EAT Brinker International Inc

Directors’ Compensation

The Governance and Nominating Committee annually reviews and periodically benchmarks the Board’s compensation to assure that non-employee directors are being fairly and reasonably compensated in relation to the restaurant industry and to comparable U.S. companies. The same proxy peer group used for the Board is used for our named executive officers (identified in more detail in the Benchmarking section of the Compensation Discussion and Analysis in this Proxy Statement). For fiscal 2017, non-employee directors of the Company receive the following compensation in addition to reimbursement for costs incurred in attending meetings of the Board:

Annual Retainer

An annual retainer of $250,000, which will be paid or granted in any combination of cash or restricted stock units as elected, so long as at least 50% is in restricted stock units. A 25% match in restricted stock units will be granted for the portion of annual compensation taken in restricted stock units.

An annual retainer of $60,000, which will be paid or granted in any combination of cash or restricted stock units as elected. A 25% match in restricted stock units will be granted for the portion of annual compensation taken in restricted stock units.

Annual Grant (all non-employee directors, including Chairman)

Restricted Stock Unit Distribution Timing

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Providing a combination of equity and cash provides incentive for our directors to focus on long-term performance and shareholder value while still recognizing their energy and effort throughout the year. Each director has a choice among cash and restricted stock units for the annual retainer, thus allowing each director to receive compensation in a manner that best fits individual needs. However, both the Board and we believe it is important that each director maintain an equity stake in our Company; therefore, an incentive is provided for any portion of the annual retainer taken in equity.

Equity grants are made on the first business day of the calendar year following the annual shareholders meeting. For fiscal 2017, directors will receive restricted stock units for all of their equity compensation with variable distribution dates ranging from four years after grant to two years following departure from the Board (as described above in this section).

Board Committee Retainers

Committee members receive the following supplementary annual retainer for accepting their responsibilities:

Additionally, the Committee Chairs receive a further supplementary retainer for accepting the additional Chair responsibilities as follows:

All of our retainers are paid on the assumption a certain number of Board and Committee meetings (in-person and telephonically) will occur during the year. Directors are expected to attend the Board and their respective Committee meetings, and no additional compensation is paid for attendance at these meetings. If the number of any such meetings exceeds the following totals, each director in attendance at such extra meetings receives the following per meeting fee of $2,000 for in-person meetings and $1,000 for telephonic meetings:

Board of Directors—eight (8) meetings;

Audit Committee—nine (9) meetings;

Compensation Committee—six (6) meetings; and

Governance and Nominating Committee—five (5) meetings.

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The amounts shown represent the grant date fair value of the stock awards granted to the directors in fiscal 2016, as determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”). These amounts do not include any reduction in value for the possibility of forfeiture.

Communications with the Board of Directors

If you or any other interested party wishes to communicate with the Board of Directors as a group or with an individual director, you or the interested party may direct such communications to the intended recipient in care of the General Counsel, 6820 LBJ Freeway, Dallas, Texas 75240. The communication must be clearly addressed to the specific group or director. Your Board of Directors has instructed the General Counsel to review and forward any such correspondence to the appropriate person or persons for response.

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Qualifications to Serve as Director

Each candidate for director must possess at least the following specific minimum qualifications:

1. Each candidate shall be prepared to represent the best interests of all the Company’s shareholders and not just one particular constituency.

2. Each candidate shall have demonstrated integrity and ethics in both personal and professional settings and have established a record of professional accomplishment in their chosen field.

3. No candidate shall have any material personal, financial or professional interest in any present or potential competitor of the Company.

4. Each candidate shall be prepared to participate fully in activities of the Board of Directors, including active membership on at least one Committee of the Board of Directors and attendance at, and active participation in, meetings of the Board of Directors and the Committee(s) of the Board of Directors of which he or she is a member, and not have other personal or professional commitments that would, in the Governance and Nominating Committee’s sole judgment, interfere with or limit their ability to do so.

5. In addition, the Governance and Nominating Committee also desires that candidates possess the following qualities or skills:

(a) Each candidate shall contribute to the overall diversity of the Board of Directors—diversity being broadly construed to mean a variety of opinions, perspectives, personal and professional experiences and backgrounds, such as gender, race and ethnicity differences, as well as other differentiating characteristics.

(b) Each candidate should contribute positively to the existing chemistry and collaborative culture among the members of the Board of Directors.

(c) Each candidate should possess professional and personal experiences and expertise relevant to the Company’s business. Relevant experiences may include, among other things, large company CEO experience, senior level multi-unit restaurant or retail experience, and relevant senior level experience in one or more of the following areas: finance, accounting, sales and marketing, organizational development, strategic planning, information technology and public relations.

Although not an automatic disqualifying factor, the inability of a candidate to meet the independence and other governing standards of the NYSE or the SEC will be a significant factor in any assessment of a candidate’s suitability.

Board Assessments

Our Board conducts an annual evaluation of itself and its committees to determine the Board’s effectiveness and to identify ways in which to enhance effectiveness. Additionally, the Board conducts periodic evaluations of each of its members. The Board utilizes the feedback and results from these evaluations to determine the need for board refreshment, and the Governance and Nominating Committee utilizes the evaluation process as part of its determination of nominees recommended for election by shareholders at our annual meeting.

Internal Process of Identifying Candidates

The Governance and Nominating Committee uses a variety of means for identifying potential nominees for director, including the use of outside search firms and recommendations from current members of the Board of Directors and shareholders. In determining whether to nominate a candidate, the

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Governance and Nominating Committee considers the current composition and capabilities of serving directors, as well as additional capabilities considered necessary or desirable in light of existing and future Company needs. One or more of the members of the Governance and Nominating Committee may interview, or have an outside search firm interview, a prospective candidate who is identified as having high potential to satisfy the expectations, requirements, qualities and responsibilities for membership on the Board of Directors. Prospective candidates may also be interviewed by other directors who are not members of the Governance and Nominating Committee. Reports from those interviews or from Governance and Nominating Committee members with personal knowledge and experience with the candidate, resumes, information provided by other contacts, and other information deemed relevant by the Governance and Nominating Committee are then considered in determining whether a candidate shall be nominated. The Governance and Nominating Committee also exercises its independent business judgment and discretion in evaluating the suitability of a candidate for nomination.

Nomination Rights of Shareholders

As a shareholder, you may recommend one or more candidates to be considered by the Governance and Nominating Committee as a nominee or nominees for election as director of the Company at an annual meeting of shareholders. To do so, you must comply with the notice, information, and consent provisions contained in the Company’s Bylaws (current copies of the Company’s Bylaws are available at no charge from the Secretary of the Company and may also be found in our public filings with the SEC). In order for the candidate recommendation to be timely for the Company’s 2017 annual meeting of shareholders, your notice to the Secretary of the Company must be delivered to our principal executive offices no later than May 31, 2017. Any such recommendations received by the Secretary will be presented to the Governance and Nominating Committee for consideration. Suitable candidates (whether identified internally or by a shareholder) who, after evaluation based upon the criteria and process described in “Internal Process of Identifying Candidates” above, are then recommended by the Governance and Nominating Committee and, if approved by the Board of Directors, will be included in our recommended slate of director nominees in our proxy statement.

Current Nominations

The Governance and Nominating Committee conducted an evaluation and assessment of all of the current directors, for purposes of determining whether to recommend them for nomination for re-election to the Board of Directors. After reviewing the assessment results, the Governance and Nominating Committee recommended to the Board that Messrs. DePinto, George, Giles, Lopez, Mrkonic, Prado and Roberts and Mmes. Boltz and Edelman be nominated for election to the Board of Directors. The Board accepted the recommendations and nominated such persons. The Governance and Nominating Committee did not receive any recommendations from shareholders proposing candidates for election to the Board at the annual meeting.

Succession Planning

Our Corporate Governance Guidelines require the Board to approve and maintain a succession plan for the CEO and Section 16 Officers of the Company. During fiscal 2016, the Board reviewed and approved the updated succession plans for the CEO and Section 16 Officers as recommended by the Governance and Nominating Committee and Compensation Committees, pursuant to the Corporate Governance Guidelines.

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Code of Ethics

Our Code of Conduct and Ethical Business Policy applies to all members of the Board of Directors and our team members. You may obtain a copy of the code free of charge in the Corporate Governance section of our internet website ( http://www.brinker.com/investors/Corporate_Governance.html ) or by written request directed to us, at 6820 LBJ Freeway, Dallas, Texas 75240, Attention: General Counsel.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Throughout this discussion we make reference to terms that are used internally to define our team member population. These team member groupings are described below:

Structure and Role of the Compensation Committee

The Compensation Committee (“Committee”) is comprised entirely of Independent Directors. The Board also determined that each Committee member meets the qualifications as a “non-employee director” for purposes of Rule 16b-3 of the Exchange Act and as an “outside director” for purposes of Section 162(m) of the Internal Revenue Code. The Committee is responsible for aligning our compensation programs with our compensation philosophy of rewarding performance. Specifically, the Committee reviews and approves any compensation decisions regarding the Brinker Leadership Team (with input from the CEO), including the CEO. The CEO does not provide input on his own compensation. Further information about the duties of the Committee can be found in the Compensation Committee Charter, which is located on our website at http://brinker.com/corp_gov/comp_committee.html . To ensure the Committee is able to effectively carry out its responsibilities, it takes the following actions:

Executive Summary

Our compensation programs are structured to reinforce our strategic principles—to be a premier and progressive company with a balanced approach towards sales, profits, guests and team members.

Fiscal 2016 saw increased earnings per share for the Company as compared to fiscal 2015. However, comparative restaurant sales and traffic for the Company declined due to increased competition, heavy discounting in the casual dining industry, and economic pressures in certain oil producing states. Slow US wage growth has challenged both casual dining restaurant operators and consumers as discretionary income has been limited. Many of our gains for fiscal 2016 were driven by the acquisition

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of Pepper Dining, Inc. resulting in an increase in restaurant capacity and the additional revenues from the 53rd operating week, but were offset by the decrease in comparative restaurant sales. We focused on our strategies and initiatives during fiscal 2016. We further leveraged our technology initiatives to create a digital guest experience, helping to engage our guests more effectively and drive traffic, by initiating the integration of our My Chili’s Rewards loyalty program with Plenti, a consumer rewards program including a national coalition of major brands, investing in a new online ordering system, and rolling out Nowait, a new application allowing our hosts and guests to more efficiently manage their arrival and wait times at our restaurants. We also continued work on our Fresh Mex and Fresh Tex menu platforms introducing our Top-Shelf Taco category, an updated steak platform and Craft Burgers. We refreshed our value proposition with limited time offers on baby back ribs and burgers at value-oriented price points. And, we repurchased shares of our common stock. Our financial performance for fiscal 2016 negatively impacted our long-term incentive program when compared to our competitors performance over the measurement period and resulted in a below target payout. Such performance also negatively impacted our short-term program as a result of the underperformance of our comparative restaurant sales versus our plan comparative restaurant sales.

On the first day of fiscal 2017, Ms. Kelli Valade was promoted to President of Chili’s. The transition of this role from Mr. Wyman Roberts will allow Ms. Valade to focus on overseeing all aspects of domestic operations, marketing and franchising, and PeopleWorks for the brand. As President and CEO of the Company, Mr. Roberts will continue overseeing the Company’s strategic initiatives, working with the Chili’s and Maggiano’s brands, and with our global team, building on the Company’s position domestically and internationally as a leader in the casual dining industry.

Our compensation programs for executive officers, including our NEOs, reflect the competitive environment in which we operate and align with a pay-for-performance philosophy. More specifically we:

Say-on-Pay Feedback from Shareholders

At the annual shareholder meeting in 2015, we submitted our executive compensation program for an advisory vote to you, our shareholders, and it received the support of over 98% of the total votes cast on the proposal. Annually, the Compensation Committee reviews the results of the advisory vote and considers feedback as it completes its annual review of each pay element and total compensation packages for our NEOs with respect to the next fiscal year. Based on this, there were no changes to the executive compensation program for 2016.

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Pay for Performance

The Company’s executive compensation programs are aligned with our business initiatives and have been designed to pay commensurate with level of performance generated. This philosophy is most evident in the mix of pay used to compensate our executives.

Our fiscal 2016 compensation packages for our CEO and NEOs are heavily weighted towards variable compensation. The variable compensation awarded in fiscal 2016 included an annual incentive under our short-term incentive plan and the economic value of stock options, performance RSUs (at target) and career equity.

As the graphs below show, performance-based incentives constitute the largest portion of target total direct compensation for our CEO and other NEOs:

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The Company believes the compensation programs are an important factor in driving our NEOs’ performance to achieve long term EPS growth. The success of our strategy is represented below. In years when our performance is below target, our NEO pay programs effectively reduced pay levels. Conversely, when performance is improved, NEO compensation increases, aligning our pay programs with shareholder returns.

Roles of the Compensation Committee, Consultants and Management

The Compensation Committee is responsible for determining the compensation of the Brinker Leadership Team, including the NEOs. All compensation recommendations are reviewed and approved by the independent directors of the full Board. The Committee utilizes three sources during their evaluation process: (1) Pearl Meyer & Partners (“Pearl Meyer”), the Board’s independent consulting firm; (2) Meridian Compensation Partners, LLC (“Meridian”); and (3) management. The

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Committee annually reviews the performance of all consultants. The Compensation Committee has also affirmatively determined that Pearl Meyer and Meridian are “independent” as required by the SEC and NYSE.

Pearl Meyer has been retained by and reports directly to the Compensation Committee. Pearl Meyer does not have any other consulting engagements with management. The Committee regularly asks Pearl Meyer to provide independent advice on current trends in compensation design, including compensation levels, the merits of particular forms of compensation, relative weighting of compensation elements and compensation best practices.

Meridian is also retained by the Committee and provides detailed benchmarking data based on our benchmarking peer group. Meridian does not have any other consulting engagements with management. Meridian generates an independent report that is utilized in determining compensation levels for our Brinker Leadership Team. A more detailed discussion of the benchmarking process is provided in the Benchmarking section below. Based on the benchmark data and individual performance, the CEO provides input and recommendations to the Committee in setting total compensation for the Brinker Leadership Team, excluding his own compensation. The Committee considers these data sources and applies its own independent judgment in establishing a total compensation program, comprised of base salary, short-term incentives targeted as a percentage of base pay, and long-term incentives, that aligns the interests of the executives with those of our shareholders.

Benchmarking

The Committee engages an independent third party to provide market data regarding base salary, short-term incentive targets, long-term incentive values and total compensation. For fiscal 2016, we retained Meridian to provide us with data drawn from their proprietary database. The benchmarking peer group is carefully selected based on criteria including restaurant and brand product industries, operating structure, location and size. We were near the median in terms of revenue size as compared to our benchmarking peer group. Proxy data from our Performance Share Plan peer group (which is identified in more detail in the Long-Term Incentives section of this Compensation Discussion and Analysis) was blended with data from Meridian’s database as well as data from other restaurant companies that participate in the Chain Restaurant Total Rewards Association (CRTRA) Compensation Survey to provide us with benchmark information that we believe accurately reflects the market in which we compete for executive talent. The following table lists the companies used in fiscal 2016 as our benchmarking proxy peer group for setting the fiscal 2016 compensation for our NEOs:

Meridian’s benchmark information was used to establish ranges for total compensation (base salary + short-term cash incentives + long-term equity incentives). We strive to be competitive in the marketplace by appropriately balancing all elements of compensation (short-term versus long-term and fixed versus variable) while recognizing our performance, as well as the individual’s performance, criticality, experience, and internal equity. There is no fixed percentage which determines the mix

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between cash and non-cash compensation, but compensation is significantly weighted towards variable compensation (short and long-term). The table below shows the percentage of fixed versus variable compensation elements for targeted total compensation.

Targeted Fixed Versus Variable Compensation Mix for the Named Executive Officers for Fiscal 2016

Fiscal 2016 Executive Compensation and Benefit Components:

For the fiscal year ended June 29, 2016, the principal components of compensation and benefits for our NEOs are listed:

In the sections that follow we detail how each component of compensation is evaluated. It is important to note that while each individual component is reviewed; all decisions are made in a total compensation context.

Base Salary

Base salaries provide our team members with a level of certainty about their compensation. Annually, we review base salaries during our benchmarking process. An individual’s base salary is dependent on the size and scope of the position, his or her experience and most importantly his or her performance.

For fiscal 2016, officers, including the NEOs, received a 2.5% merit increase, on average, while the rest of the organization received a 3.0% merit increase, on average.

Short-Term Incentives

Our profit sharing plan is a non-qualified annual incentive arrangement in which all RSC team members, including the NEOs, and certain restaurant brand team members participate. The plan measures both financial performance and individual performance.

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For all of our NEOs, the financial performance portion of the short-term incentive is based on actual adjusted EPS. The maximum award that any individual can receive is 150% of his or her individual short-term incentive target, and minimum thresholds must be achieved to earn a payout. The table below details the actual short-term incentive payout versus target for the NEOs:

Fiscal 2016 Actual Short-Term Incentive Payout versus Target

Fiscal 2016 Profit Sharing Plan

Financial Measure (2/3 Weighting):

This year the Company established a target which was consistent with our long-term goal of annual adjusted EPS growth. Actual adjusted non-GAAP EPS for the profit sharing plan was $3.51 compared to a target non-GAAP EPS for the profit sharing plan of $3.82, resulting in no (0.00%) achievement under the financial performance metric.

Individual Performance Measure (1/3 Weighting):

For the Brinker Leadership Team, including the NEOs, the individual performance portion was based on three equally weighted KPIs: Guests Intent to Return, Comparable Same-Restaurant Sales Growth (“Comp Sales”), and Return on Gross Investment (ROGI). The performance goals for Guests’ Intent to Return was achieved at the target performance level. However, the Brinker Leadership Team did not meet Comp Sales or ROGI performance goals (missing sales by 4.6% and ROGI by 0.7%). This performance resulted in a 33.33% achievement under the Individual Performance Metric for the Brinker Leadership Team.

Payout:

The resulting payout for NEOs was 11.11% of target based upon the goal achievement listed above and calculated as such: (2/3 x 0.00% actual adjusted EPS achievement + 1/3 x 33.33% KPI achievement).

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The formulas used to calculate both plan and actual performance are further outlined in our profit sharing plan. The Committee reviewed and determined the following items, as specified in the Plan, were excluded from the measurement of financial performance in the profit sharing plan: impairment charges, acquisition charges, gains on sales of assets, severance costs, impact on earnings related to closed restaurants, and net gains from legal settlements.

Long-Term Incentives

We grant a mix of stock options, performance shares and career equity to all of our officers with the belief that meeting our long-term strategic goals will increase our stock price. Target long-term incentive values are determined by the Committee by analyzing benchmark data, individual performance, program cost and total compensation targets. Once the target value is established, the number of shares granted as stock options, performance shares and career equity is based on delivering approximately 30% of the value in stock options, 60% of the value in performance shares and 10% of the value in career equity. Our equity programs give officers a stake in the potential rewards provided to shareholders as a result of their efforts.

All equity-based awards, including stock options, are granted on the last Thursday of each August. The number of shares granted each year fluctuates based on our stock price, and other equity unit valuation methods (Black-Scholes for stock options and Monte Carlo for performance shares subject to market conditions). However, the Committee will not grant equity compensation awards in anticipation of the release of material nonpublic information so the grant date could change if such a case should occur.

Stock Options

Stock options are intended to motivate participants to increase our stock price as they only have value if the market price of our stock increases over the closing price of our common stock on the date of grant. The actual compensation realized from stock options is dependent on both the increase in our stock price and each participant’s decision on when to exercise. Our stock options vest 25% per year over four years and have a term of eight years. We target a certain value for each stock option grant. The number of stock options granted is determined by the option fair value at the date of grant, and is calculated using the formula of (A) targeted value of stock option grant divided by (B) the grant date fair value as determined by the Black-Scholes valuation method.

Performance Shares

To balance out the volatility of stock options while still aligning participants with shareholder interests, we also grant performance shares. We target a certain value for each performance share grant. The number of performance shares granted is determined by the performance share fair value at the date of grant, and is calculated using the formula of (A) targeted value of performance share grant divided by (B) the grant date fair value as determined by the Monte Carlo valuation method.

Performance shares in fiscal 2016 will be earned based on our relative total shareholder return (TSR) compared to a select group of publicly-traded restaurant companies over a three year measurement period. The peer group is based on those companies with whom we compete for investor dollars and executive talent (these companies are also used in our executive compensation benchmarking). TSR is the measurement of the appreciation in the stock price for each company, plus dividends, if any. The 2016 TSR peer group is the same as the benchmarking proxy peer group (see page 24).

The target award (which is granted near the beginning of the measurement period) is adjusted by the payout percentage which ranges from 0% to 175% (see chart below). To earn 100% of a target award, we have to rank seventh in our TSR peer group. A cap is imposed on the maximum payout if our stock

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price appreciation over the measurement period exceeds 150%. In this scenario, the payout factor is calculated using the following formula: 250%/(% appreciation + 100%). For example if our stock price appreciates 200% during the measurement period, the payout factor would be: 83.333% (being 250%/(200%+100%). This payout factor would then be multiplied by the target award and by the payout percentage from the table below to determine the individual payout.

The table below reflects the ranking and related payout percentage for the fiscal 2016-2018 performance share plan.

Earned shares are distributed shortly after the completion of the three year performance period. Earned shares are not subject to further vesting requirements, although they may need to be retained to meet stock ownership guidelines (see discussion below).

For the fiscal 2014—2016 performance share plan, we ranked in tenth place and participants earned a 50% payout.

Career Equity

Career Equity is a restricted stock unit program that works as a retention device since the shares only vest upon retirement (detailed information concerning our retirement provisions can be found below in the paragraph titled Retirement Definitions and Payouts ). We target a certain value for each Career Equity grant. The number of Career Equity units granted is determined by the stock price at the date of grant and is calculated using the formula of (A) the targeted value of Career Equity grant divided by (B) the stock price at grant.

The value realized by executives is based on our stock price performance from the grant date until the executive’s retirement, which reinforces our long-term strategic goal of enhancing long-term shareholder value. Career Equity makes up approximately 10% of the total long-term incentive value for our NEOs.

Retention and other One-Time Equity Grants

These grants are restricted stock unit awards designed as a retention tool, with shares only vesting with continued employment for either three or five-year cliff-vesting horizons. The number of units granted is determined by the stock price at the date of grant, and is calculated using the formula of (A) the targeted value of the restricted stock unit grant divided by (B) the stock price at grant.

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Stock Ownership Guidelines

We have stock ownership guidelines for our Board of Directors and our senior vice presidents and above, including the NEOs. Stock ownership aligns these officers and directors with shareholders and promotes good corporate citizenship. Guidelines were first adopted in fiscal 2007 and are reviewed annually by the Board of Directors, including a comparison of market prevalence and guideline designs. After careful consideration, the Board decided to move away from the fixed share design, and adopted revised guidelines for fiscal 2016 based on the more accepted guideline design utilizing a multiple of salary for each senior vice president and above. The Board also adopted a new guideline for directors based on a multiple of the annual retainer.

The fiscal 2016 guidelines for all senior vice presidents and above define stock ownership to include the value of any shares currently owned; vested, in-the-money stock options (which are valued based on the “in the money” value of the stock option); the value of any unvested restricted stock or restricted stock units; and the value of one-third of any unvested performance shares. We include the value of one-third of the unvested performance shares, because on average, it is expected that at least one-third of the shares will vest over multiple performance cycles. Thus, by counting this value towards their ownership guideline, executives are able to meet the guideline with equity received as part of their compensation.

The fiscal 2016 guidelines for our Board of Directors define stock ownership to include the value of any shares currently owned; vested, in-the-money stock options (which are valued based on the “in the money” value of the stock option); and the value of unvested restricted stock or restricted stock units.

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The fiscal 2016 guidelines are based on a multiple of base salary (annual retainer in the case of the Board) which is used to calculate the desired value of holdings by position and are as follows:

Officers, including the NEOs subject to the guidelines, have five years to accumulate the necessary shares. The five-year period begins on the date the officer is promoted to senior vice president or above. If, however, such officer was not previously an employee of the Company, then the officer will be provided six years to meet the guideline. Should any of these officers be below the guideline after being in the program for five years (or six, as applicable), they may receive half of any short-term incentives in shares until the guideline is met. Directors have four years to accumulate the necessary shares. Currently, all officers and directors are in compliance with the guidelines.

The Company has a written insider trading policy that, among other things, prohibits its directors, officers and employees from engaging in short-sale transactions of Company securities, pledging Company securities, placing Company securities in margin accounts, or engaging in hedging transactions, including trading in any derivative security relating to Company securities. You may obtain a copy of the policy in the Corporate Governance section of our website ( http://brinker.com/corp_gov/improper_use_policy.html ).

Fiscal 2017 Considerations

The Compensation Committee recently conducted a detailed review of our compensation programs and benefits in comparison to our operating climate and the market as a whole. The Committee determined that we had the appropriate mix of compensation and benefits in place (cash, short-term incentives, stock options, restricted stock units and 401(k)) and the Board approved a merit increase pool for all team members for the fiscal year.

In conjunction with their annual review, the Committee recommended two changes that were approved by the Board related to our fiscal 2017 Short-term and Long-term incentive plans.

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Retirement Benefits

Savings Plans

Our 401(k) Savings Plan (“401(k) Plan”) and Deferred Income Plan (“Deferred Plan”) are designed to provide the Company’s team members with a competitive tax-deferred long-term savings vehicle. The 401(k) Plan is a qualified 401(k) plan and the Deferred Plan is a non-qualified deferred compensation plan.

All of our team members, including those who may be classified as highly compensated by the IRS, who have attained the age of twenty-one and completed both one year and one thousand hours of service with the Company are eligible to participate in the 401(k) Plan. We will match 100% of each participant’s contribution for the first 3% of the participant’s base salary and bonus and 50% for the next 2% of the participant’s salary and bonus. All Company contributions vest immediately.

The Deferred Plan is a non-qualified deferred compensation plan for all of our officers, including the NEOs. Deferred Plan participants elect the percentage of their salary and bonus, not to exceed 50%, they wish to defer into their Deferred Plan account. Deferrals earn a flat rate of interest which is compounded monthly. The interest rate is based on the prime rate on the first business day each November. The interest rate has a collar preventing it from increasing or decreasing more than one percentage point over the previous year. We do not match executives’ deferrals under the Deferred Plan.

Retiree Medical Benefits

Select officers, including the NEOs, are eligible to receive retiree medical insurance from us if they meet our definition of retirement (described below in the paragraph of the section entitled “Retirement Definitions and Payouts” ). This fully insured policy is paid for by both the retiree and the Company. The cost split between the retiree and the Company mimics that of the cost split for our active employees and their medical benefits. Currently, that percentage is approximately 70% of the cost paid by the Company and 30% of the cost paid by the participant. Participants are eligible to receive this coverage until age 65.

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Retirement Definitions and Payouts

For those executives who remain with us for their career, we want to ensure they are able to benefit from their contributions to our long-term success. Therefore, we have defined retirement provisions that allow for post-employment benefits. Early retirement is defined as age plus years of service equal 70, with a minimum age of 55. Normal retirement is defined as age plus years of service equal 70, with a minimum age of 60, or age 65 (regardless of service). This definition is applied to all of our equity programs, our retiree medical program, and our profit sharing plan. Listed below are our equity programs and their treatment under early and normal retirement:

Health and Welfare Benefits

All of our salaried employees are eligible for health and welfare benefits, including the NEOs. Our salaried employees also receive term life insurance, short-term disability and long-term disability. The level of Company-provided coverage for the senior vice presidents and above, including the NEOs, is at a higher rate than other employees for some Company-provided benefits. We have provided detailed information in the chart below for the NEOs.

Perquisites

We provide our officers, including the NEOs, with perquisites that are generally intended to promote the officers well-being and efficiency. The Committee reviews the perquisites during our annual benchmarking process for reasonableness and consistency with competitive practice. We currently provide our officers (including the NEOs, with the exception of the CEO) with the following perquisites:

The CEO receives only a dining card and an annual executive physical.

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We do not own or lease any aircraft for the benefit of management. Providing perquisites separately, and not rolling them into base salary, ensures those dollars are not included in our calculations for benefits such as life insurance and other programs that use base salary in their calculation such as the profit sharing plan and our 401(k) Plan.

Change in Control

We do not have any change in control agreements in place with any of our officers. However, our equity programs and profit sharing plan do contain change in control provisions. Under our stock option program, in the event of a change in control, the unvested options are accelerated and the optionee has the full remaining term to exercise. We made a change to this provision in our annual grant agreements that took effect in fiscal 2009 and future years where we will only accelerate “in the money” stock options.

Vesting on all unvested restricted shares is also accelerated as of the date of change in control. Under our Performance Share Plan, the participant becomes 100% vested and the relative ranking is established as of the date of the change in control, thus ending the measurement period. In no event will less than 100% of the target award be distributed to the participant. This “floor” amount was included to ensure the retention of plan participants through the change-in-control date. As for our profit sharing plan, if a change in control should occur prior to the end of the fiscal year, the participant will be eligible to receive a payment equal to the greater of the payout as calculated under the Plan provisions or their annual target award. Again, the “floor” award is included to ensure retention and to provide the participant the benefit of the doubt when the measurement period is truncated.

Beginning in fiscal 2017, we expect to transition from single-trigger vesting to double-trigger vesting upon a change in control for awards granted under our stock programs and profit sharing plans.

Tax Implications

The Committee has considered the impact of Section 162(m) of the Internal Revenue Code. This section disallows a tax deduction for any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless compensation is performance-based. It is the intent of the Company and the Committee to maximize the deductibility of our executives’ compensation whenever possible. However, the Committee does not believe that compensation decisions should be based solely upon the amount of compensation that is deductible for federal income tax purposes. Accordingly, the Committee reserves the right to award compensation that is or could become non-deductible when it believes that such compensation is consistent with our strategic goals and in our best interests. For fiscal year 2016, we believe the annual incentive payments, stock options, and performance shares all qualify for deduction under section 162(m).

Administration of Compensation Program

The Committee’s administration of the executive compensation program is in accordance with the principles outlined at the beginning of this Compensation Discussion and Analysis. The Committee believes that our compensation programs provide the necessary incentives and flexibility to promote our performance-based compensation philosophy while being consistent with our objectives. Our financial performance supports the compensation practices employed during the past year. No member of the Committee serves or previously served as an employee or officer of the Company.

Recoupment Provisions

Our individual plan documents and our grant agreements contain language stating that if the Board of Directors determines any fraud, negligence or intentional misconduct by an Officer was a significant contributing factor to the Company having to restate all or a portion of its financial statements, the

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Board or Committee shall take, in its discretion, such action as it deems necessary to remedy the misconduct and prevent its recurrence. Further, under Section 304 of Sarbanes-Oxley, if the Company is required to restate its financials due to material noncompliance with any financial reporting requirements as a result of misconduct, the CEO and CFO must reimburse the Company for (1) any bonus or other incentive-based or equity-based compensation received during the 36 months following the first public issuance of the non-complying document and (2) any profits realized from the sale of securities of the Company during those 36 months.

Consideration of Prior Amounts Realized

In furtherance of the Company’s philosophy of rewarding executives for future superior performance, prior stock compensation gains (or the lack thereof) are not considered in setting future compensation levels.

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