first six months of fiscal 2007. Share ownership requirements are reviewed annually by the HRCC.

 

Each of the named executive officers currently owns shares sufficient to meet the requirement.

 

Role of the HRCC in Compensation Decisions

 

The HRCC’s responsibilities include the following:

 

 

Role of Management in Compensation Decisions

 

The Chief Executive Officer annually prepares a review of his direct reports, including the named executive officers and other key executives, excluding the Executive Chairman, compared to pre-determined, HRCC-approved performance metrics. The total compensation for the respective executives, the performance appraisals and the recommendations made by the Chief Executive Officer are presented for HRCC approval.

 

Other members of management also support the HRCC in its work. Management assists the Chair of the HRCC in establishing the agendas for HRCC meetings and preparing materials for the review of HRCC members in advance of each meeting. With respect to most compensation and benefit matters, including compensation of the named executive officers excluding the Executive Chairman and the President and Chief Executive Officer, management provides recommendations to the HRCC. The HRCC relies on management and, as appropriate, the advice of outside experts to evaluate employee performance and to make recommendations for salary and bonus levels as well as for grants of stock options or awards of restricted stock. Management also works with the HRCC to

establish performance goals under the Company’s performance-based annual incentive compensation program. Members of management who provide this support include Byron L. Bergren; Dennis R. Clouser, Executive Vice President, Human Resources, Corporate Procurement & Operations and Information Services; and J. Gregory Yawman, Divisional Vice President and Associate General Counsel, each of whom generally attend meetings of the HRCC. Each of them is excused from a meeting during deliberation and approval of matters regarding his own compensation and from regularly scheduled HRCC executive sessions.

 

Benchmarking

 

The HRCC compares salary, annual incentive compensation and long-term equity incentive values against various retail companies (the “Compensation Peer Group”). In 2009, the following retail companies were included in the Compensation Peer Group:

 

 

The companies in the Compensation Peer Group have revenues ranging from $761 million to $87 billion. Because of the variance in size among these companies, Hewitt Associates assists the Company in preparing a regression analysis that adjusts the compensation data for differences in company sales. Regression analysis is a statistical technique that establishes a “line of best fit” or “trend line” between variables. In the context of compensation, regression analysis is used to determine the relationship between company size (typically defined by revenue) and pay level. This enables organizations to use a peer group that includes companies both larger and smaller than the organization in question and, through regression analysis, “size adjust” the compensation data to reflect the organization’s revenue. This adjusted value is used as the basis of comparison of compensation between the Company and the companies in the Compensation Peer Group.

 

The HRCC has currently determined that it is appropriate to deliver total compensation at approximately the 50th percentile of the Compensation Peer Group for each element of compensation. However, as the Company competes with many larger companies for the best executive-level talent, the HRCC may decide it is in the best interests of the Company and its shareholders to provide compensation for selected positions that exceeds the targeted compensation levels depending on the circumstances, including the Company’s needs, market factors, the executive’s experience, the contribution of the executive to the Company, and in the HRCC’s view, the positive impact the executive may have on the Company as a whole.

 

In addition, in 2009, the HRCC reviewed proxy compensation data from specific retailers in its benchmarking effort with respect to compensation of the Chief Executive Officer. These retailers included Kohl’s Corporation; J.C. Penney Company, Inc.; Macy’s, Inc.; Dillard’s Inc.; Belk Inc. and

Nordstrom, Inc. These companies were chosen because they are retailers with competitive assortments and a similar customer base as the Company. The HRCC recognizes that most of these retailers are larger in size than the Company, but the HRCC also believes that the Company competes directly with them for executive talent. The HRCC reviewed the compensation practices of, and the compensation packages provided by, these retailers. The data also provided context for ongoing deliberations of the HRCC.

 

Components of Named Executive Officer Compensation

 

The principal components of compensation for the named executive officers are base salary, performance-based annual cash incentive compensation, long-term equity incentive compensation, perquisites, and retirement and other benefits. The HRCC seeks to achieve a mix of these components such that total compensation is competitive in the marketplace. The HRCC also assesses the risks relating to performance-based compensation. The HRCC is transitioning the Company’s compensation program from its historical short-term orientation, which focused on base salary and annual incentive compensation, to a program with an increasing emphasis on long-term equity incentive compensation to better align the interests of the named executive officers with the interests of shareholders in long-term growth. The HRCC does not have a pre-established policy for allocation between cash and non-cash or short-term and long-term incentive compensation. Rather, it evaluates the actual mix against market data and attempts to provide each named executive officer with a balanced compensation package that addresses retention and competitive requirements.

The following table shows the components of named executive officer compensation:

 

 

The HRCC has reviewed a summary, or “tally sheet,” with all components of compensation of the named executive officers, including base salary, performance-based cash incentive compensation, long-term equity incentive compensation, accumulated realized and unrealized stock option and restricted stock gains, the dollar value to the executive and cost to the Company of all perquisites and other benefits and obligations under the Company’s supplemental executive retirement plans. The HRCC did not use the tally sheet in making individual pay decisions, but rather reviewed it to ensure the total package met the needs of both the Company and the executives. The HRCC believes the level of compensation of the Company’s named executive officers reflects the Company’s performance and total compensation to each of the named executive officers is appropriate.

Base Salary

 

The base salaries of the Company’s named executive officers are determined by evaluating their roles and responsibilities and compensation data compared with the Compensation Peer Group. The base salary of each named executive officer is reviewed annually. If appropriate, the Chief Executive Officer recommends salary increases for each of the named executive officers other than himself and the Executive Chairman of the Board. The HRCC’s decision to increase base salary for any named executive officer is based on the HRCC’s compensation philosophy and takes into specific account the level of responsibility of the named executive officer, the Company’s performance, the named executive officer’s individual performance and the named executive officer’s compensation compared to similarly situated executives in the Compensation Peer Group.

 

Minimum base salaries for Tim Grumbacher, Byron L. Bergren, Anthony J. Buccina and Stephen R. Byers were established in employment agreements approved by the HRCC and, with respect to Mr. Bergren’s and Mr. Grumbacher’s employment agreements, the Board of Directors at the recommendation of the HRCC. These minimum base salaries were based on a variety of factors, including market data from the Compensation Peer Group and an evaluation of each person’s capacity to positively affect the Company’s performance. The HRCC decided that the current base salaries were properly aligned with competitors and more emphasis should be placed on variable compensation linked to corporate performance.

 

2009 was a challenging year for the Company and virtually all retail companies. In determining executive compensation for 2009, the HRCC anticipated the continuing difficult economic environment and did not approve base salary increases for the named executive officers during the year.

 

Performance-Based Annual Incentive Compensation

 

The Company has an annual incentive Cash Bonus Plan (the “Cash Bonus Plan”) in which the named executive officers participate. Awards of cash bonuses under this plan are variable, and the payout of any cash bonus under the plan is dependent upon the achievement of pre-determined Company performance goals which are pre-approved by the HRCC.

 

For 2009, the Cash Bonus Plan for the named executive officers focused on the achievement of two or three of the following goals:

 

 

The HRCC assigns goals and weightings for each named executive officer depending on the capacity of the named executive officer to influence the goal and the named executive officer’s area of responsibility. Payment of any portion of a bonus under the Cash Bonus Plan is dependent upon the Company’s achievement of at least the “threshold” level of net income. If the threshold level of net income is not achieved, there is no bonus payout under any of the goals for that year. In addition, if the net income “threshold” is attained, but the “threshold” performance for a goal other than net income is not attained, the portion of the bonus attributable to such other goal is forfeited.

The HRCC reviewed and established competitive “threshold,” “target” and “maximum” payout potentials under the Cash Bonus Plan for each named executive officer. The following table sets forth (1) the approximate payouts, stated as a percentage of base salary, which could be earned by each named executive officer under the Cash Bonus Plan for 2009, and (2) the Cash Bonus Plan performance goals and the weighting of such goals for each named executive officer for 2009:

 

 

The HRCC reviewed performance data as of the end of 2009 and determined the extent to which the targeted levels of performance were achieved. The amount of annual incentive compensation paid for 2009 to each named executive officer is reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 28.

 

In addition to bonuses that may be awarded under the Cash Bonus Plan, a cash bonus may be awarded at the discretion of the HRCC for extraordinary individual achievement or for other reasons, such as a signing bonus upon joining the Company or an executive extending the term of his employment agreement. No extraordinary bonuses were awarded to any of the named executive officers for 2009.

 

Long-Term Equity Incentive Compensation

 

Another component of named executive officer compensation is long-term incentive compensation in the form of stock options, time-based and performance-based restricted stock and time-based and performance-based RSUs. The HRCC annually reviews the performance and compensation of the named executive officers to determine whether annual grants of options or awards of restricted stock or RSUs are warranted. Option grants and awards of restricted stock and RSUs are made periodically at the discretion of the HRCC but generally are made within the first quarter of each fiscal year. Grants and awards are made on the recommendation of the Company’s Chief Executive Officer, primarily to reward significant individual achievement and to motivate and retain key talent. The proportion of long-term equity incentive compensation in relation to base salary is a function of the named executive officer’s level of responsibility and capacity to enhance shareholder value.

 

The HRCC has decided that grants made to the Company’s Chief Executive Officer should be directly aligned with the short- and long-term performance of the Company. In addition, the Chief Executive Officer and the other named executive officers are awarded restricted stock as a retention tool. The other named executive officers are also granted options to align their interests with those of shareholders.

 

The exercise price of options granted by the HRCC is usually set at the closing price of the Company’s common stock on the NASDAQ Stock Market on the date of the HRCC meeting at which the grant is approved. In certain instances, the HRCC has set the exercise price at the closing price on

a grant date in the future to allow time to notify the grantee of the option grant or to set the grant date and exercise price on the same date as the starting date of a new employee. If the HRCC sets a grant date and option exercise price based on the closing price on the NASDAQ Stock Market on a date in the future, the HRCC confirms that management does not anticipate any material announcements during the period from the HRCC meeting until such future date.

 

Pursuant to the amendment of Mr. Bergren’s employment agreement on March 18, 2009, the HRCC granted Mr. Bergren an award of 400,000 time-based restricted stock shares, 100,000 of which vested on February 1, 2010, 100,000 of which will vest on February 1, 2011, and 200,000 of which will vest on February 5, 2012. In addition, Mr. Bergren received 400,000 performance-based restricted shares, 200,000 of which were subject to vesting based on achievement of Company performance goals for 2009, and 100,000 of which are subject to vesting based on achievement of Company performance goals for each of 2010 and 2011. Ninety percent of the 2009 performance-based restricted shares (180,000 shares) vested based upon the achievement of performance targets for 2009. Awards of performance-based restricted stock reflect the HRCC’s objectives to link an increasing portion of compensation to Company performance and to align the interests of key executives with those of shareholders.

 

Pursuant to respective employment agreements dated February 1, 2009, the HRCC granted Mr. Buccina and Mr. Byers an award of 100,000 and 70,000 time-based restricted shares, respectively, all of which vest on April 30, 2011, and 100,000 and 70,000 performance-based restricted shares, respectively, half of which were subject to vesting based on achievement of Company performance goals for 2009, and half of which are subject to vesting based on achievement of Company performance goals for 2010. Ninety percent of the 2009 performance-based restricted shares (45,000 and 31,500 shares for Mr. Buccina and Mr. Byers, respectively) vested based upon the achievement of performance targets for 2009. Awards of performance-based restricted stock reflect the HRCC’s objectives to link an increasing portion of compensation to Company performance and to align the interests of key executives with those of shareholders.

 

During 2009, the HRCC granted Mr. Plowman an award of 50,000 time-based restricted shares, all of which vest on April 27, 2012.

 

The aforementioned awards are reflected in the “Grants of Plan-Based Awards” table on page 30.

 

Perquisites and Other Benefits

 

The Company provides the named executive officers with perquisites and other benefits that the Company and the HRCC believe are reasonable and consistent with the Company’s objective to motivate and retain superior employees for key positions. The HRCC periodically reviews the levels of perquisites and other benefits provided to named executive officers. Perquisites primarily consist of supplemental medical benefits, automobile allowances, relocation benefits and reimbursement of legal fees incurred in connection with the negotiation of employment agreements. Perquisites traditionally have not constituted significant portions of an executive’s compensation.

 

The named executive officers also participate in benefit programs available to employees generally, such as health and dental insurance, life insurance and long-term disability insurance.

 

Retirement Benefits

 

The named executive officers participate in The Bon-Ton Stores, Inc. Retirement Contribution Plan, a tax-qualified defined-contribution plan. Under this plan, employees are able to contribute a portion of their annual salaries on a pre-tax basis and the Company may make discretionary retirement contributions to each eligible employee’s account. In past years, the Company generally has matched 30% of the first 6% of eligible compensation that is contributed to the plan. No contribution was made in 2009 for 2008. For 2009, a 30% matching contribution was made by the

Company in March 2010. In addition to the matching contribution, the Company has provided a discretionary retirement contribution to each eligible employee in past years. No discretionary retirement contribution was made for 2008 (in 2009) or for 2009 (in 2010). For 2009, each named executive officer received a matching contribution of $4,556. These amounts are included in the Summary Compensation Table on page 28.

 

In connection with an acquisition in March 2006, the Company assumed the Carson Pirie Scott & Co. Pension Plan (the “Carson’s Pension Plan”). The Carson’s Pension Plan is a qualified defined-benefit cash-balance plan in which the only named executive officer who participates is Anthony J. Buccina. The Carson’s Pension Plan was frozen to new participants in 2002 and all future benefit accruals were frozen in May 2006.

 

Additionally, in connection with the same acquisition, a subsidiary of the Company assumed the Carson Pirie Scott & Co. Supplemental Executive Retirement Plan (the “Carson’s SERP”). The Carson’s SERP is a nonqualified, unfunded supplemental retirement plan. The Carson’s SERP was terminated by the Company effective December 31, 2008. The only named executive officer who participated in the Carson’s SERP was Anthony J. Buccina. Pursuant to an employment agreement entered into on January 23, 2009, in the first quarter of 2009 the Company paid Mr. Buccina $2,931,821, the actuarial equivalent present value of his interest in the SERP. Additional detail on these plans can be found under the heading “Pension Benefits” on page 32.

 

Employment Agreements and Payments Upon Termination or Change in Control

 

As discussed more fully below, the Company has entered into employment agreements with Tim Grumbacher, Byron L. Bergren, Anthony J. Buccina and Stephen R. Byers. The decisions to enter into employment agreements and the terms of those agreements were based on the Company’s need to motivate and retain talent for the long-term growth of the Company.

 

Following Mr. Grumbacher’s resignation as Chief Executive Officer in 2004, the HRCC determined it would be beneficial to the Company to continue Mr. Grumbacher’s employment as Executive Chairman of the Board, and both Mr. Grumbacher and the HRCC desired to evidence the arrangement in a written agreement. In December 2007, the HRCC approved an extension of Mr. Grumbacher’s term as Executive Chairman by two years, through January 2010. In January 2010, the HRCC approved a further extension of his term as Executive Chairman to December 31, 2010. The HRCC’s key objectives in further extending Mr. Grumbacher’s term as Executive Chairman included: (1) retaining Mr. Grumbacher’s experience and expertise to maximize the Company’s potential as a larger retailer; and (2) maintaining stability of leadership and strategic focus.

 

The Company entered into an employment agreement with Mr. Bergren following the Company’s acquisition of The Elder-Beerman Stores Corp in 2003. The term of Mr. Bergren’s employment agreement originally ran through 2008. In July 2007, the Company and Mr. Bergren entered into an amendment of Mr. Bergren’s employment agreement that, among other matters, extended Mr. Bergren’s term as Chief Executive Officer through January 31, 2009 and provided for additional long-term incentive compensation. His employment agreement, as amended, provided that Mr. Bergren was to perform an important role with the Company from January 31, 2009 through February 5, 2010. In August 2008, the Company asked Mr. Bergren to continue in the role of Chief Executive Officer through February 5, 2010. On March 18, 2009, the Company entered into an amendment of Mr. Bergren’s employment agreement that provides for Mr. Bergren to serve as President and Chief Executive Officer through January 31, 2011 and to serve in an important role to be determined by the Board of Directors from February 1, 2011 through February 5, 2012. In addition, the Board has agreed to nominate Mr. Bergren as a member of the Board of Directors for the period through February 5, 2012. The HRCC’s key objectives in entering into the July 2007 and March 2009 amendments of Mr. Bergren’s employment agreement included: (1) retaining Mr. Bergren’s experience and expertise to maximize the Company’s potential as a larger retailer; (2) maintaining stability of leadership and strategic focus; and (3) facilitating the Company’s

succession planning process and enabling Mr. Bergren to assist the HRCC and the Board of Directors with this process.

 

With respect to Mr. Buccina, the HRCC and management of the Company determined his services and merchandising expertise would be critical following the acquisition of Carson’s to ensure a smooth integration and to lead the development and execution of a comprehensive merchandising strategy for the combined Company. With respect to Mr. Byers, the HRCC and Company management determined it would be in the best interests of the Company to enter into an employment agreement to retain Mr. Byers due to his significant level of experience in retail, his direct experience with the Carson’s stores, and for the long-term growth of the Company. In January 2009, the Company entered into new employment agreements with both Mr. Buccina and Mr. Byers, extending the term of their respective employment relationships with the Company.

 

The material terms of the employment agreements with the named executive officers are described under the heading “Summary of Employment Agreements with Named Executive Officers” beginning on page 34.

 

Under the employment agreements, the Company has agreed to provide severance compensation in the event of a termination, change in control or other triggering event. In addition, Keith E. Plowman, with whom the Company does not have an employment agreement, is a participant in the Company’s severance plan. These arrangements are designed to promote stability and continuity of senior management through a change in control of the Company. Stock options and restricted stock will generally vest upon a change in control. The Company adopted “single trigger” treatment for equity awards to retain, focus and motivate executives during change in control discussions and to be competitive with current market practice in order to attract the best talent. However, any cash severance benefits require a “double trigger” (including the executive’s separation from the Company under specified circumstances) for payment.

 

Information on these arrangements for the named executive officers is provided under the heading “Potential Payments Upon Termination or Change in Control” on page 39.

 

Tax Deductibility of Executive Compensation

 

Section 162(m) of the Internal Revenue Code (the “Code”) limits the deductibility of compensation in excess of $1,000,000 paid to the Chief Executive Officer and certain executive officers unless specified criteria are satisfied. The HRCC reviews and considers the deductibility of executive compensation under Section 162(m), and has generally designed the Company’s compensation program in a manner that permits compensation to be deductible. However, grants of restricted stock, when and if those grants vest for tax purposes, may create compensation for the grantee that is subject to the limitations on deductibility under Section 162(m). The HRCC may award non-deductible compensation when it believes such action would be in the best interests of the Company.

 

The HRCC has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the HRCC recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

The Human Resources and Compensation Committee

 

Marsha M. Everton, Chair

Shirley A. Dawe

Todd C. McCarty

 

The HRCC has determined that the Company’s compensation program does not encourage excessive and unnecessary risk taking. The Company designs the individual components of its compensation programs to encourage appropriate risk-taking to maximize long-term business potential, while avoiding undue risk that does not align with short- and long-term shareholder objectives. This design encourages the Company’s managers to remain focused on both the short- and long-term operational and financial goals of the Company.

 

 

 

 

 

 

Stock options and awards of restricted stock generally vest over a number of years. Any vested options are usually forfeited 90 days after termination of the recipient’s employment, and any unvested shares of restricted stock and unvested options are usually forfeited upon termination of employment.

 

The table below provides information regarding grants of options and awards of restricted stock made during 2009 to the named executive officers under the Company’s Stock Incentive Plan.