Exhibit 10.3

FY13 Annual Incentive Compensation Plan (Executives)

Plan Overview

Grants under this FY13 Annual Incentive Compensation Plan (Executives) (“Annual
Executive Plan”) are granted under and governed by the terms and conditions of
the Vera Bradley, Inc. 2010 Equity and Incentive Plan (the “2010 Plan”), as
amended. Any term capitalized herein but not defined will have the meaning set
forth in the 2010 Plan.

The Annual Executive Plan is designed to give the Company’s Chief Executive
Officer (CEO) and each executive-level employee who reports directly to the CEO
(and is identified on Exhibit A attached hereto) an opportunity to share in the
Company’s success for the fiscal year ending February 2, 2013 (the “Performance
Period”). The target incentive opportunity for the Performance Period is based
on a percentage of each Participant’s Base Salary (as defined herein). Each
Participant’s incentive opportunity is based on two independent performance
measures: net revenue and net income (each making up 50% of corporate
performance).

Corporate Performance

Payouts under the Annual Executive Plan are based on the achievement level of
the two equally weighted, independent financial metrics, currently defined as
net revenue and net income. Assuming at least threshold performance levels are
met for the Performance Period, the actual payout levels range from 50%-200% of
target.

 

Net Revenue  

Performance

   Performance Level*     Payout %  

Threshold

     90 %      50 % 

Target

     100 %      100 % 

Excellence

     110 %      200 % 

Net Income

 

Performance

   Performance Level*     Payout %  

Threshold

     90 %      50 % 

Target

     100 %      100 % 

Excellence

     110 %      200 % 

 

  * – Payout levels are determined using linear interpolation for results
falling between the three performance levels.

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Incentive Opportunity

As outlined in the Plan Overview (above), the target incentive opportunity is
based on a percentage of each Participant’s Base Salary (as defined below). The
actual payout levels range from 50%-200% of target, assuming threshold levels
are met.

 

     Incentive Opportunity* (% of Base Salary**)  

Participant Level

   Threshold     Target     Excellence  

CEO

     30 %      60 %      120 % 

Functional Mgmt. 6 (EVPs)

     25 %      50 %      100 % 

 

  * –The actual annual incentive that can be earned under this Annual Executive
Plan is based on the level of performance achieved (as summarized in the table
above) and can range from 0% of the “Target” (for performance levels below the
“Threshold” level) to a maximum of 200% of the “Target” (for performance levels
at or above the “Excellence” level).

 

  ** Base Salary” is defined as the Participant’s gross base salary (before
taxes and deductions) paid by the Company to the Participant during the
Performance Period.

Putting It All Together — An Example

Assume Lynn has a Functional Management Level 6 job with a Base Salary of
$100,000. Her target incentive is 50% of Base Salary ($50,000).

Target — The performance weightings for Lynn's grade along with dollar target
amounts are:

 

  •  

Net Revenue: 50% ($25,000)

 

  •  

Net Income: 50% ($25,000)

Actual — The actual performance levels were:

 

  •  

Net Revenue: at “Excellence” or 200% ($50,000)

 

  •  

Net Income: at “Target” or 100% ($25,000)

 

Performance Measure

   Opportunity      Weighting     Result     Award  

Net Revenue

   $ 50,000         50 %      200 %    $ 50,000   

Net Income

   $ 50,000         50 %      100 %    $ 25,000   

Total:

          $ 75,000   

 

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Administrative Guidelines — Provide additional information regarding how the
Annual Executive Plan will be administered.

1. Awards granted under the Annual Executive Plan are intended to qualify as
performance-based compensation under section 162(m) of the Internal Revenue Code
of 1986, as amended (“Code”). Annual incentive payments will become earned
(i.e., vested) only if the Company achieves stated levels of “Net Revenue” and
“Net Income” (as defined below) over the Performance Period as set forth in the
Annual Executive Plan.

a. Certification of Results. Before any Awards under the Annual Executive Plan
are deemed earned with respect to a Performance Period, the Committee shall
certify, in accordance with Section 9.5 of the 2010 Plan, in writing (i) that
the performance goals described in the Annual Executive Plan have been met for
the Performance Period, and (ii) the calculation of “Net Income” and “Net
Revenue” for the Performance Period.

b. Definition of “Net Income“ For purposes of this Annual Executive Plan, the
term “Net Income” means, with respect to the Performance Period related to any
Awards, the Company’s consolidated net income, as determined in accordance with
U.S. GAAP, adjusted to exclude the effects, as shown on the financial statements
furnished as part of Form 8-K (announcing the Company’s fiscal year-end
financial results) for any fiscal year of the Company ending with or within the
Performance Period, of (i) any acquisition during the Performance Period,
including the amortization expense of intangible assets acquired during the
Performance Period, (ii) material charges or income arising from litigation,
(iii) corporate restructuring, asset impairment, or other special charges, and
(iv) cumulative effect of changes to U.S. GAAP accounting.

c. Definition of “Net Revenue” For purposes of this Annual Executive Plan, the
term “Net Revenue” means, with respect to the Performance Period related to any
Awards, the Company’s positive consolidated net revenue, as determined in
accordance with U.S. GAAP.

d. Finality of Committee Determinations. Any determination by the Committee of
Net Income, Net Revenue and the level and entitlement to an Award, and any
interpretation, rule, or decision adopted by the Committee under the Annual
Executive Plan or in carrying out or administering the Annual Executive Plan, is
final and binding for all purposes and upon all interested persons, their heirs,
and personal representatives. The Committee may rely conclusively on
determinations made by the Company and its auditors to determine Net Income, Net
Revenue and related information for purposes of administration of the Annual
Executive Plan, whether such information is determined by the Company, its
auditors, or a third-party vendor engaged to provide such information to the
Company. This provision is not intended to limit the Committee’s power, to the
extent it deems proper in its sole discretion, to take any action permitted
under the Plan and Code Section 162(m)

2. Only those regular, full-time and part-time corporate employees selected by
the Compensation Committee and set forth on

Exhibit A are eligible to participate in this Annual Executive Plan.

3. Participation in the Annual Executive Plan neither gives any employee the
right to be retained as an employee nor limits the Company’s right to discharge
or discipline any employee.

 

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4. Except as provided herein, (a) no Participant will be entitled to an
incentive payment under the Annual Executive Plan unless the Participant is
employed by the Company or an Affiliate in an eligible position on the day the
incentive payment is made, and (b) a Participant who separates from the Service
for any reason prior to the date of payment of such incentive will not be
entitled to a prorated award, unless otherwise required by applicable state law.
Notwithstanding the preceding provisions, the following provisions will apply
if, during the Performance Period (or after the Performance Period and prior to
the date of payment), you cease providing Services due to death, Disability or
Retirement (and provided that you have not otherwise engaged in an act that
would constitute Cause):

(i) Death or Disability: In the event a Participant’s Service terminates as a
result of death or Disability prior to the date on which the incentive payment
is made, the outstanding Award shall be treated as earned at the target level
(if such Service terminated prior to the end of the Performance Period), or at
the actual level (if such Service terminated after the Performance Period and
prior to the payment date), but prorated based on the number of full fiscal
months (in which the Participant provided Service throughout such month) during
the Performance Period, with any such earned Awards becoming fully vested and
paid out as provided in section 8, below.

(ii) Retirement: In the event a Participant’s Service with the Company
terminates as a result of Retirement during the Performance Period, the
outstanding Award shall be earned based on the actual performance level obtained
(determined at the end of the Performance Period), but prorated based on the
number of full fiscal months (in which the Participant provided Service
throughout such month) during the Performance Period, with any such earned
Awards becoming fully vested and paid out as provided in section 8, below.

In the event a Participant’s Service terminates prior to the date of payment as
a result of any reason other than death, Disability, or Retirement, all unearned
incentive compensation granted hereunder shall be forfeited to the Company.

5. Notwithstanding anything to the contrary in this Annual Executive Plan, in
the event of a Change in Control of the Company during the Performance Period,
then the outstanding Award shall be treated as earned at the target level, but
prorated based on the number of full fiscal months (in which the Participant
provided Service throughout such month) during the Performance Period, with any
such earned Awards becoming fully vested and paid out on a as soon as
practicable (but not later that 30 calendar days) following the Change in
Control. For purposes of this Annual Executive Plan, the term “Change in
Control” shall mean the occurrence of any one or more of the following: (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Exchange Act and the rules of the
Securities and Exchange Commission as in effect on the date of this Award),
other than (i) Barbara Baekgaard, Patricia Miller, Jill Nichols, Michael Ray and
Kim Colby and their respective heirs and descendants and any trust established
for the benefit of such Persons, (ii) the Company or a corporation owned
directly or indirectly by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company, or (iii) any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any Affiliate, of securities of the Company representing more than
twenty-five percent (25%) of

 

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the combined voting power of the Company's then outstanding securities; (b) the
occupation of a majority of the seats (other than vacant seats) on the Board by
Persons who were neither (i) nominated by the Board nor (ii) appointed by
directors so nominated; or (c) the consummation of (i) an agreement for the sale
or disposition of all or substantially all of the Company’s assets, or (ii) a
merger, consolidation or reorganization of the Company with or involving any
other corporation, other than a merger, consolidation or reorganization that
results in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the combined voting power of the voting securities of the Company (or
such surviving entity) outstanding immediately after such merger, consolidation
or reorganization.

6. Subject to the discretion of the Compensation Committee of the Board,
Participants will be ineligible to participate in the Annual Executive Plan
while employed in any new-hire probationary period.

7. All goal attainment calculations will follow normal rounding guidelines
(i.e., 90.1% to 90.49% = 90%; 90.5% to 90.9% = 91%).

8. Subject to the certification requirements of the Compensation Committee
(above), payments under the Annual Executive Plan will be paid in cash after the
end of the Company’s fiscal tax year but no later than the 15th day of the third
month following the Company’s fiscal tax year on which the annual incentives
under this Annual Executive Plan are based.

9. The Company shall have the power and the right to deduct or withhold an
amount sufficient to satisfy federal, state, and local taxes (including FICA
obligations), domestic or foreign, and other deductions required to be withheld
by law with respect to this Award.

10. Record keeping and computation required by this Annual Executive Plan will
be subject to review by third-party auditors, and by the Compensation Committee.

11. Interpretations, determinations, and actions regarding plan administration
shall be made by the Compensation Committee. Any such determinations and any
interpretation, rule, or decision under the Annual Executive Plan or in carrying
out or administering the Annual Executive Plan, is final and binding for all
purposes and upon all interested persons, their heirs, and personal
representatives. The Company or its designee may rely conclusively on
determinations made by the Company and its auditors to determine related
information for purposes of administration of the Annual Executive Plan, whether
such information is determined by the Company, its auditors, or a third-party
vendor engaged to provide such information to the Company.

12. While it is the intent of the Company to continue this Annual Executive Plan
as stated herein, the Company reserves the right to amend or discontinue the
plan at any time in its sole discretion.

13. No Participant can assign, encumber or transfer any of his or her rights and
interests under the Award described in this document, except, in the event of
his or her death, by will or the laws of descent and distribution.

 

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14. The rights granted under this document are in all respects subject to the
provisions of the 2010 Plan to the same extent and with the same effect as if
they were set forth fully therein. If the terms of this document or the Award
conflict with the terms of the 2010 Plan, the 2010 Plan will control.

Exhibit A

Employees Eligible for FY13 Annual Executive Plan

 

1. Mike Ray

2. Barbara Baekgaard

3. Patricia Miller

4. Charles Mann

5. Kimberly Colby

6. Jill Nichols

7. Matthew Wojewuczki

8. Jeffrey Blade

 

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