EXHIBIT 10.16
COLLECTIVE BRANDS, INC.
INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSES: The purposes of the Collective Brands, Inc. Incentive
Compensation Plan are (i) to provide a means to attract, retain, and motivate
talented personnel and (ii) to provide to participating employees added
incentive for high levels of performance and for additional effort to improve
the Company’s financial performance.
SECTION 2. DEFINITIONS: As used in this Plan, unless the context otherwise
requires, each of the following terms shall have the meaning set forth below.

  (a)   “Annual Award” shall mean, for any Plan Year, a payment made to an
Annual Award Participant under the terms of this Plan.     (b)   “Annual Award
Maximum Amount” shall mean $5,000,000.     (c)   “Annual Award Participant”
shall mean an Eligible Employee selected by the Committee to participate in the
Plan pursuant to Section 5.     (d)   “Board of Directors” or “Board” shall mean
the Board of Directors of the Company.     (e)   “CEO” shall mean the Chief
Executive Officer of the Company.     (f)   “Code” shall mean the Internal
Revenue Code of 1986, as amended from time to time, and any references to a
particular section of the Code shall be deemed to include any successor
provision thereto.     (g)   “Committee” shall mean a committee or subcommittee
of the Board of Directors, which shall consist solely of two or more “outside
directors” within the meaning of Section 162(m) of the Code.     (h)   “Company”
shall mean Collective Brands, Inc., a Delaware corporation (formerly Payless
ShoeSource, Inc.).     (i)   “Covered Employee” shall mean the CEO and each
other executive of the Company or a Subsidiary whom the Committee determines, in
its discretion, is or may be a “covered employee” within the meaning of Section
162(m) of the Code for a Plan Year or Plan Period to which an Annual Award or
Long-Term Award, as the case may be, relates.     (j)   “Eligible Employee”
shall mean any officers or other key employees of the Company or any Company
Subsidiary, as determined by the Committee in its sole discretion.     (k)  
“Long-Term Award” shall mean, for any Plan Period, a payment made to a Long-

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      Term Award Participant under the terms of this Plan.     (l)   “Long-Term
Award Maximum Amount” shall mean $5,000,000.     (m)   “Long-Term Award
Participant” shall mean an Eligible Employee selected by the Committee to
participate in the Plan pursuant to Section 6.     (n)   “Performance Goal(s)”
shall mean the goal or goals established for an Annual Award Participant or a
Long-Term Award Participant for a Plan Year or Plan Period, as the case may be,
by the Committee pursuant to Section 5 or Section 6, as applicable.     (o)  
“Performance Measures” shall mean any of the following performance criteria,
either alone or in any combination, and may be expressed with respect to the
Company or one or more operating units, groups, or any Subsidiary, as the
Committee may determine: cash flow; cash flow from operations; total earnings;
earnings per share, diluted or basic; earnings per share from continuing
operations, diluted or basic; earnings before interest and taxes; earnings
before interest, taxes, depreciation, and amortization; earnings from continuing
operations; net asset turnover; inventory turnover; net earnings; operating
earnings; operating margin; return on equity; return on net assets; return on
total assets; return on capital; return on investment; return on sales;
revenues; sales; market share; economic value added; expense reduction levels;
stock price; and total shareholder return. For any Plan Year or Plan Period,
Performance Measures may be determined on an absolute basis or relative to
internal goals or relative to levels attained in a year or years prior to such
Plan Year or Plan Period or related to other companies or indices or as ratios
expressing relationships between two or more Performance Measures. For any Plan
Year or Plan Period, the Committee shall provide how any Performance Measure
shall be adjusted to the extent necessary to prevent dilution or enlargement of
any Annual Award or Long-Term Award as a result of extraordinary events or
circumstances, as determined by the Committee, or to exclude the effects of
extraordinary, unusual, or non-recurring items; changes in applicable laws,
regulations, or accounting principles; currency fluctuations; discontinued
operations; non-cash items, such as amortization, depreciation, or reserves; or
any recapitalization, restructuring, reorganization, merger, acquisition,
divestiture, consolidation, spin-off, split-up, combination, liquidation,
dissolution, sale of assets, or other similar corporate transaction, or stock
dividends, or stock splits or combinations; provided, however, in the case of a
Covered Employee, no such adjustment will be made if the effect of such
adjustment would cause the Annual Award or Long-Term Award to a Covered Employee
to fail to qualify as “qualified performance-based compensation” within the
meaning of Section 162(m) of the Code.     (p)   “Plan” shall mean the
Collective Brands, Inc. Incentive Compensation Plan, as amended and restated
from time to time.

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  (q)   “Plan Period” shall mean a period of one fiscal year or longer, as
determined by the Committee in its sole discretion.     (r)   “Plan Year” shall
mean a period of one fiscal year or such shorter period, as determined by the
Committee in its sole discretion.     (s)   “Subsidiary” shall mean any
corporation, the majority of the outstanding voting stock of which is owned,
directly or indirectly, by the Company, and that is not itself a publicly held
corporation within the meaning of Section 162(m) of the Code.

SECTION 3. ADMINISTRATION: Subject to the express provisions of this Plan, the
Committee shall have authority to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to the Plan, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
In exercising its discretion, the Committee may use such objective or subjective
factors as it determines to be appropriate in its sole discretion. Except to the
extent not permitted for qualification as “qualified performance-based
compensation” within the meaning of Section 162(m) of the Code or generally
prohibited by applicable law, the Committee may delegate all or a portion of its
responsibilities and powers to any one or more of its members or to any other
person or persons selected by the Committee. Any such delegation may be revoked
by the Committee at any time. The determinations of the Committee pursuant to
its authority under the Plan shall be conclusive and binding.
SECTION 4. ELIGIBILITY: The Committee shall designate which Eligible Employees
will be Annual Award Participants or Long-Term Award Participants in the Plan
for a particular Plan Year or Plan Period, as the case may be. Such designation
for any Plan Year or Plan Period shall not require designation of such Eligible
Employee as an Annual Award Participant or Long-Term Award Participant for any
other Plan Year or Plan Period.
SECTION 5. ANNUAL AWARDS:

  (a)   The Committee may make Annual Awards to Annual Award Participants with
respect to each Plan Year, subject to the terms and conditions set forth in the
Plan.     (b)   Within 90 days after the commencement of each Plan Year (or such
other date as required by Section 162(m) of the Code and the regulations
promulgated thereunder), the Committee shall, in writing, select which Eligible
Employees will be Annual Award Participants for such Plan Year and determine for
each such Plan Year the following:

  (i)   The Performance Goal or Performance Goals applicable to each Annual
Award Participant for the Plan Year based on one or more Performance Measures;
and

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  (ii)   The payment schedule detailing the total amount which may be available
for payment to each Annual Award Participant as an Annual Award based upon the
relative level of attainment of the Performance Goal or Performance Goals.

  (c)   Upon completion of a Plan Year, the Committee shall:

  (i)   Certify, in writing, prior to payment of any Annual Award, whether and
to what extent the Performance Goal or Performance Goals for the Plan Year were
satisfied;     (ii)   Determine the amount available for each Annual Award
Participant’s Annual Award pursuant to the payment schedule established in
Section 5(b)(ii);     (iii)   Determine any increase or reduction in the amount
of an Annual Award Participant’s available Annual Award, as determined pursuant
to Section 5(c)(ii), (including a reduction to zero) based on any subjective or
objective factors that it determines to be appropriate in its sole discretion;
provided, however, in the case of a Covered Employee, the Committee may reduce
(including a reduction to zero) but may not increase the amount of an available
Annual Award; and provided further that the exercise of such discretion to
reduce an Annual Award with respect to any Annual Award Participant shall not
have the effect of increasing an Annual Award that is payable to a Covered
Employee; and     (iv)   Authorize payment subject to Section 7 of such amounts
determined under Section 5(c)(iii).

  (d)   Notwithstanding any other provision of this Plan, in no event shall the
Annual Award earned by any Covered Employee for a Plan Year exceed the Annual
Award Maximum Amount.

SECTION 6. LONG-TERM AWARDS:

  (a)   The Committee may make Long-Term Awards to Long-Term Award Participants
with respect to each Plan Period, subject to the terms and conditions set forth
in the Plan.     (b)   Within 90 days after the commencement of each Plan Period
(or such other date as required by Section 162(m) of the Code and the
regulations promulgated thereunder), the Committee shall, in writing, select the
length of such Plan Period, select which Eligible Employees will be Long-Term
Award Participants for such Plan Period, and determine for each such Plan Period
the following:

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  (i)   The Performance Goal or Performance Goals applicable to each Long-Term
Award Participant for the Plan Period based on one or more Performance Measures;
and     (ii)   The payment schedule detailing the total amount which may be
available for payment to each Long-Term Award Participant as a Long-Term Award
based upon the relative level of attainment of the Performance Goal or
Performance Goals.

  (c)   Upon completion of a Plan Period, the Committee shall:

  (i)   Certify, in writing, prior to payment of any Long-Term Award, whether
and to what extent the Performance Goal or Performance Goals for the Plan Period
were satisfied;

  (ii)   Determine the amount available for each Long-Term Award Participant’s
Long-Term Award pursuant to the payment schedule established in
Section 6(b)(ii);     (iii)   Determine any increase or reduction in the amount
of a Long-Term Award Participant’s available Long-Term Award, as determined
pursuant to Section 6(c)(ii), (including a reduction to zero) based on any
subjective or objective factors that it determines to be appropriate in its sole
discretion; provided, however, in the case of a Covered Employee, the Committee
may reduce (including a reduction to zero) but may not increase the amount of an
available Long-Term Award; and provided further that the exercise of such
discretion to reduce a Long-Term Award with respect to any Long-Term Award
Participant shall not have the effect of increasing a Long-Term Award that is
payable to a Covered Employee; and     (iv)   Authorize payment subject to
Section 7 of such amounts determined under Section 6(c)(iii).

  (d)   Notwithstanding any other provision of this Plan, in no event shall the
Long-Term Award earned by any Covered Employee for a Plan Period exceed the
Long-Term Award Maximum Amount.

SECTION 7. PAYMENT OF AWARDS: Annual Awards and Long-Term Awards under this Plan
shall be made in a lump sum payment in cash to the Annual Award Participant or
Long-Term Award Participant, as the case may be, or to the beneficiary, as
designated under procedures established by the Committee, of such Annual Award
Participant or Long-Term Award Participant as soon as practicable following the
Plan Year or Plan Period, as the case may be, or shall be deferred under such
plan as the Company may have established for such purposes. Unless provided
otherwise in an employment agreement, severance agreement or other written
agreement between the Company and an Annual Award Participant or Long-Term Award
Participant, as the case may be, no Annual Award or Long-Term Award shall be
paid to any

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Annual Award Participant or Long-Term Award Participant under this Plan unless
such Annual Award Participant or Long-Term Award Participant is employed by the
Company or a Subsidiary on the last day of the Plan Year or Plan Period, as the
case may be, for which such Annual Award or Long-Term Award is payable. The
Company may deduct from any Annual Award payment or Long-Term Award payment such
amounts as may be required to be withheld under any federal, state, or local tax
laws.
SECTION 8. NO CONTINUED EMPLOYMENT: Nothing in this Plan shall give any person
any right to continue in the employ of the Company or any Company Subsidiary or
constitute a contract or agreement of employment or interfere in any way with
the right of the Company or any Company Subsidiary to terminate or change the
conditions of employment.
SECTION 9. NONASSIGNABILITY: Except as otherwise required by applicable law, any
rights of an Annual Award Participant or Long-Term Award Participant or a
beneficiary of an Annual Award Participant or Long-Term Award Participant under
this Plan shall not be anticipated, sold, assigned, transferred, encumbered,
hypothecated, or pledged nor subject to any levy or charge and shall not be
subject in any manner to the claims of any creditor of an Annual Award
Participant or Long-Term Award Participant or a beneficiary of an Annual Award
Participant or Long-Term Award Participant; and any attempt to take such action
shall be null and void.
SECTION 10. TERMINATION AND AMENDMENT: Subject to the approval of the Board,
where required, the Committee may at any time and from time to time alter,
amend, suspend, or terminate the Plan in whole or in part; provided, however,
that no amendment which requires shareholder approval in order for the Plan to
continue to comply with Section 162(m) of the Code with respect to a Covered
Employee shall be effective unless such amendment is approved by the
shareholders of the Company. Notwithstanding the foregoing, no termination or
amendment of the Plan may, without the consent of an Annual Award Participant or
Long-Term Award Participant to whom an Annual Award or Long-Term Award, as the
case may be, has been determined for a completed Plan Year or Plan Period, as
the case may be, but not yet paid, adversely affect the rights of such Annual
Award Participant or Long-Term Award Participant in such Annual Award or
Long-Term Award.
SECTION 11. INTERPRETATION: Except in connection with a change in control of the
Company, as determined by the Committee in its sole discretion, it is the intent
of the Company that Annual Awards and Long-Term Awards made to Covered Employees
shall constitute “qualified performance-based compensation” satisfying the
requirements of Section 162(m) of the Code. Accordingly, the provisions of the
Plan shall be interpreted in a manner consistent with Section 162(m) of the
Code. If any other provision of the Plan, an Annual Award, or a Long-Term Award
is intended to but does not comply or is inconsistent with the requirements of
Section 162(m) of the Code, such provision shall be construed or deemed amended
to the extent necessary to conform to and comply with such requirements.
SECTION 12. UNFUNDED STATUS: Annual Awards and Long-Term Awards shall be made
from the general funds of the Company, and no special or separate fund shall be
established or other segregation of assets made to assure payment. No Annual
Award Participant

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or Long-Term Award Participant or other person shall have under any
circumstances any interest in any particular property or assets of the Company.
SECTION 13. APPLICABLE LAW: This Plan shall be governed by and construed in
accordance with the laws of the State of Kansas, without regard to its
principles of conflict of laws.
SECTION 14. EFFECTIVE DATE: This Plan was effective as of February 3, 2002, and
was amended effective February 4, 2007, subject to stockholder approval on
May 24, 2007; provided, however, that no Annual Award or Long-Term Award will be
made to a Covered Employee under the Plan unless prior to such payment, the
holders of a majority of the shares of the Company’s common stock actually
voting on the matter approve this Plan at a meeting of the shareholders of the
Company. The Plan was further amended on August 17, 2007 to reflect a change in
the Company and Plan name.

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