Exhibit 10.1


 


	
  



  	
  Fiscal
  Year 2008 Bonus Plan

   

  



 


INTRODUCTION


 


This
Fiscal Year 2008 Bonus Plan (the “Plan”) is intended to provide executives and
other eligible participants with financial incentives for their important
contributions to our success.  Executives
in the Plan have the potential to earn a bonus payout equal to a maximum
percentage of bonus eligible base salary as specified for each participant by
the Compensation Committee.  Michaels
Stores Inc.’s top priority is to achieve its sales and earnings goals, and
maximize company profitability.


 


BONUS
MEASURES


 


To
further the Company’s strategy of paying for performance, participant bonuses
are generally based on the overall company performance, business unit metrics
and individual performance as measured against established objectives.  For Fiscal Year 2008, the Plan measures for
each participant shall consist of: (a) a Corporate Financial Performance
measure of EBITDA minus Inventory Charge (1), (b) a
Business Unit performance measure, if applicable, and (c) an individual
performance measure as established by the Compensation Committee.  The Compensation Committee will establish the
weight of each measure, and the threshold, target and maximum performance metrics.


 






(1)May exclude
additional charges as approved by the Compensation Committee of the Board of
Directors.


 


EBITDA


 


EBITDA
is short for “Earnings Before
Interest, Taxes,
Depreciation and Amortization”.  It is a measure that indicates the Company’s
operating profitability before non-operating expenses and non-cash charges,
calculated by taking operating income and adding back depreciation and
amortization expenses.  Amortization
refers to spreading an intangible asset’s value over that asset’s useful life.  An example of an intangible asset would be
leasehold improvements (changes we make to a store location to make the
building setup consistent with a Michaels store layout). Depreciation, on the
other hand, refers to the spreading of a tangible asset’s cost over that
asset’s life, such as store fixtures or computer equipment.


 


EBITDA
is intended to be a measure that is much more closely linked to the cash flow
that the business generates from its operations – a measure of the
profit and loss statement (P&L) based on the cash we take in each day (sales),
less the ongoing cash we are spending (cost of sales and expenses).  Since EBITDA is a key measure common to all
Michaels’ corporate bonus plans, everything you and your co-workers do to
support the stores in driving sales and controlling your work expenses will
help maximize your bonus potential!


 


INVENTORY CHARGE


 


The inventory charge is much like an “interest charge” to cover the
cost of buying and holding inventory, and is subtracted from the EBITDA number
in order to give us an incentive as a company to not over-buy inventory, since
too much inventory takes cash away from the company’s ability to fund
initiatives and pay down debt.  A percent
charge per month on the cost of average monthly inventory the company carries
of 12% per year is deducted from the EBITDA number.  The resulting EBITDA minus inventory charge
is then used as the key corporate financial performance measure in your bonus
plan and all other corporate bonus plans to promote alignment of goal
achievement throughout our incentive plans.




MINIMUM COMPANY THRESHOLD PERFORMANCE


 


Before any Business Unit or Individual Performance portion can be
earned, the actual results of the Corporate Financial Performance measure
(Michaels Stores Inc. EBITDA minus inventory charge) must at least meet a
minimum level of performance (“Threshold”) established by the Compensation
Committee.


 


	
  © 2008 MICHAELS STORES INC.

  	
   

  	
  MSI CONFIDENTIAL

  



 


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PERFORMANCE
LEVELS AND BONUS PAYOUTS


 


For
all company, business unit, and individual performance bonus plan measures,
there are four major performance levels: 
Below Threshold, Threshold, Target and Maximum.  Bonus payout percentages will be based upon
the achieved level of performance for each of the participant’s bonus plan
measures.  To determine the actual payout
percent, each bonus measure’s performance must be calculated (percent achieved
between Threshold and Target, or Target and Maximum), weighted, multiplied by
the eligible base salary as of January 31, 2009, and adjusted for any
applicable proration.


 


If
the participant changes positions during the fiscal year, resulting in a change
in bonus plan: 1) his/her base salary prior to the change will be used as the
eligible base salary for his/her former position; and 2) he/she will have
separate performance appraisal ratings – one for the former position and one
for the current position – used in the calculation of his/her year end bonus.
(Ratings will be determined by the appropriate supervisor – with the year end rating
determining eligibility for merit increase consideration.)


 


The performance of each bonus measure is evaluated independently, and
the achieved bonus percentage for each measure is added together to arrive at
the percentage of total bonus achieved. 
A bonus calculation worksheet will be provided to each participant.


 


SCALING OF PAYOUT PERCENTAGE


 


When performance falls at any point between the Threshold and Maximum
goals, the participant’s bonus payout will be scaled according to the
performance above or below the Target goal. 
The bonus amount is scaled to the nearest hundredth of a percent when
comparing plan to actual results.  All
calculations will be rounded to the nearest hundredth.  The
Individual Performance portion of the bonus has four bonus payout levels based
upon the Annual FY 2008 Performance Appraisal Rating, and no scaling will be
applied.  (“Needs Development”
Performance Rating equals zero bonus for the performance component).


 


BONUS
SCALING FORMULAS


 


The
following formulas illustrate how bonus scaling is applied in calculating the
Actual Bonus percentages achieved for the corporate and any business unit
financial measure:


Scenario 1: Actual
performance is above
target goal:





Scenario 2: Actual
performance is below  target
goal:





Note: Wtd = Weighted; PLAN = Target




ELIGIBILITY


 


To
be eligible for a bonus under the Fiscal Year 2008 Bonus Plan, the participant
must meet all of the eligibility factors:


 


·      The Fiscal Year bonus eligibility dates begin on February 3, 2008,
and conclude on January 31, 2009. 
If an associate is not employed in a bonus eligible position at the
beginning of the fiscal year, February 3, 2008, but assumes a bonus
eligible position on or before November 15, 2008, he/she will be eligible
to earn a prorated bonus based upon the number of full months that he/she was
in the bonus eligible position. 
Individuals who assume a bonus eligible position on or before the 15th
of the month will receive credit for that entire month.  Individuals who assume such a position after
the 15th will not receive credit for that month.  Individuals who change positions during the
fiscal year will receive credit for bonus calculation purposes based upon the
bonus level of the position he/she is in on the 15th of the month,
in accordance with the bonus plan for the credited position.


 


·      An associate must have worked for at least three months in a bonus
eligible position in Fiscal Year 2008.


 


·      Bonus eligible positions are defined as any regular full-time
associates in one of the following store or corporate positions:


 


	
  Store Positions

  	
   

  	
  Corporate
  Positions

  
	
  Store Manager and Assistant Manager (excludes MITs)

  	
   

  	
  Corporate Manager through Executive Committee Member
  or FY08 MIK Power eligible associates (Includes Artistree and Aaron Brothers)

   

  Distribution Center Coach, Manager, Assistant
  General Manager and General Manager

  



 


·      An associate must be employed in a bonus eligible position at the end
of the fiscal year,


 


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January 31, 2009, in order to be eligible to receive a bonus.  In the event an associate terminates
employment between February 1, 2009 and the bonus check date, the
individual Performance Appraisal portion of the associate’s bonus will be calculated
based upon a rating of one level higher than Needs Development (i.e., “Mixed
Performance”).  All bonus payments
payable under this Bonus Plan will normally occur between April 1st
and April 30th, following the end of the fiscal year, provided
that all eligibility criteria as set forth in this bonus plan document are met.


 


·      If an associate is promoted or changes position during the fiscal year,
the associate may be eligible for bonus earnings calculated using the number of
full months in each position, the respective base salaries and performance
ratings, and the applicable target bonus amount(s).


 


·      An associate is not eligible for a bonus under this Bonus Plan if the
associate received a Performance Improvement Plan during Fiscal Year 2008 and
the associate remains on the Performance Improvement Plan at the time of bonus
payout (check date).


 


HOW A BONUS IS EARNED


 


In order to earn a bonus under this Fiscal Year 2008 Bonus Plan, the
associate must first satisfy all of the requirements in the Eligibility section
of the Bonus Plan.  In addition, and to
the extent allowed by applicable law, the associate will not earn, and no bonus
will be paid, unless the associate is employed in a bonus eligible position at
the end of the fiscal year, January 31, 2009.


 


The Company anticipates that this Bonus Plan will be part of an ongoing
bonus program, but the Company does not guarantee that the program will in fact
continue for future periods or that the terms, amounts or measures of the
program will not change.  To the extent
allowed by law, Michaels Stores, Inc. reserves the right to change or
cancel any portion(s) of this Bonus Plan for any reason. This Bonus Plan
does not constitute a contract or other agreement concerning the duration of
any associate’s employment. To the extent allowed by law, the employment
relationship remains “at will” and may be terminated at any time, with or
without cause.  This Bonus Plan shall be
administered by the Compensation Committee of the Board of Directors, in its
sole discretion.


 


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