UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

PANERA BREAD COMPANY
3630 South Geyer Road, Suite 100
St. Louis, Missouri 63127

 

April 18, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Panera Bread Company to be held at 10:30 a.m., Central Time, on Thursday, May 19, 2011 at the Four Seasons Hotel, 999 North 2nd Street, St. Louis, MO 63102.

At the Annual Meeting, you will be asked (i) to elect two directors to our Board of Directors, (ii) to approve, in a non-binding vote, the compensation of our named executive officers, (iii) to conduct an advisory vote on the frequency of future executive compensation advisory votes, (iv) to amend our certificate of incorporation to increase the number of authorized shares of capital stock and (v) to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm. Our Board recommends that you vote for each of the director nominees nominated by our Board, that you vote in favor of an annual non-binding stockholder vote to approve the compensation of our named executive officers and that you vote for all other proposals to be presented at the Annual Meeting.

 

We hope you will be able to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting, it is important that your shares are represented. Therefore, if you do not plan to attend the Annual Meeting, we urge you to promptly vote your shares on the Internet, by telephone or by completing, signing, dating and returning the enclosed proxy card in accordance with the instructions.

 

On behalf of all of our team members and directors, I thank you for your continuing support and confidence.

 

Sincerely,

 

 

Ronald M. Shaich

Executive Chairman

 

 

 

TABLE OF CONTENTS

 

PANERA BREAD COMPANY
3630 South Geyer Road, Suite 100
St. Louis, Missouri 63127

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 19, 2011

 

The 2011 Annual Meeting of Stockholders of Panera Bread Company will be held on Thursday, May 19, 2011 at 10:30 a.m., Central Time, at the Four Seasons Hotel, 999 North 2nd Street, St. Louis, MO 63102, to consider and act upon the following matters:

 

1. To elect two directors to our Board of Directors, each to serve for a term ending in 2014, or until his successor has been duly elected and qualified;

 

2. To approve, in a non-binding vote, the compensation of our named executive officers;

 

3. To recommend, in an advisory vote, the frequency of future executive compensation advisory votes;

 

4. To approve an amendment to our certificate of incorporation to increase the number of shares of capital stock authorized for issuance from 87,000,000 shares to 124,500,000 shares;

 

5. To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 27, 2011; and

 

6. To transact such other business as may properly come before the Annual Meeting and any adjournment thereof.

 

Stockholders of record on our books at the close of business on April 5, 2011 are entitled to notice of and to vote at the meeting.

 

Whether or not you plan to attend the Annual Meeting personally, please vote your shares on the Internet, by telephone or by completing, signing, dating and returning the enclosed proxy as soon as possible in the envelope provided. You may obtain directions to the location of the meeting by contacting our Investor Relations Coordinator at (800) 301-5566. If you attend the meeting and prefer to vote at that time, you may do so.

 

By Order of the Board of Directors,

 

 

Scott G. Blair

Secretary

 

Dated: April 18, 2011

PANERA BREAD COMPANY

3630 South Geyer Road, Suite 100

St. Louis, Missouri 63127

 

PROXY STATEMENT

 

We are first mailing this proxy statement and the accompanying proxy card to stockholders on or about April 18, 2011 in conjunction with the mailing of our 2010 Annual Report to Stockholders. Our Board of Directors, or Board, solicits the accompanying proxy for use at our 2011 Annual Meeting of Stockholders to be held at 10:30 a.m., Central Time, on May 19, 2011, and any adjournment or postponement thereof. We will pay the cost of soliciting proxies. Our directors, officers and employees may assist in the solicitation of proxies by mail, telephone, facsimile, Internet and personal interview without additional compensation. We have also engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies by mail, telephone, facsimile or Internet, or in person, for a fee of approximately $12,500, plus out-of-pocket expenses relating to the solicitation.

 

The agenda for the 2011 Annual Meeting of Stockholders will include the following proposals:

 

 

When you return your proxy properly signed (or vote on the Internet or by telephone), your shares will be voted by the persons named as proxies in accordance with your directions. You are urged to specify your choices on the enclosed proxy card. If you sign and return your proxy without specifying choices, your shares will be voted in accordance with our Board’s recommendations set forth above with respect to Proposals 1-5 and in the discretion of the persons named as proxies in the manner they believe to be in our company’s best interests as to other matters that may properly come before the Annual Meeting.

 

You may vote either in person, at the Annual Meeting or by proxy. To vote by proxy, you must select one of the following options:

 

 

 

 

 

 

 

 

Telephone and Internet voting ends at 11:59 p.m., Eastern Time, on May 18, 2011. If you vote in a timely manner by the Internet or telephone, you do not have to return your proxy card for your vote to count. Please be aware that if you vote on the Internet, you may incur Internet access charges for which you will be responsible.

 

Whether or not you expect to be present in person at the Annual Meeting, you are requested to complete, sign, date and return the enclosed form of proxy or to vote by telephone or Internet. The shares represented by your proxy will be voted in accordance with your instructions. If you attend the Annual Meeting, you may vote by ballot. If you want to vote in person at the Annual Meeting and you own your shares through a custodian, broker or other agent, you must obtain a proxy from that party in its capacity as owner of record for your shares and bring the proxy to the Annual Meeting.

 

Shares represented by proxies on the enclosed proxy card will be counted in the vote at the Annual Meeting only if we receive your proxy card by May 18, 2011. Proxies submitted by the Internet or by telephone will be counted in the vote at the Annual Meeting only if they are received by 11:59 p.m., Eastern Time, on May 18, 2011.

 

Your properly completed proxy/voting instruction card will appoint Jeffrey W. Kip and Scott G. Blair as proxy holders, or your representatives, to vote your shares in the manner directed therein by you. Mr. Kip is our Senior Vice President, Chief Financial Officer and Mr. Blair is our Senior Vice President, Chief Legal Officer, General Counsel and Secretary. Your proxy permits you to direct the proxy holders to:

 

 

All shares entitled to vote and represented by properly completed proxies received prior to the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with your instructions. If you do not indicate how your shares are to be voted on a matter, the shares represented by your properly completed proxy will be voted “FOR” the election of both of the nominees for director (Proposal 1), “FOR” approval of the compensation of our named executive officers (Proposal 2), for “Choice 1” to recommend that a non-binding stockholder vote to approve the compensation of our executive officers occur every year (Proposal 3),

“FOR” the amendment of our certificate of incorporation (Proposal 4) and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal 2011 (Proposal 5).

 

You may revoke your proxy at any time before its use by casting a new vote on the Internet or by telephone or by delivering to us a duly executed proxy or written notice of revocation bearing a later date. If you execute a proxy but are present at the Annual Meeting, and you wish to vote in person, you may do so by revoking your proxy. Shares represented by valid proxies that are received in time for use at the Annual Meeting and not revoked at or prior to the Annual Meeting, will be voted at the Annual Meeting.

 

Our Board has fixed April 5, 2011 as the record date for the Annual Meeting. You are entitled to vote (in person or by proxy) at the Annual Meeting if you were a stockholder of record on the record date. On the record date, we had 29,014,985 shares of Class A Common Stock outstanding (each of which entitles its holder to one vote), and 1,389,087 shares of Class B Common Stock outstanding (each of which entitles its holder to three votes). Unless indicated otherwise, we refer to our Class A Common Stock and Class B Common Stock in this proxy statement collectively as our “Common Stock.” Holders of Common Stock do not have cumulative voting rights.

 

For all proposals on the agenda for the Annual Meeting, the holders of a majority in interest of the combined voting power of the Common Stock issued and outstanding entitled to vote must be present in person or by proxy to constitute a quorum. Shares represented by all proxies received, including proxies that withhold authority for the election of a director and/or abstain from voting on a proposal, as well as broker non-votes (as described below), will be counted toward establishing a quorum.

 

For Proposal 1, each of the directors will be elected by a plurality vote of the combined voting power of the shares of Common Stock present at the Annual Meeting in person or by proxy and entitled to vote. Shares for which the vote is properly withheld will not be counted toward the nominee’s achievement of a plurality. Broker non-votes, if any, will not be counted toward a nominee’s achievement of a plurality and will have no effect on the election of the directors.

 

The affirmative vote of the holders of a majority of the votes cast will be required for: approval of the advisory vote on executive compensation (Proposal 2); approval of one of the three frequency options under the advisory vote on the frequency of future executive compensation advisory votes (Proposal 3); approval to amend our certificate of incorporation to increase the number of authorized shares of capital stock (Proposal 4); and approval of the ratification of the selection of the independent registered public accounting firm (Proposal 5). Abstentions and broker non-votes will not be counted as votes in favor of, or with respect to, these proposals and will also not be counted as votes cast. Accordingly, abstentions and broker non-votes will have no effect on the outcome of these proposals. With respect to Proposal 3, if none of the three frequency options receives the vote of the holders of a majority of the votes cast, we will consider the frequency option (one year, two years or three years) receiving the highest number of votes cast by stockholders to be the frequency that has been recommended by our stockholders. However, as described in more detail in Proposal 3, because this proposal is non-binding, our Board may decide that it is in our best interest or the best interest of our stockholders to hold future executive compensation advisory votes more or less frequently.

 

If you hold shares of Common Stock through a broker, your broker may under certain circumstances vote your shares if you do not timely return your proxy. Under applicable rules, brokers have discretion to vote customers’ unvoted shares on routine matters but cannot vote such shares on non-routine matters. We believe that Proposal 5, ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered

public accounting firm for fiscal 2011, is the only matter that will be considered a routine matter for this meeting. Shares for which a broker cannot vote on a particular matter because the broker does not have discretionary voting authority to do so are considered “broker non-votes” on that matter.

 

Our certificate of incorporation provides for the classification of our Board into three classes, each having as nearly an equal number of directors as possible. The terms of service of the three classes are staggered so that the term of one class expires each year.

 

Our Board currently consists of seven directors. Class I consists of Fred K. Foulkes and Ronald M. Shaich, each with a term ending in 2011. Class II consists of Domenic Colasacco and Thomas E. Lynch, each with a term ending in 2012. Class III consists of Charles J. Chapman, III, Larry J. Franklin and William W. Moreton, each with a term ending in 2013.

 

At each annual meeting of stockholders, directors are elected for a full term of three years to continue or succeed those directors whose terms are expiring. Our Board has nominated Messrs. Foulkes and Shaich for re-election at the 2011 Annual Meeting as Class I directors, each to serve until 2014.

 

Director Qualifications

 

The following table and biographical descriptions provide information as of March 31, 2011 relating to each director and director nominee, including his age and period of service as a director of our company; his committee memberships; his business experience during the past five years, including directorships at other public companies; his community activities; and the other experience, qualifications, attributes or skills that led our Board to conclude he should serve as a director of our company.

 

 

Our Board has long believed that good corporate governance is important to ensure that our company is managed for the long-term benefit of our stockholders. This section describes key corporate governance guidelines and practices that we have adopted. Complete copies of the corporate governance guidelines, committee charters and code of conduct described below are available on the Corporate Governance page of the About Us — Investor Relations section of our website at www.panerabread.com. Alternatively, you can request a copy of any of these documents by writing to our Investor Relations Coordinator, Panera Bread Company, 3630 South Geyer Road, Suite 100, St. Louis, Missouri 63127.

 

Our Board has adopted Corporate Governance Principles and Practices to assist it in the exercise of its duties and responsibilities and to serve the best interests of our company and our stockholders. These principles, which provide a framework for the conduct of our Board’s business, provide that:

 

 

Under the applicable rules of the Nasdaq Stock Market, or Nasdaq, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board has determined that none of Messrs. Chapman, Colasacco, Foulkes, Franklin or Lynch has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under Rule 5605(a)(2) of the Nasdaq Marketplace Rules.

 

The process followed by the Committee on Nominations and Corporate Governance to identify and evaluate director candidates includes requests to Board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates, and interviews of selected candidates by members of the Committee on Nominations and Corporate Governance and the Board.

 

Criteria and Diversity

 

In considering whether to recommend any particular candidate for inclusion in the Board’s slate of recommended director nominees, the Committee on Nominations and Corporate Governance applies the criteria specified in our Corporate Governance Principles and Practices. These criteria include the candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interest and ability to act in the interests of stockholders. The Committee on Nominations and Corporate Governance does not assign specific weights to particular criteria and no particular criterion is a prerequisite for any prospective nominee.

 

Our Board does not have a formal policy with respect to diversity, but our Corporate Governance Principles and Practices provide that an objective of Board composition is to bring to our company a variety of perspectives and skills derived from high quality business and professional experience. Our Board recognizes its responsibility to ensure that nominees for our Board possess appropriate qualifications and reflect a reasonable diversity of personal and professional experience, skills, backgrounds and perspectives, including those backgrounds and perspectives with respect to age, gender, culture, race and national origin. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the Board to promote our strategic objectives and to fulfill its responsibilities to our stockholders.

 

The director biographies on pages 5 to 9 indicate each nominee’s experience, qualifications, attributes and skills that led the Board to conclude that he should continue to serve as a member of our Board. Our Board believes that each of the nominees has had substantial achievement in his professional and personal pursuits, and possesses the background, talents and experience that our Board desires and that will contribute to the best interests of our company and to long-term stockholder value.

 

Stockholder Nominations

 

Stockholders may recommend individuals to the Committee on Nominations and Corporate Governance for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our Common Stock for at least a year as of the date such recommendation is made, to the Committee on Nominations and Corporate Governance, c/o Corporate Secretary, Panera Bread Company, 3630 South Geyer Road, Suite 100, St. Louis, Missouri 63127. Assuming that appropriate biographical and background material has been provided on a timely basis, the Committee on Nominations and Corporate Governance will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

Stockholders also have the right under our by-laws to directly nominate director candidates, without any action or recommendation on the part of the Committee on Nominations and Corporate Governance or the Board, by following the procedures set forth under “Stockholder Proposals for 2012 Annual Meeting.” If the Board determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included in our proxy statement and proxy card for the next annual meeting. Otherwise, candidates nominated by stockholders in accordance with the procedures set forth in the by-laws will not be included in our proxy statement and proxy card for the next annual meeting.

 

Our Board met four times during the fiscal year ended December 28, 2010, which we refer to as fiscal 2010, either in person or by teleconference. During fiscal 2010, each of our directors attended all of the Board meetings and at least 75% of the meetings of the committees on which he then served.

 

Our Corporate Governance Principles and Practices provide that our directors are expected to attend the annual meeting of stockholders. Messrs. Chapman, Colasacco, Franklin, Lynch, Moreton and Shaich attended the 2010 Annual Meeting of Stockholders.

 

While our by-laws and Corporate Governance Principles and Practices do not require that our Chairman and Chief Executive Officer positions be separate, our Board believes that having separate positions is the appropriate leadership structure for the company at this time. We believe that Mr. Shaich is best suited to serve as Executive Chairman of our Board because he is the director most familiar with our business and industry. Mr. Shaich has been an integral part of the leadership of our Board and company since its inception, and his strategic vision has guided our growth and performance. Mr. Moreton has held the position of Chief Executive Officer since May 2010. Separating these positions allows our Chief Executive Officer to focus on running the business, while allowing our Executive Chairman to lead the Board in its fundamental role of providing advice to and oversight of management. In addition, as Executive Chairman, Mr. Shaich has the opportunity to spend a substantial amount of his time on long-term projects to maintain and evolve the company’s competitive positioning. Mr. Shaich is also engaged in medium-term initiatives designed to grow transactions and customer affinity. In addition, Mr. Shaich serves as one of our primary public spokespersons with the media and leads the Panera/St. Louis Cares Community Cafes effort.

 

As Mr. Shaich is not an independent director, our Board elected Mr. Colasacco as Lead Independent Director, a position to which he was initially elected in January 2008 and to which he was re-elected in 2009 and 2010. The Lead Independent Director Position Duty Statement adopted by our Board is posted on the Corporate Governance page of the About Us — Investor Relations section of our website, www.panerabread.com.

 

Pursuant to our Corporate Governance Principles and Practices and the Lead Independent Director Position Duty Statement, the Lead Independent Director is responsible for, among other matters:

 

 

 

Our Board believes that its leadership structure is appropriate because it strikes an effective balance between strategy development and independent leadership and management oversight in the Board process.

 

Our Board has established three standing committees — the Audit Committee, the Compensation and Management Development Committee and the Committee on Nominations and Corporate Governance, each of which operates under a charter that has been approved by our Board. Current copies of each committee’s charter are posted on the Corporate Governance page of the About Us — Investor Relations section of our website, www.panerabread.com.

 

Our Board has determined that all of the members of each of its three standing committees are independent as defined under the rules of Nasdaq, including, in the case of all members of the Audit Committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Audit Committee

 

The responsibilities of our Audit Committee include:

 

 

The members of the Audit Committee are Mr. Colasacco (Chair), Dr. Foulkes and Mr. Franklin. Our Board has determined that Mr. Colasacco is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. The Audit Committee met nine times during fiscal 2010.

Compensation and Management Development Committee

 

The responsibilities of our Compensation and Management Development Committee, which we refer to as the Compensation Committee, include:

 

 

The processes and procedures followed by our Compensation Committee in considering and determining executive and director compensation are described below under the heading “Executive and Director Compensation Processes.”

 

The members of the Compensation Committee are Dr. Foulkes (Chair) and Messrs. Colasacco and Franklin. The Compensation Committee met four times during fiscal 2010.

 

Committee on Nominations and Corporate Governance

 

The responsibilities of the Committee on Nominations and Corporate Governance include:

 

 

The processes and procedures followed by the Committee on Nominations and Corporate Governance in identifying and evaluating director candidates are described above under the heading “Director Nomination Process.”

 

The members of the Committee on Nominations and Corporate Governance are Mr. Franklin (Chair), Mr. Chapman and Dr. Foulkes. The Committee on Nominations and Corporate Governance met four times during fiscal 2010.

 

Our Board administers its risk oversight function directly and through its Audit Committee and receives regular reports from members of senior management on areas of material risk to the company, including operational, financial, legal and regulatory, and strategic and reputational risks. As part of its charter, our Audit Committee regularly discusses with management our major risk exposures, their potential financial impact on Panera and the steps we take to manage them. In addition, our Compensation and Management Development Committee assists the Board in fulfilling its oversight responsibilities with respect to the management and risks arising from our compensation policies and programs. Our Committee on Nominations and Corporate Governance assists the Board in fulfilling its oversight responsibilities with respect to the management of risks

associated with board organization, membership and structure, succession planning for our directors and executive officers and corporate governance.

 

Our Board will give appropriate attention to written communications that are submitted by stockholders, and will respond if and as appropriate. The Lead Independent Director and the Chairman of the Committee on Nominations and Corporate Governance, with the assistance of our Chief Legal Officer, are primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the other directors as they consider appropriate.

 

Under procedures approved by a majority of the independent directors, communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that our Chief Legal Officer considers to be important for the directors to know. In general, communications relating to corporate governance and corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters that are duplicative communications.

 

Stockholders who wish to send communications on any topic to the Board should address such communications to: Board of Directors, c/o Corporate Secretary, Panera Bread Company, 3630 South Geyer Road, Suite 100, St. Louis, Missouri 63127.

 

Additionally, we have established a confidential process for reporting, investigating and resolving employee and other third party concerns related to accounting, auditing and similar matters under the Sarbanes-Oxley Act of 2002. Stockholders may confidentially provide information to one or more of our directors by contacting a representative at our Ethics Hotline who will forward the information to the appropriate director. The Ethics Hotline is operated by an independent, third party service. Within the United States and Canada, the Ethics Hotline can be reached by dialing toll-free (888) 840-4151.

 

We have adopted a written Standards of Business Conduct, a code of ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the Standards of Business Conduct on the Corporate Governance page of the About Us — Investor Relations section of our website, which is located at www.panerabread.com. In addition, we intend to post on our website all disclosures that are required by law or Nasdaq’s listing standards concerning any amendments to, or waivers from, any provision of the Standards of Business Conduct.

 

Messrs. Colasacco and Franklin and Dr. Foulkes served on the Compensation Committee during fiscal 2010. None of the members of the Compensation Committee had interlocking or other relationships with other boards or with us during fiscal 2010 that require disclosure under the proxy rules and regulations promulgated by the SEC.

 

Certain information regarding our executive officers as of March 31, 2011, who are not also directors, is set forth below. Generally, our Board elects our officers annually, although the Board or an authorized committee of the Board may elect or appoint officers at other times.

 

 

John M. Maguire.  Mr. Maguire has served as Chief Operating Officer, and subsequently co-Chief Operating Officer, since March 2008, and as our Executive Vice President since April 2006. Mr. Maguire previously served as our Senior Vice President, Chief Company and Joint Venture Operations Officer from August 2001 until April 2006. Mr. Maguire joined us in April 1993 and, until July 2001, served in various positions, including Vice President, Bakery Operations and Vice President, Commissary Operations. Mr. Maguire serves as a member of the Trustee Board of the South Shore Health and Educational Foundation, a non-profit corporation, and as a member of the Board of Directors of Bands in Town LLC, an online socially integrated network and recommendation service focusing on live music events.

 

Cedric J. Vanzura.  Mr. Vanzura has served as our Executive Vice President and co-Chief Operating Officer since November 2008 and served as our Executive Vice President, Chief Administrative Officer from March 2008 until November 2008. Prior to joining our company, Mr. Vanzura served in a variety of positions at Borders Group, Inc., a global retailer of books, music and movies, including Executive Vice President, Emerging Business Strategy and Technology from July 2006 until September 2007, President, Borders International from February 2005 until July 2006 and President, Specialty Retail from March 2003 until February 2005.

 

Scott G. Davis.  Mr. Davis has served as our Executive Vice President, Chief Concept and Innovation Officer since May 2010, prior to which he served as our Senior Vice President, Chief Concept Officer since May 1999. Mr. Davis joined us in 1987, and from May 1996 until May 1999 served as our Director of Concept Services and Customer Experience.

 

Scott G. Blair.  Mr. Blair has served as our Senior Vice President, Chief Legal Officer, General Counsel and Secretary since January 2008. From March 2003 until January 2008, Mr. Blair served as our Special Counsel for Employee Relations and also maintained a sole proprietorship law firm concentrating on employment law.

 

Mark A. Borland.  Mr. Borland has served as our Senior Vice President, Chief Supply Chain Officer since August 2002. Mr. Borland joined our company in 1986 and held management positions with Au Bon Pain and Panera Bread divisions until 2000, including Executive Vice President, Vice President of Retail Operations, Chief Operating Officer and President of Manufacturing Services. From March 2000 until March

2001, Mr. Borland served as Senior Vice President of Operations at RetailDNA, a provider of sales and marketing products, then rejoined us as a consultant in 2001.

 

Rebecca A. Fine.  Ms. Fine has served as our Senior Vice President, Chief People Officer since August 2004. Ms. Fine was Chief People Officer for Seed Restaurant Group, a chain restaurant operator, from February 2000 until August 2004. She served as Chief Administrative Officer for Shoney’s Inc., a chain restaurant operator, from March 1996 until February 2000. Ms. Fine is the chair of the Board of Directors of Winning Women, a non-profit corporation.

 

Blaine E. Hurst.  Mr. Hurst has served as our Senior Vice President, Technology Business Strategies since January 2011. From October 2002 to January 2011, Mr. Hurst was an entrepreneur and independent consultant, assisting numerous restaurant, retail and distribution companies in their development and growth. From January 2001 to October 2002, Mr. Hurst served at eMac Digital, LLC as President — Restaurant Technology Solutions. He also served as Vice Chairman and President, Executive Vice President — Chief Administrative Officer and Vice President — Information Services, at Papa John’s International Inc., a chain restaurant operator, from February 1995 to December 2000. Before joining Boston Chicken as its Vice President — Information Services in 1993, Mr. Hurst was a consulting division Partner with Ernst & Young, founding the firm’s Center for Information Technology Planning and Development.

 

Jeffrey W. Kip.  Mr. Kip has served as our Senior Vice President, Chief Financial Officer since May 2006. From November 2003 until May 2006, Mr. Kip served as our Vice President, Finance and Planning and as our Vice President, Corporate Development from May 2003 until November 2003. From November 2002 until April 2003, Mr. Kip served as an Associate Director and Director at UBS, an investment banking firm, and from August 1999 until November 2002, Mr. Kip was an Associate at Goldman Sachs, an investment banking firm.

 

Thomas C. Kish.  Mr. Kish has served as our Senior Vice President, Chief Information Officer since December 2004. From April 2001 until December 2004, Mr. Kish served as our Vice President, Chief Information Officer. Prior to joining us, Mr. Kish was Vice President, Information and Support Services for Papa John’s International, a chain restaurant operator, from 1995 until 2001.

 

Michael J. Kupstas.  Mr. Kupstas has served as our Senior Vice President, Chief Franchise Officer since September 2001. Mr. Kupstas joined us in 1996 and, until September 2001, served in various positions, including Vice President, Franchising and Brand Communications and Vice President, Company and Franchise Operations. Prior to joining us, Mr. Kupstas served as Senior Vice President/Division Vice President for Long John Silver’s, Inc., a chain restaurant operator. Mr. Kupstas is also chairman of the Board of Directors of Operation Food Search, a non-profit corporation.

 

Michael J. Nolan.  Mr. Nolan has served as our Senior Vice President, Chief Development Officer since he joined us in August 2001. From December 1997 until March 2001, Mr. Nolan served as Executive Vice President and Director for John Harvard’s Brew House, L.L.C., a chain restaurant operator, and as Senior Vice President, Development, for American Hospitality Concepts, Inc., a chain restaurant operator. Prior to December 1997, Nolan held various positions at Apple South Incorporated, a chain restaurant operator, Morrison Restaurants, Inc., a chain restaurant operator, Cardinal Industries, Inc., a private real estate development company, and Nolan Development and Investment, a private development company.

 

Michael D. Simon.  Mr. Simon has served as our Senior Vice President, Chief Marketing Officer, since October 2009. Prior to joining us, Mr. Simon served in various positions at Campbell Soup Company and its subsidiaries from 1992 until October 2009, including Senior Vice President/General Manager of the Snacks Division at Pepperidge Farm, Inc., as well as senior marketing positions within Pepperidge Farm’s Bakery Division and Godiva Chocolatier, Inc. Prior to 1992, Mr. Simon held several marketing positions at Ralston Purina Company.

 

William H. Simpson.  Mr. Simpson has served as our Senior Vice President, Chief Company and Joint Venture Operations Officer since April 2006 and previously served as our Vice President, Retail Operations from February 2005 until April 2006. From November 2002 until February 2005, Mr. Simpson served as our Director of Retail Operations and Joint Venture Partner. From June 1998 until November 2002, Mr. Simpson

served as Vice President of Franchise Operations and Regional Vice President of Company Operations for Bennigan’s Restaurants, a chain restaurant operator.

 

The Compensation Committee has implemented an annual performance review program for our executives under which annual performance goals are determined early in each calendar year for each of our executive officers. These goals may include both corporate goals and individual department specific goals that facilitate the achievement of corporate performance. Annual bonuses are tied to the achievement of these performance goals.

 

The payment of an incentive bonus to our President and Chief Executive Officer and our Executive Chairman is determined by our Board on recommendation from the Compensation Committee, and the payment of an incentive bonus to our other executive officers is determined by the Compensation Committee on recommendation from the President and Chief Executive Officer, in each case following a review of the achievement of annual performance goals.

 

During the first calendar quarter of each year, we evaluate individual and corporate performance against the goals for the recently completed year. Our President and Chief Executive Officer presents to the Compensation Committee an evaluation of each of the other executive officers, as well as a recommendation for annual executive salary increases, if any. These evaluations and recommendations are then discussed by the Compensation Committee, which approves salary and any other awards for the executives. In the case of each of our President and Chief Executive Officer and our Executive Chairman, his individual performance evaluation is conducted by the Compensation Committee, which recommends his compensation changes, if any, to the Board for consideration and approval.

 

For all executives, annual base salary increases and annual bonuses, to the extent awarded, are implemented during the first calendar quarter of the year. In addition, during the third quarter of each year, the Compensation Committee and Board grant long-term equity and performance awards under our 2005 Long Term Incentive Program to our executive officers. Newly hired and promoted executives may be granted supplemental awards at a committee meeting following their hiring or promotion dates.

 

The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in the evaluation of executive officer compensation. During 2010, the Compensation Committee retained an independent compensation consultant, W.T. Haigh & Company, to assist the Company with its review of the “Compensation Discussion and Analysis”.

 

Our Compensation Committee has discussed the concept of risk as it relates to our executive compensation program and the Compensation Committee does not believe that our executive compensation program encourages excessive or inappropriate risk taking. As described more fully below in “Compensation Discussion and Analysis,” we structure our pay to consist of both fixed and variable compensation. The fixed (or salary) portion of compensation is designed to provide a steady income regardless of our stock price performance so that executives do not feel pressured to focus exclusively on stock price performance to the detriment of other important business metrics. The variable (cash bonus and equity) portions of compensation are designed to reward both intermediate and long-term corporate performance and generally are tied to the achievement of company-wide and individual department specific goals. Additionally, with respect to the variable portions of compensation, company specific measurements must represent at least 50% of the total for our annual incentive bonuses and 100% of the measurements for our 3-Year Performance Awards. We believe that applying company-wide metrics encourages decision-making by our executives that is in the best long-term interest of our company and stockholders. Further, we believe that these variable elements of compensation constitute a sufficient percentage of overall compensation to motivate our executives to produce superior short and long-term corporate results, while the fixed element is also sufficiently high that our executives are not encouraged to take unnecessary or excessive risks in doing so.

 

Our Board has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a “related person,” has a direct or indirect material interest.

 

If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our Chief Legal Officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by the Board’s Audit Committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. The policy also permits the Chairman of the Audit Committee and the Chief Legal Officer to review proposed related person transactions that arise between committee meetings, subject to review, approval and ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.

 

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committee after full disclosure of the related person’s interest in the transaction. The committee will review and consider such information regarding the related person transaction as it deems appropriate under the circumstances.

 

The committee may approve or ratify the transaction only if the committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, our best interests. The committee may impose any conditions on the related person transaction that it deems appropriate.

 

In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our Board has determined the following interests are not material, and, accordingly, a transaction or arrangement with an entity in which the related person’s sole interest is one of the following will not be considered a related person transaction:

 

 

In addition, our Board has determined that the following transactions are not related person transactions for purposes of this policy:

 

 

 

The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Board or the Compensation Committee in the manner specified in its charter and consistent with our policies.

 

Since December 30, 2009 (the beginning of our most recently completed fiscal year), we have not been a party to, and we have no plans to be a party to, any transaction or series of similar transactions in which the amount involved exceeded or will exceed $120,000 and in which any current director, executive officer, holder of more than 5% of our Common Stock, or any member of the immediate family of any of the foregoing, had or will have a direct or indirect material interest, other than in connection with the compensation of our directors and executive officers, employment agreements and other agreements described above under “Compensation of Directors,” “Employment Arrangements with Executive Officers” and “Executive Compensation.”

 

The Audit Committee has reviewed our audited financial statements for fiscal 2010 and has discussed these financial statements with our management and PricewaterhouseCoopers, LLP, our independent registered public accounting firm.

 

The Audit Committee has also received from, and discussed with, our independent registered public accounting firm various communications that our independent registered public accounting firm is required to provide to the Audit Committee, including the matters required to be discussed by the Public Company Accounting Oversight Board, or PCAOB, AU Section 380 (Communication with Audit Committees) as modified or supplemented.

 

Our independent registered public accounting firm also provided the Audit Committee with the written disclosures and the letter from the independent auditor required by PCAOB Rule 3526 (Communicating with Audit Committees Concerning Independence), as modified or supplemented. The Audit Committee has discussed with the independent registered public accounting firm its independence from us.

 

Based on its discussions with management and the independent registered public accounting firm, and its review of the representations and information provided by management and the independent registered public accounting firm, the Audit Committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 28, 2010.

 

By the Audit Committee of the Board of Directors of Panera Bread Company.

 

Domenic Colasacco (Chair)
Fred K. Foulkes
Larry J. Franklin

 

Overview of Our Compensation Objectives and Philosophy

 

Our executive compensation program is designed to (1) provide a compensation package that is reasonable and competitive within the industry in order to attract and retain qualified and talented executives, (2) provide incentives to drive our short, intermediate and long term performance and (3) motivate our executive officers and align their interests with those of our stockholders in order to attain our ultimate objective of increasing stockholder value.

 

We offer total compensation packages at levels we consider to be competitive with companies of similar size in the restaurant industry. In determining our executive officer compensation, we may consider generally available source material on companies in the restaurant industry from business periodicals, proxy statements, and other resources. From time to time, we may consider publicly available compensation data from national companies that we believe are generally comparable to us in terms of size, organization structure and growth characteristics, and against which we believe we compete for executive talent. We may also engage third party advisors to perform compensation analysis and peer company benchmarking studies for us to assist our Compensation Committee in its evaluation of executive compensation.

 

Our executive compensation program provides incentives that are based on short-, intermediate- and long-term operating and financial performance metrics that are designed to drive our overall performance over the short-, intermediate- and long-term. Our annual incentive bonus rewards achievement of company-wide goals, which drive our performance for each year, and may be adjusted if our performance falls short of or exceeds our pre-tax earnings targets, which we establish as a general measure of our company performance. Our long-term incentive program includes equity awards and cash awards that tie to the achievement of intermediate and long-term performance metrics, which, in addition to specific earnings per share, or EPS, metrics, may also include metrics that we have identified as direct or indirect components or drivers of earnings growth.

 

Elements of Compensation

 

Our executive compensation program is essentially the same as the compensation program for all of our full-time management employees, with appropriate modifications based on the employee’s organization level or position within the organization. Our full-time management compensation program is comprised of three basic elements:

 

 

Because our primary objective is to provide incentives that drive our performance, perquisites are an insignificant element of our executive compensation program. We do not have employment agreements with any of our executive officers and we do not provide benefits by reason of retirement (other than under our 401(k) plan), except with respect to our Executive Chairman, as described below. We provide standard employee benefits, which we make available to all of our full-time salaried management employees.

Determining Executive Compensation

 

Our executive compensation is tied in part to the organization levels of our executive officers, which are comprised of Executive Chairman, President and Chief Executive Officer, Executive Vice President and two Senior Vice President levels. Each component of the compensation of our President and Chief Executive Officer, Mr. Moreton, and our Executive Chairman, Mr. Shaich, is established by our Board upon the recommendation of our Compensation Committee, with third party advisory support as determined appropriate by our Compensation Committee. Each component of the compensation of our other executive officers is established by our Compensation Committee, upon the recommendation of our President and Chief Executive Officer and any third party advisers as determined appropriate.

 

Our Compensation Committee’s goal is to determine an appropriate mix between cash payments and equity incentive awards to meet short, intermediate and long-term goals and objectives. The mix of compensation is designed to reward recent achievements and drive long-term company performance. At the target level of performance, annual incentive bonuses and long-term incentive compensation are designed to constitute a significant percentage of an executive’s total compensation. Set forth in the following table are the target percentages and actual percentages for salary, annual incentive bonus and long-term incentive compensation earned in fiscal 2010 by (i) the two executives who each served as our principal executive officer during fiscal 2010, (ii) our principal financial officer and (iii) the three other most highly compensated executive officers, each of whose total compensation exceeded $100,000 for the fiscal year. The officers described in (i) — (iii) are collectively referred to as our named executive officers.

 

 

 

 

 

Base Salary.  The base compensation of our executives is intended to be competitive with the compensation levels offered by companies of similar size in the restaurant industry. However, we did not benchmark our executives’ compensation against peer companies in determining fiscal 2010 compensation. While the salaries of our executive officers are generally based on their organization level, they may be adjusted in appropriate circumstances to reflect an individual’s role and responsibility within our company or an individual’s experience and prior performance.

 

The base salary of all of our full-time employees, including our executive officers, is reviewed annually and may be increased to reflect cost-of-living adjustments, revised market standards, promotions or other adjustments, as determined appropriate by our Compensation Committee. Annual base compensation reviews are conducted for increases and promotions during the first quarter of each fiscal year. Base compensation reviews are also conducted during the fiscal year as appropriate for promotions. The base compensation of all our full-time employees is paid through standard payroll payments.

 

In fiscal 2010, our Board, upon the recommendation of the Compensation Committee, determined not to increase the base salaries of our named executive officers, except with respect to Mr. Moreton and Mr. Davis, as set forth in the following table:

 

 

Mr. Moreton’s base salary increase of 50% resulted from his promotion to President and Chief Executive Officer in May 2010. Mr. Davis’ base salary increase of 14% resulted from his promotion from Senior Vice President to Executive Vice President in May 2010.

 

In March 2011, in consideration of Mr. Shaich’s transition from Chief Executive Officer to Executive Chairman, our Board, on the recommendation of the Compensation Committee, set Mr. Shaich’s 2011 annual base salary at $525,000.

 

Annual Incentive Bonus.  We believe that cash bonuses are an important factor in motivating our management team as a whole, and individual executives, in particular, to perform at their highest level toward achievement of established company incentive goals. The incentive goals of our executive officers promote the achievement of our primary company performance objectives. We believe achievement of these goals and objectives will improve short-term operational and financial results and long-term growth and stockholder value that is consistent with the interests of our stockholders. We also believe establishing cash bonus opportunities is an important factor in attracting and retaining the services of talented and qualified executives.

 

Annual incentive bonus payments, if earned, are generally made in a lump sum cash payment in March of each year following the fiscal year of performance as a means to reward more immediately annual performance. For fiscal years in which our performance fails to meet our pre-established internal pre-tax

earnings bonus target, the annual incentive bonus payment is reduced, generally with the greatest dollar and percentage reductions applied at the highest organization levels and continuing with smaller reductions at each lower organization level thereafter as determined by our Compensation Committee in its discretion upon management’s recommendation.

 

In addition, for fiscal years in which our performance substantially exceeds our pre-established internal pre-tax earnings target, our executive officers (other than our President and Chief Executive Officer and our Executive Chairman) and all other management eligible for our incentive bonus program are eligible to receive a supplemental incentive bonus payment to reward individual contributions to our company’s superior performance. The supplemental bonus to all eligible participants is determined by applying a percentage of the total by which we exceeded an internal pre-tax earnings target typically established in the first quarter of the applicable fiscal year, and is allocated among participants on a pro rata basis based on the amount of the base annual incentive bonus awarded earlier in the year. The percentage applied is determined by our Compensation Committee, upon the recommendation of our President and Chief Executive Officer. The supplemental bonus, if any, is made approximately six months following the date of the payment of the annual incentive bonus, following our final determination that the criteria for such payment have been met and is conditioned upon the continued employment of the eligible participant through the date of this payment.

 

President and Chief Executive Officer.  The payment and amount of our President and Chief Executive Officer’s annual bonus is discretionary and determined by our Board following a review of our performance during the fiscal year on which the bonus is based. In making its determination, our Board, upon the recommendation of our Compensation Committee, may consider any number of factors, including the achievement of our corporate performance goals for that year and the recommendation of management and third party advisers. For fiscal 2010, our President and Chief Executive Officer’s target bonus was 100% of his pro-rated base salary. In fiscal 2010, Mr. Moreton was paid an annual incentive bonus in the amount of $794,707, which represents 149% of his targeted amount (calculated as of March 15, 2010, the date on which Mr. Moreton’s 2010 base salary increase became effective) and which is consistent with the bonus payout achievement attributed to the company incentive goal portion of our incentive bonus program as determined by our Compensation Committee and as described below.

 

Executive Chairman and Former Chief Executive Officer.  Mr. Shaich served as our Chief Executive Officer through May 13, 2010, at which time he resigned from such position and our Board appointed him to the new role of Executive Chairman. The payment and amount of Mr. Shaich’s annual bonus was discretionary and determined by our Board following a review of our performance during the fiscal year on which the bonus was based. In making its determination, our Board, upon the recommendation of our Compensation Committee, considered a number of factors, including the achievement of our performance goals for that year and the recommendation of management and third party advisers. For fiscal 2010, Mr. Shaich’s target bonus was 100% of his base salary. In fiscal 2010, Mr. Shaich was paid an annual incentive bonus in the amount of $920,820, which represents 149% of his targeted amount and which is consistent with the bonus payout achievement attributed to the company incentive goal portion of our incentive bonus program as determined by our Compensation Committee and as described below.

 

Other Executive Officers.  The annual incentive bonus of each eligible executive officer, other than our President and Chief Executive Officer and Executive Chairman, is also discretionary and is based on the attainment of company-wide incentive goals, and with respect to executive officers who were not named executive officers, the attainment of department objectives. We generally establish between four and six company incentive goals, which are designed to improve our overall operational and financial results. Each company incentive goal is prioritized and weighted as a portion of the total potential bonus payout. The performance expectations for each incentive goal at the target bonus payment level are generally set at a level that is difficult to achieve, but thought to be attainable. Based on the level of achievement against these goals, an eligible participant will receive a bonus payment equal to a specified percentage of his or her annual salary. Management discretion at several levels — including the direct supervisor, function head and a committee currently comprised of one or more of our President and Chief Executive Officer, our Executive Vice Presidents, and Senior Vice President, Chief People Officer — is applied in evaluating achievement of

company-wide and department specific goals as a condition to earning the annual incentive bonus. Our Board and Compensation Committee also have discretion in evaluating awards.

 

For fiscal 2010, the company-wide performance measures comprising the Company’s annual incentive bonus, the relative weighting of each such component, the Company’s actual achievement during the performance period as a percentage of target and the weighted performance of each such measure were as follows:

 

 

The Company believes that such annual performance bonus metrics are difficult to achieve, but are attainable, as such metrics are ultimately designed to drive key initiatives in order to achieve our broader short, medium and long-term financial goals. The determination of these goals begins with our annual internal financial planning process. We set our internal targeted plan to create challenging incentives for executive performance. While we do not publicly disclose our internal metric targets because of the competitive harm that would result, we publicly announce more general performance measures, such as diluted EPS, which the internal metrics drive. For example, our initial diluted EPS growth guidance for fiscal 2009 and fiscal 2010 was targeted at 15-22% and 14-18%, respectively, each of which represents a high growth target and was believed difficult to achieve. In view of these challenging broader performance targets, and given that our internal bonus metrics are designed to drive them, we believe that achievement of our internal incentive targets are also difficult to achieve in the view of management and the Compensation Committee.

 

Notwithstanding the fact that our internal metrics and targets are set at challenging levels, historically, they have been achievable. As we disclosed in our proxy statements for each of fiscal 2009 and fiscal 2010, the company-wide performance targets of our annual incentive bonus program were achieved. Accordingly, we believe that while our internal incentive metrics are difficult to achieve, they are attainable.

 

For fiscal 2010, the bonus payout achievement attributed to the company incentive goal portion of our incentive bonus program was scored at 149% of the target level as a result of our strong overall performance, including our ability to maintain high earnings, average weekly sales and gross profit growth, while limiting expenses below gross profit growth.

 

For fiscal 2010, like fiscal 2009 and fiscal 2008, the target annual incentive bonus of each of our executive officers (other than our President and Chief Executive Officer and our Executive Chairman) ranged from 30% to 50% of the individual’s base salary, based on organization level, with a maximum range of bonus payout potential from zero to two times the individual’s target bonus. Based upon the achievement of their applicable incentive goals, as determined by our Compensation Committee upon the recommendation of our President and Chief Executive Officer, all of our named executive officers received annual incentive bonus payments at 149% of their targeted amounts. For fiscal 2010, our named executive officers (other than our

President and Chief Executive Officer and our Executive Chairman) were paid annual incentive bonus payments as follows: Mr. Kip: $214,858; Mr. Maguire: $306,940; Mr. Vanzura: $306,940; and Mr. Davis: $276,077. Our other employees at the manager level and above received bonus amounts based on the achievement of applicable performance goals under the annual incentive bonus program consistent with the process applied for executive officers.

 

Other Eligible Employees and Other Programs.  The annual incentive bonus program is offered not only to executive officers, but also to all of our other employees at the manager level and above. Eligibility for our other management employees varies primarily by the organization level and level of achievement of each of several pre-established incentive goals approved by our President and Chief Executive Officer.

 

In place of the annual management incentive bonus program, we also offer special cash incentive bonus programs to targeted full-time management employees in an effort to accomplish key company initiatives. These special cash incentive bonus programs are tailored to drive achievement of our company performance objectives specifically targeted to our store operations, real estate development and manufacturing, as well as to reward applicable individual performance standards, including but not limited to safe driving records, customer service, sanitation and safety.

 

Long-Term Incentive Plan Compensation

 

Our executive officers, along with our other management employees, are eligible to participate in our 2005 Long Term Incentive Program, which we refer to as our LTIP and which is a sub-plan under our 2006 Stock Incentive Plan.

 

Our LTIP is designed to align each of our executive’s goals with those of our stockholders by providing participants with incentives to drive our long-term performance, and the LTIP is designed to provide our executives with the incentive to continue to drive our performance over the periods embedded in the LTIP program. Accordingly, each award to our executive officers includes not only an annual grant of equity (restricted stock and stock settled appreciation rights, or SSARs), which vest over a five-year period, but also earned payments of cash and stock, based on our cumulative achievement of various operating performance metrics over a three-consecutive-fiscal-year period. Participation in our LTIP in any given year is discretionary, as determined by our Compensation Committee, upon the recommendation of our President and Chief Executive Officer.

 

The LTIP awards to our executive officers and other officers at the Vice President level are comprised of:

 

 

The restricted stock award and choice award components, which we describe below in more detail, together comprise half of these target awards. The performance award component, also described below in more detail, comprises the other half of these target award payments. However, the actual award payment of the performance award component will be adjusted, based on our performance over a three-consecutive-fiscal-year period over which that component is measured. All LTIP grants are made at regularly scheduled meetings of our Board and Compensation Committee or, upon determination of the Compensation Committee, at a meeting convened on the first business day of any intervening month as appropriate.

 

Restricted Stock Awards.  Restricted stock awards make up 25% of each participant’s total LTIP annual target opportunity. Restricted stock awards are granted annually and are comprised of shares of Class A Common Stock that are subject to forfeiture. The shares of restricted stock underlying the restricted stock awards may not be sold or transferred and are generally not entitled to receive dividends paid on the Class A Common Stock, if any, until such shares vest. The shares of restricted stock vest over five years, with 25% of such shares vesting on each of the second, third, fourth and fifth anniversaries of the grant date, subject to

continued employment with us. In the event of the executive’s death or disability between two vesting accrual periods, a pro rata portion of the additional restricted stock which would have vested had the participant not died or become disabled prior to the vesting accrual period next following the death or disability will be vested. Awards to our named executive officers under the restricted stock award component, expressed as a percentage of base salary, range from 25% to 75%, based on the named executive officer’s organization level. Restricted stock awards were included in the LTIP to provide eligible participants with direct equity ownership, while also providing incentives to remain employed with us throughout the five-year period over which the shares underlying the award vest.

 

Choice Awards.  Choice awards are granted annually in the form of restricted stock and/or SSARs and make up 25% of each participant’s total LTIP annual target opportunity. The executive can elect to receive restricted stock, SSARs, or a combination of restricted stock and SSARs. An SSARs award entitles the recipient the right to receive the appreciation in value of such number of shares that is equal to a multiple of the number of shares of restricted stock that would have been awarded to the recipient under a restricted stock only award. In fiscal 2010, the applicable multiple as determined by the Compensation Committee was three SSARs for each share of Restricted Stock. SSARs granted pursuant to a choice award have an exercise price equal to the closing price of the Class A Common Stock on The Nasdaq Global Select Market on the date of grant. SSARs vest over the same five year period as restricted stock awards as described above, with 25% vesting on each of the second, third, fourth and fifth anniversaries of the grant date, subject to continued employment with us. The SSARs expire six years from the date of grant, but will be subject to earlier termination as provided in the award agreement. In the event of the executive’s death or disability between two vesting accrual periods, a pro rata portion of the additional portion of the option that would have vested had the participant not died or become disabled prior to the vesting accrual period next following the death or disability will be vested. The provisions of the restricted stock awards described above also apply to the choice awards that the executive elects to receive as restricted stock awards, if any. Awards to our named executive officers under the choice award component, like the restricted stock award component, expressed as a percentage of base salary, range from 25% to 75%, based on the named executive officer’s organization level. Taking the restricted stock award and choice award components together, the range of target awards to our named executive officers for both components is 50% to 150% of base salary, based on the executive officer’s organization level. Choice awards were included in the LTIP to provide eligible participants with the flexibility to choose the form of award, given that each individual’s financial and other circumstances may vary.

 

Performance Awards.  The performance award component is based on the level of our cumulative achievement of predetermined performance metrics in each of three consecutive fiscal-years which comprise the performance period for which the award is made. The performance award component makes up 50% of each participant’s total LTIP annual target opportunity. The performance award is earned based on our achievement of these predetermined company performance metrics, assuming the recipient remains employed by us throughout the three-consecutive-fiscal-year performance period and the date of payment. The performance metrics are established by our Compensation Committee and approved by our Board during the first year of the three-consecutive-fiscal-year performance period to which the metrics pertain. Each performance metric, weighting of each metric, and award levels for each metric of the performance awards are communicated to each recipient. The performance awards are payable in a combination of cash and whole shares of Class A Common Stock as the Compensation Committee determines. In fiscal 2010, our Compensation Committee approved the payment of performance awards entirely in cash for the three-consecutive-fiscal-year performance period beginning in 2010 and ending in 2012. The target award payment for the named executive officers ranges from 50% to 150% of base salary, based on organization level. However, the actual award payment will be adjusted, based on our performance over a three-consecutive-fiscal-year measurement period, and any other factors as determined by our Compensation Committee. The actual award payment for the performance award component ranges from zero, since it is eliminated if we fail to achieve the minimum threshold level for all of our performance metrics over the three-consecutive-fiscal-year measurement period, to double the individual’s targeted award payment if we achieve maximum performance in all of our performance metrics, subject to any adjustments as determined by our Compensation Committee. Additionally, our Compensation Committee may adjust the actual award payments up to the executive’s targeted award payout in the event the minimum threshold level of performance established by the Compensation Committee

is not achieved if, in Compensation Committee’s judgment, the Company’s performance during the performance period is comparable or exceeds that of its peers, as determined by the Compensation Committee.

 

The three-consecutive-fiscal-year performance period for LTIP performance awards granted in fiscal 2008 was completed at the end of fiscal 2010. The LTIP performance award structure, performance targets, performance results and value of each component as a percentage of the target value of each award were as follows:

 

 

 

 

Based on the calculated payout as a percent of target award, the payments to our named executive officers for the LTIP performance awards granted in 2008, which were paid in March 2011, were as follows:

 

 

 

 

The performance metrics applicable to LTIP performance award grants made in fiscal 2010 include specific earnings per share targets and such grants made in fiscal 2008 and fiscal 2009 include both specific earnings per share targets and targets that we have identified as components or drivers, direct or indirect, of earnings growth and other critical operating performance measures, such as average weekly sales growth, unit growth and profit metrics. The actual payments applicable to existing grants made in fiscal 2009 and fiscal 2010 cannot be determined because the awards are earned only if performance of each metric is achieved at the end of the three-consecutive-fiscal-year performance period, which extends through the 2011 and 2012 fiscal years, respectively.

 

Our President and Chief Executive Officer and our Executive Chairman participate in our LTIP at the highest level of award. Our other named executive officers participate in our LTIP at levels below our President and Chief Executive Officer and our Executive Chairman.

 

The 2010 LTIP grants to our named executive officers are set forth in the table below. Values reflected for each component are expressed as a percentage of annual base salary (at the rate in effect on the grant date) from which they are determined. In the case of the performance award, values are reflected at the target award, which will be adjusted based on our performance over the 2010-2012 fiscal years. The values reflected in the table below differ from the values set forth in the Summary Compensation Table and the Grants of Plan-Based Awards Table with respect to choice awards, because executives who elect to receive SSARs awards are granted such SSARs awards not as percentage of salary but rather as a ratio of the overall restricted stock grant the executive would have received had the award been granted 100% in restricted stock; and with respect to Restricted Stock awards, due to rounding since we do not grant fractional shares.

 

 

 

Other Eligible Employees.  The LTIP program, with the modifications described below, is generally made available to all our full-time management employees. Various features of, as well as participation in and eligibility for, the LTIP are determined by the organization level or role of the participants, including among other features the percentage of base compensation used to determine the level of the grants at which each award is made. Choice awards are not offered to any employee below the Vice President level. In addition,

participants below the Vice President level are not eligible for performance awards, but rather an alternative deferred cash payment, contingent upon continued employment. For fiscal 2010, approximately 583 employees received LTIP grants, including, in addition to our named executive officers, eight other executive officers and approximately 569 other management employees.

 

Other Compensation

 

We also offer limited perquisites to our executive officers not generally available to all employees, as follows:

 

President and Chief Executive Officer.  As approved by our Board, we pay a monthly car allowance of $1,500 to Mr. Moreton for so long as he serves as our President and Chief Executive Officer. In addition, our Board has approved Mr. Moreton’s travel by chartered jet for company business purposes, under hourly lease arrangements with various vendors, or via first class air. However, Mr. Moreton utilizes chartered jet for company business purposes only when reasonably necessary due to specific travel demands such as described below. As approved by our Board, our President and Chief Executive Officer is entitled to receive reimbursement for outside legal expenses related to individual securities law compliance matters, such as beneficial ownership reporting and 10b5-1 trading plans, up to $20,000 annually. In making its determination to approve these services, our Board considered the range of these perquisites at other companies along with the constant travel demands placed on President and Chief Executive Officer in visiting company bakery-cafes, assessing company-owned and franchise-operated sites and attending numerous meetings including those with our employees, franchisees, vendors and stockholders. Our President and Chief Executive Officer is also approved to have his family accompany him in the chartered jet on business trips as long as there is no incremental cost to us.

 

Executive Chairman.  As approved by our Board, we have agreed to pay up to $1,500 monthly of lease and related expenses incurred by Mr. Shaich in connection with his use of a car, for so long as he serves as Executive Chairman of our Board. In addition, our Board has approved his travel by chartered jet for company business purposes, under hourly lease arrangements with various vendors, or via first class air. However, Mr. Shaich utilizes chartered jet for company business purposes only when reasonably necessary due to specific travel demands such as described below. As approved by our Board, Mr. Shaich is entitled to receive reimbursement for outside legal expenses related to individual securities law compliance matters, such as beneficial ownership reporting and 10b5-1 trading plans, up to $20,000 annually. In making its determination to approve these services, our Board considered the range of these perquisites at other companies. Mr. Shaich is also approved to have his family accompany him in the chartered jet on business trips as long as there is no incremental cost to us. In addition, in connection with Mr. Shaich’s resignation as our Chief Executive Officer in May 2010, we entered into a severance agreement with Mr. Shaich, pursuant to which we will provide the following benefits to Mr. Shaich if he is terminated for any reason by us or resigns for a qualifying reason or in the event of Mr. Shaich’s death while he is employed by us: severance in the gross amount of $5,000,000 in the event that such termination, resignation or death occurs on or prior to March, 31, 2013 and $2,000,000 in the event that such termination, resignation or death occurs after March 31, 2013 but prior to September 1, 2014. Pursuant to the terms of Mr. Shaich’s severance agreement, he will not receive any severance in the event that such termination, resignation or death occurs on or after September 1, 2014.

 

Other Named Executive Officers.  Perquisites of our other named executive officers are described below.

 

 

 

Except as described above with respect to Mr. Shaich’s severance agreement, we do not have employment agreements with any of our other named executive officers, and we do not provide them any benefits payable by reason of retirement (other than under our 401(k) plan, as described in the Summary Compensation Table). Each of our other named executive officers is subject to a non-competition agreement. As for all our employees at the director level and above, as well as certain individuals in positions below the director level, these non-competition agreements provide for payments of separation pay in the form and amount of continued base pay for up to specified terms, reduced by compensation received from other sources, along with continued health, dental and in some instances 401(k) benefits for the same term, in the event of our termination of employment without cause. The length of the maximum term during which separation pay may continue correlates to the applicable organization level, which in the case of our named executive officers, and all other executive officers (other than our Chief Executive Officer), is one year.

 

We make the following benefit packages generally available to our full-time employees, including our named executive officers, upon satisfaction of eligibility requirements:

 

 

None of our President Chief Executive Officer, Executive Chairman or any other named executive officer is offered any other form of compensation qualifying as perquisites, such as reimbursements for country club memberships, commuting costs, personal financial adviser expenses, tax gross-ups or personal use of our property.

 

Compensation Committee Consultant

 

In fiscal 2010, our Compensation Committee retained an independent compensation consultant, W.T. Haigh & Company, or W.T. Haigh, to assist with its review of our LTIP and the compensation of the Executive Chairman and President and Chief Executive Officer, and with its review of this Compensation Discussion and Analysis disclosure. W.T. Haigh reports directly to the Compensation Committee and does not provide any other services to us. In fiscal 2010, W.T. Haigh did not attend any meetings of the Compensation Committee.

 

Accounting and Tax Considerations

 

The financial reporting and income tax consequences to us of individual compensation elements are important considerations for the Compensation Committee when it is analyzing the overall level of compensation and the mix of compensation among individual elements. Overall, the Compensation Committee seeks to balance its objective of ensuring an effective compensation package to the named executive officers with the desire to maximize the immediate deductibility of compensation — while ensuring an appropriate (and transparent) impact on reported earnings and other closely followed financial measures.

 

In making its compensation decisions the Compensation Committee has considered the potential effect of Section 162(m) of the Internal Revenue Code, which limits the tax deduction available to public companies for annual compensation that is paid to named executive officers in excess of $1,000,000, unless the compensation qualifies as “performance-based” or is otherwise exempt from Section 162(m). Stock options

issued under our 2006 Stock Incentive Plan, including those issued pursuant to our LTIP, are intended to qualify for the exemption of “performance-based” compensation from the deductibility limit. However, the Compensation Committee may, in its judgment after considering the tax consequences and financial effects such action may have on us, design and authorize compensation elements that may not be deductible within Section 162(m) when it believes that such compensation is appropriate and in our best interests.

 

Report of the Compensation and Management Development Committee

 

The Compensation and Management Development Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management. Based on this review and discussion, the Compensation and Management Development Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

By the Compensation and Management Development Committee of the Board of Directors of Panera Bread Company.

 

Fred K. Foulkes (Chair)
Domenic Colasacco
Larry J. Franklin

Summary Compensation

 

The following table sets forth information regarding the compensation we paid or accrued during the fiscal years indicated to or for our named executive officers.

 

 

 

 

 

 

 

 

 

 

The following table sets forth information concerning each grant of an award made to a named executive officer during fiscal 2010 under any plan, contract, authorization or arrangement pursuant to which cash, securities, similar instruments or other property may be received.

 

Fiscal 2010 Grants of Plan-Based Awards

 

 

 

The following table sets forth information concerning restricted stock that has not vested, stock options that have not been exercised and equity incentive plan awards for each of the named executive officers outstanding as of December 28, 2010.

 

Outstanding Equity Awards at 2010 Fiscal Year End