<PAGE>   1
                                                                 EXHIBIT 10.5


 













                          PAYLESS SHOESOURCE, INC.

                          1996 STOCK INCENTIVE PLAN

                            EFFECTIVE MAY 4, 1996

                         LAST AMENDED MARCH 19, 1998

                                      
<PAGE>   2


                          1996 STOCK INCENTIVE PLAN

I.     GENERAL

       1.    PURPOSE.  The  purpose  of the  Plan  is to aid  the  Company  and
its Subsidiaries in attracting, retaining, and motivating management employees.

       2.    DEFINITIONS.  Whenever used herein, the following terms shall have 
the meanings set forth below:

             a.   "Board" means the Board of Directors of the Company.

             b.   "Code" means the Internal Revenue Code of 1986, as amended.

             c.   "Committee" means a committee  designated by the Board,  
       which shall consist of not less than two members of the Board who shall
       be appointed by and serve at the pleasure of the Board and who shall
       be "non-employee directors" within the meaning of Rule 16b-3 of the
       General Rules and Regulations under the Securities Exchange Act of
       1934, as amended, and who shall be "outside" directors within the
       meaning of Section 162(m) of the Code.

             d.   "Company" means Payless ShoeSource, Inc.

             e.   "Disability" means a permanent and total disability  
          which enables the Participant to be eligible for and receive a
          disability benefit under the Federal Social Security Act.

             f.   "Fair Market Value" means the average of the high and low 
       prices of the Stock on the New York Stock Exchange on the date in
       question, or, if no sale or sales of the Stock occurred on such
       Exchange on that day, the average of the high and low prices of the
       Stock on the last preceding day when the Stock was sold on the New
       York Stock Exchange; with respect to a Stock Appreciation Right, 
       the term means the average of the high and low prices of the Stock on
       the New York Stock Exchange on such date or dates as may be provided
       in the Stock Appreciation Right Agreement; provided, however, that
       with respect to Options granted as of the effective date of the 
       spin-off (the "Effective Date") of the Company by The May
       Department Stores Company ("May") with respect to options previously 
       granted by May which were waived by the Participant or which were not
       yet exercisable and therefore lapsed on the Effective Date, the
       "Fair Market Value" means the arithmetic average of the high and low
       trading prices of the Stock on the New York Stock Exchange for each of
       the first 30 trading days on which trading in the Stock on       that
       exchange occurs.
        
             g.   "Incentive Stock Option" means an Option granted under the 
       Plan which constitutes and shall be treated as an "incentive stock       
       option" as defined in Section 422 of the Code.
        
             h.   "Non-Qualified Stock Option" means an Option granted under 
       the Plan which shall not constitute or be treated as an Incentive Stock  
       Option.
        
             i.   "Non-Tandem Stock Appreciation Right" means a Right described
       in Part III, Section 3.

             j.   "Option" means a right or rights to purchase shares of Stock 
       described in Part II.

             k.   "Option Agreement" means the agreement between the Company 
       and a Participant evidencing the grant of an Option and containing the
       terms and conditions, not inconsistent with the Plan, that are
       applicable to such Option.
        


                                      2
<PAGE>   3

       l.  "Participant" means an individual to whom an Option, Right or 
    Performance Unit is granted or Restricted Stock Grant is made.
        
       m.  "Performance Restricted Stock" means Restricted Stock whose 
    provisions include the restrictions described in Part IV, Section 3(b).
        
       n.  "Performance Unit" means a right, described in Part V, to receive 
    up to 100% of the value of shares of Stock.

       o.  "Plan" means the 1996 Stock Incentive Plan of the Company, as 
    amended from time to time.

       p.  "Related Option" means the Option in relation to which a Tandem 
    Stock Appreciation Right is granted.

       q.  "Restricted Stock Grant" means a grant described in Part IV.

       r.  "Retirement" means retirement as that word is defined in the 
    Company's Profit Sharing Plan.

       s.  "Stock" means the Common Stock of the Company.

       t.  "Stock Appreciation Right" or "Right" means a right described in 
    Part III which provides for the payment of an amount in cash or Stock in
    accordance with such terms and conditions as are provided in the Stock
    Appreciation Right Agreement applicable to such Right; provided however,
    that in Part III, Section 2, "Right" shall refer only to a "Tandem Stock
    Appreciation Right" and that in Part III, Section 3, "Right" shall refer
    only to a "Non-Tandem Stock Appreciation Right".
        
       u.  "Stock Appreciation Right Agreement" means the agreement between the
    Company and a Participant evidencing the grant of a Stock Appreciation
    Right and containing the terms and conditions, not inconsistent with the
    Plan, that are applicable to such Right.
        
       v.  "Subsidiary" means a subsidiary of the Company or an unincorporated 
    organization controlled, directly or indirectly, by the Company. With
    respect to Incentive Stock Options, the term "Subsidiary" shall have the
    meaning set forth in Section 424(f) of the Code.
        
       w.  "Tandem Stock Appreciation Right" means a Right described in 
    Part II   I, Section 2.

    3.  ADMINISTRATION. The Plan shall be administered by the Committee. 
Subject to all applicable provisions of the Plan, the Committee is authorized
to approve grants of Options, Rights or Performance Units or the making of
Restricted Stock Grants in accordance with the Plan, to construe and interpret
the Plan, to prescribe, amend, and rescind rules and regulations relating to
the Plan and to make all determinations and take all actions necessary or
advisable for the Plan's administration. The Committee shall act by vote or
written consent of a majority of its members. Whenever the Plan authorizes or
requires the Committee to take any action, make any determination or decision
or form any opinion, then any such action, determination, decision or opinion
by or of the Committee shall be in the absolute discretion of the Committee.
        
    4.  SHARES SUBJECT TO THE PLAN.

        (a) Maximum Number of Shares. Stock issued under the Plan shall be 
    treasury shares subject to the following limitations:




                                      3
<PAGE>   4


         (i) Plan Maximum. The maximum number of shares of Stock which may be 
         issued under the Plan is 5,200,000, of which no more than 400,000 may
         be issued pursuant to Restricted Stock Grants.
        
         (ii) Participant Maximum. The maximum number of Options and Stock 
         Appreciation Rights which may be granted to any Participant during the
         term of the Plan is 500,000; provided, however, that if a Stock
         Appreciation Right is issued in substitution for an existing stock
         option or in tandem with a stock option, then the grant of such a
         Stock Appreciation Right shall not count against the limit. The
         maximum number of shares of Stock which may be issued to each
         Participant free from restrictions pursuant to a grant of Performance
         Restricted Stock is 50,000 per year. The maximum number of shares of
         Stock which may be granted to each Participant pursuant to Performance
         Units is 50,000 per year.
        
     (b) Expired Options or Rights. If an Option or Right expires, terminates, 
ceases to be exercisable or is surrendered without having been exercised in
full, then the shares relating to the Option or Right shall, unless the Plan
has been terminated, again become available under the Plan.
        
     (c) Lapse of Restrictions on Restricted Stock. If any shares of Stock 
shall be returned to the Company pursuant to the provisions of Sections 2 or 3
of Part IV or in the instruments evidencing the making of Restricted Stock
Grants, then such shares shall, unless the Plan has been terminated, again
become available under the Plan.
        
     (d) Expired Performance Units. If a Performance Unit expires, terminates, 
is surrendered or otherwise ceases to exist, so that no further shares of Stock
may be issued pursuant to such Performance Unit, then the shares of Stock which
could have been issued but were not issued pursuant thereto shall, unless the
Plan has been terminated, again become available under the Plan.
        
5.   PARTICIPANTS. Participants in the Plan shall be determined as follows:

     (a) Eligibility. The individuals who are eligible to receive Options, 
Rights, Performance Units or Restricted Stock Grants hereunder shall be limited
to management employees of the Company and its Subsidiaries (including
employees who are directors and/or officers).
        
     (b) Determination. From time to time the Committee shall, in its sole 
discretion, but subject to all of the provisions of the Plan, determine which
of those eligible employees shall receive Option(s), Stock Appreciation
Right(s), Performance Unit(s) or Restricted Stock Grant(s) under the Plan and
the size, terms, conditions and/or restrictions of the Option(s), Right(s),
Performance Unit(s) or Restricted Stock Grant(s).
        
     (c) Differing Terms; Effect of Grant. The Committee may approve the grant 
of Option(s) Right(s), or Performance Unit(s) or the making of Restricted Stock
Grant(s) subject to differing terms, conditions and/or restrictions to any
eligible employee in any year. The Committee's decision to approve the grant of
an Option, Right or Performance Unit or the making of a Restricted Stock Grant
to an eligible employee in any year shall not require the Committee to approve
the grant of an Option, Right or Performance Unit or the making of a Restricted
Stock Grant to that employee in any other year or to any other employee in any
year; nor shall the Committee's decision with respect to the size, terms,
conditions and/or restrictions of any Option, Right or Performance Unit to be
granted to an employee or any Restricted Stock Grant to be made to an employee
in any year require the Committee to approve the grant of an Option, Right or
Performance Unit or the making of a Restricted Stock Grant of the same size or
with the same terms, conditions and/or restrictions to that employee in any
other year or to any other employee in any year. The Committee shall not be
precluded from approving the grant of an Option, Right or Performance Unit or
the making of a Restricted Stock Grant to any eligible employee solely because
such employee may previously have been granted an Option, Right or Performance
Unit or may previously have received a Restricted Stock Grant.
        




                                      4
<PAGE>   5

    6.  RIGHTS WITH RESPECT TO SHARES OF STOCK. A Participant who has exercised
an Option or Right (payable all or in part in Stock) or to whom a Restricted
Stock Grant has been made or to whom shares of Stock have been issued pursuant
to Performance Units shall have, after a certificate or certificates for the
number of shares of Stock granted have been issued in his name, absolute
ownership of such shares including the right to vote the same and receive
dividends thereon; provided, however that rights with respect to shares issued
in connection with a Restricted Stock Grant shall be subject to the terms,
conditions and restrictions described in the Plan and in the instrument
evidencing the making of the Restricted Stock Grant to such Participant.
        
    7.  EMPLOYMENT. In the absence of any specific agreement to the contrary, 
no grant of an Option, Right or Performance Unit or making of a Restricted
Stock Grant to a Participant under the Plan shall affect any right of the
Company or its Subsidiaries to terminate the Participant's employment at any
time.
        

II. OPTIONS

    1.  GENERAL. Each employee chosen to receive an Option(s) may be granted 
an Incentive Stock Option, a Non-Qualified Stock Option or both, subject to the
following terms, conditions and restrictions. Each Option granted under the
Plan shall be evidenced by an Option Agreement which shall contain such terms
and conditions consistent with the Plan as the Committee shall determine;
provided, however, that each Option shall satisfy the following requirements
and each Incentive Stock Option shall satisfy the requirement of Part II,
Section 2:
        
        (a) Option Price. The option price for each share purchased under any 
    Option shall be specified in the Option Agreement and, subject to the
    provisions of paragraph (b) below and Part VII, Section 3, shall not be
    less than Fair Market Value on the date the Option is granted; provided,
    however, that in no event shall the option price per share be less than the
    par value thereof.
        
        (b) Option Period.

                (i) General. The period in which an Option may be exercised 
            shall not exceed ten years from the date the Option is granted;
            provided, however, that the Option may be sooner terminated in
            accordance with the provisions of this paragraph (b). Subject to
            the foregoing, the Committee may provide that any Option may be
            exercised, in whole or in part, at such time or times as the
            Committee may in its discretion determine.
        
                (ii) Termination of Employment. If the Participant ceases to 
            be an employee of the Company or a Subsidiary for any reason other
            than Retirement, Disability, or death, all of such Participant's
            outstanding Options shall immediately terminate.
        
                (iii) Retirement or Disability. If a Participant's employment 
            is terminated by Retirement or Disability, the term of any then
            outstanding Option held by the Participant shall extend for a
            period specified by the Committee in the agreement pertaining to
            such Option, and the number of shares in respect of which the
            Option may be exercised after the Participant's Retirement or
            Disability shall be determined by the agreement pertaining to such
            Option; provided, however, that such agreement shall provide that
            the Committee may cancel the Participant's Option during such
            period if the Participant's Retirement was without the consent of
            the Company, or if the Participant engages during such period of
            Retirement or Disability in employment or activities contrary, in
            the opinion of the Committee, to the best interests of the
            Company.
        

    2.      INCENTIVE STOCK OPTIONS. Each Option Agreement evidencing an 
Incentive Stock Option shall satisfy the requirement that to the extent that
the aggregate Fair Market Value of Stock with respect to which Incentive Stock
Options are exercisable for the first time by any Participant during any
calendar year (under the Plan and all stock option plans of the Company and its
Subsidiaries) exceeds $100,000, such Options shall be treated as Non-Qualified
Stock Options. For purposes of this Section 2, aggregate Fair Market Value of
Stock shall be determined as of the time the Option with respect to such Stock
is granted.
        



                                      5
<PAGE>   6

     3.   DEATH. If a Participant's employment is terminated by death at a time
when he or she has not fully exercised any then outstanding Option, or if a
Participant dies after Retirement or Disability without having fully exercised
any then outstanding Option, the beneficiary designated by the Participant (or,
in the absence of such designation, the executors or administrators or legatees
or distributees of the Participant's estate) shall have the right to exercise
such Option in whole or in part during such period following the Participant's
death as is set forth in the Option Agreement. The Company shall prescribe the
procedures and requirements for beneficiary designations not inconsistent with
this provision and has the right to review and approve such designations.
        
     4.   NONASSIGNABILITY. Each Option shall not be transferable (other than, 
upon the death of the Participant, by beneficiary designation, by last will and
testament or by the laws of descent and distribution) and shall be exercisable
during the Participant's lifetime only by the Participant.
        
     5.   PAYMENT FOR STOCK. Full payment in cash or, if the Committee 
approves, in Stock, for shares purchased shall be made at the time of
exercising the Option in whole or in part. No certificates for shares so
purchased shall be issued until full payment therefor has been made, and a
Participant shall have none of the rights of a shareowner until such
certificates are issued to him or her. If the Committee approves, a Participant
may elect to pay all or part of the purchase price for shares pursuant to an
exercise of a Non-Qualified Stock Option by requesting the Company to reduce
the number of shares otherwise issuable to the Participant upon the exercise of
the Non-Qualified Stock Option by the number of shares with a Fair Market Value
sufficient to pay the exercise price. In addition, if the Committee approves,
the Option Agreement may provide that the Participant may elect, on terms set
forth in the Option Agreement, to have the Company withhold from the shares of
Stock payable to the Participant upon exercise of an Option the number of
shares of Stock having a Fair Market Value equal to the amount of any required
withholding taxes. In addition, if the Committee approves, a Participant may
elect to pay all or part of the purchase price for shares through simultaneous
sale through a broker of shares acquired on exercise, as permitted under
Regulation T of the Federal Reserve Board or, at the discretion of the
Committee and to the extent permitted by law, by such other methods as the
Committee may from time to time prescribe.
        
     6.   USE OF PROCEEDS. The proceeds received by the Company from the sale 
of Stock pursuant to the exercise of an Option may be used for general 
corporate purposes.

     7.   RESTRICTIONS UPON EXERCISE OF OPTION. The exercise of each Option 
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or other
withholding liabilities under any state or Federal law, or that the listing,
registration or qualification of any shares otherwise deliverable upon such
exercise upon any securities exchange or under any state or Federal law, or
that the consent or approval of any regulatory body, is necessary or desirable
as a condition of, or in connection with, such exercise or the delivery or
purchase of shares thereunder, then in any such event such exercise shall not
be effective unless such withholding, listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
        
     8.   REPRICING PROHIBITED. There shall be no grant of an Option(s) to a 
Participant in exchange for a Participant's agreement to cancellation of a
higher-priced Option(s) that was previously granted to such Participant.
        




                                      6
<PAGE>   7

III. STOCK APPRECIATION RIGHTS

     1.    GENERAL. Each employee chosen to receive a Stock Appreciation 
Right(s) may be granted a Tandem Stock Appreciation Right, a Non-Tandem Stock
Appreciation Right or both, subject to the following terms, conditions and
restrictions and subject to such additional terms, conditions and restrictions
as may be determined by the Committee from time to time hereafter; provided
however, that no Right shall be subject to additional terms, conditions or
restrictions which are more favorable to a Participant than the terms,
conditions and restrictions set forth in the Plan.
        
     2.    TANDEM STOCK APPRECIATION RIGHTS. Each Tandem Stock Appreciation 
Right may be granted only with respect to a share(s) of Stock for which an
Option(s) has been granted under the Plan, and may be awarded concurrently with
the grant of such Option or at any time thereafter while the Option is
outstanding. If the Committee so determines, a Tandem Stock Appreciation Right
may also be granted with respect to a share(s) of Stock for which an option has
been granted and is outstanding under any other plan of the Company. A Stock
Appreciation Right shall be evidenced by a Stock Appreciation Right Agreement
which shall contain such terms and conditions (which may include limitations as
to the time when such Stock Appreciation Right becomes exercisable and when it
ceases to be exercisable that are more restrictive than the limitations
applicable to the Related Option(s)) not inconsistent with the Plan as the
Committee shall determine; provided, however, that each Tandem Stock
Appreciation Right shall satisfy the following requirements:
        
           (a)  Termination of a Right. If the Related Option is exercised, in 
     whole or in part, then the Right with respect to the shares of Stock
     purchased pursuant to such exercise (but not with respect to any
     unpurchased shares of Stock) shall terminate as of the date of the
     exercise. If an unexercised Right is otherwise exercisable on the date
     that the Related Option expires, and if the Fair Market Value of the
     shares of Stock with respect to which such Right was granted, determined
     as of the date of such expiration, exceeds the Option price of such
     shares, then, notwithstanding Section 2(b), the Right shall automatically
     be deemed to have been exercised as of the date of such expiration;
     otherwise, on the date that the Related Option expires, any outstanding
     Right related thereto shall be terminated as of the date of such
     expiration.
        
           (b)  Exercise. Tandem Stock Appreciation Rights may be exercised (i)
     only at such time or times as, and to the extent that, the Related Options
     shall be exercisable, (ii) only upon surrender of the Related Options with
     respect to the shares for which the Rights are then being exercised, and
     (iii) subject to the terms and conditions set forth in the Stock
     Appreciation Right Agreement; provided that no Tandem Stock Appreciation
     Right may be exercised prior to the expiration of six (6) months from the
     date of the grant and can only be exercised during the ten-day period
     beginning on the third business day following the release of the Company's
     quarterly or annual statement of sales and earnings.
        
     3.    NON-TANDEM STOCK APPRECIATION RIGHTS. Each Non-Tandem Stock 
Appreciation Right may be granted with respect to a share(s) of Stock or, if
the Committee so determines, in exchange for an outstanding Option or an
outstanding stock option granted under any other plan of the Company. A
Non-Tandem Stock Appreciation Right shall be evidenced by a Stock Appreciation
Right Agreement which shall contain such terms and conditions not inconsistent
with the Plan as the Committee shall determine; provided, however, that each
Non-Tandem Stock Appreciation Right shall satisfy the following requirements:
        
           (a)  Termination of a Right. A Non-Tandem Stock Appreciation Right 
     shall terminate as of the earlier of (i) the date of exercise of such
     Right, to the extent that it is exercised; or (ii) the termination date
     specified in the Stock Appreciation Right Agreement. If an unexercised
     Right is otherwise exercisable on the date that it expires, and if the
     Fair Market Value of the shares of Stock with respect to which such Right
     was granted, determined as of the date of such expiration, exceeds the
     exercise price of such Right (set forth in the Stock Appreciation Right
     Agreement), then the Right shall automatically be deemed to have been
     exercised as of the date of such expiration.
        
           (b)  Exercise. Non-Tandem Stock Appreciation Rights may be exercised
     in accordance with the terms and conditions set forth in the Stock
     Appreciation Right Agreement;  provided that (i) no Non-Tandem Stock 
        


                                      7
<PAGE>   8

     Appreciation Right that is payable all or in part in Stock may be
     exercised prior to the expiration of six (6) months from the date of the
     grant; (ii) the exercise price of any Non-Tandem Stock Appreciation Right
     granted in exchange for an outstanding Option or for an outstanding stock
     option granted under any other plan of the Company shall be the same
     exercise price as that outstanding Option or option and (iii) the exercise
     price of any Non-Tandem Stock Appreciation Right not granted in exchange
     for an outstanding Option or for an outstanding stock option granted under
     any other plan of the Company shall be the Fair Market Value of the Stock
     on the date of the grant of the Right(s).
        
     4.   PAYMENT.

          (a)  Amount. Upon the exercise of a Stock Appreciation Right, a 
     Participant shall be entitled to receive the excess of the aggregate Fair
     Market Value of the shares of Stock with respect to which the Right is
     being exercised (determined as of the date of such exercise) over (i) the
     aggregate option price of such shares in the case of Tandem Stock
     Appreciation Rights; or (ii) the aggregate exercise price (set forth in
     the Stock Appreciation Right Agreement) in the case of Non-Tandem Stock
     Appreciation Rights.
        
          (b)  Form. Any amount which becomes payable upon exercise of a Stock 
     Appreciation Right under the Plan shall be paid entirely in cash, entirely
     in Stock or partly in cash and partly in Stock in accordance with such
     terms and conditions as are provided in the applicable Stock Appreciation
     Right Agreement; provided, however, that notwithstanding any provision in
     any Stock Appreciation Right Agreement, the Committee may determine in its
     sole and absolute judgment that any amount which may become payable upon
     exercise of a Right shall be paid entirely in cash.
        
     5.   TERMINATION OF EMPLOYMENT.

          (a) General. If a Participant ceases to be an employee of the Company
     or of a Subsidiary for any reason other than Retirement, Disability or
     death, all of such Participant's outstanding Rights shall immediately
     terminate.
        
          (b) Retirement or Disability. If a Participant's employment is 
     terminated by Retirement or Disability, the Participant's right to
     exercise all or any portion of any Right after the date of such Retirement
     or Disability shall be determined by the provisions of the Stock
     Appreciation Right Agreement; provided, however, that such Agreement shall
     provide that the Committee may terminate the Participant's Right prior to
     the date on which the Right is exercised if the Participant's Retirement
     was without the consent of the Company, or if the Participant engages
     during such period of Retirement or Disability in employment or activities
     contrary, in the opinion of the Committee, to the best interests of the
     Company.
        
          (c) Death. If a Participant's employment is terminated by death at a 
     time when the Participant has not fully exercised any then outstanding
     Rights, or if a Participant dies after Retirement or Disability without
     having fully exercised any then outstanding Rights, the beneficiary
     designated by the Participant (or, in the absence of such designation, the
     executors or administrators or legatees or distributees of the
     Participant's estate) shall have the right to exercise such Right in whole
     or in part during such period following the Participant's death as set
     forth in the Stock Appreciation Right Agreement. The Company shall
     prescribe the procedures and requirements for beneficiary designations not
     inconsistent with this provision and has the right to review and approve
     such designations.
        
     6.   EXPIRATION. If the period in which a Stock Appreciation Right is 
exercisable expires and the Right has not been exercised, then such Right shall
terminate as of the last day on which it was exercisable.
        
     7.   NONASSIGNABILITY. Each Right shall not be transferable (other than, 
upon the death of the Participant, by beneficiary designation, by last will and
testament or by the laws of descent and distribution) and shall be exercisable
during the Participant's lifetime only by the Participant.
        


                                      8
<PAGE>   9

     8.   RESTRICTIONS UPON EXERCISE OF RIGHTS. The exercise of each Right 
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or other
withholding liabilities under any state or Federal law, or that the consent or
approval of any regulatory body, is necessary or desirable as a condition of,
or in connection with, such exercise, then, in any such event, such exercise
shall not be effective unless such withholding, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company.
        

IV.  RESTRICTED STOCK GRANTS

     1.   GENERAL. A Restricted Stock Grant made under the Plan shall contain 
the following terms, conditions and restrictions and such additional terms,
conditions and restrictions as may be determined by the Committee from time to
time hereafter; provided, however, that no Restricted Stock Grant shall be
subject to additional terms, conditions or restrictions which are more
favorable to a Participant than the terms, conditions and restrictions set
forth in the Plan.
        
     2.   RESTRICTIONS. Subject to the provisions of Part IV, Section 3, shares
of Stock granted to a Participant pursuant to a Restricted Stock Grant:

          (i) shall not be sold, assigned, conveyed, transferred, pledged, 
     hypothecated, or otherwise disposed of, and

          (ii) shall be returned to the Company forthwith, and all the rights 
     of the Participant to such shares shall immediately terminate without any
     payment or consideration by the Company, if the Participant's continuous
     employment with the Company or any Subsidiary shall terminate for any
     reason, except as provided in Part IV, Section 4. Such return of such
     Stock shall be accomplished by the Participant's delivering or causing to
     be delivered to the Secretary or any Assistant Secretary of the Company
     the certificate(s) for such shares of Stock, accompanied by such
     endorsement(s) and/or instrument(s) of transfer as may be required by the
     Secretary or any Assistant Secretary of the Company.
        
     3.   LAPSE OF RESTRICTIONS.

          (a)  General. Subject to the provisions of Part IV, Sections 3(b) and
     4 and of Part VII, Section 4, the restrictions set forth in Part IV,
     Section 2 shall lapse on such date or dates on or after the first
     anniversary and on or before the tenth anniversary of the date as of which
     the Restricted Stock Grant is made, as the Committee shall determine at
     the time of the Restricted Stock Grant.
        
          (b) Performance Restricted Stock. If the Committee has designated the
     Stock covered by a Restricted Stock Grant as Performance Restricted Stock,
     then the lapse of restrictions set forth in Part IV, Section 2 that would
     otherwise occur on a specified date shall also be subject to the
     following:
        
               (i) if the Company meets or exceeds the Target Long-Term EPS 
          Growth Objective (after adjustment for Relative Performance Rank) for
          the most recently ended Long-Term Performance Period, then the
          restrictions that would otherwise lapse on such date shall lapse as
          to 100% of the shares of such Performance Restricted Stock; and
        
               (ii) if the Company meets or exceeds the Threshold Long-Term EPS
          Growth Objective (after adjustment for Relative Performance Rank) but
          does not meet or exceed the Target Long-Term Growth Objective (after
          adjustment for Relative Performance Rank) for the most recently ended
          Long-Term Performance Period, then the restrictions on the shares of
          Performance Restricted Stock that would otherwise lapse on such date
          shall lapse as to (i) 50% of such shares plus (ii) 50% of such shares
          multiplied by a fraction (not less than zero and not greater than
          one), the numerator of which is the Company's actual Long-Term EPS
          Growth for the most recently ended Long-Term Performance Period less
          the Threshold Long-Term EPS Growth Objective for such period and the
          denominator of which 


                                      9
<PAGE>   10

          is the Target Long-Term EPS Growth Objective for such period less the
          Threshold Long-Term EPS Growth Objective for such period, and the
          remaining shares of Performance Restricted Stock shall immediately
          forfeit to the Company; and
        
             (iii) if the Company does not meet or exceed the Threshold 
          Long-Term EPS Objective (after adjustment for Relative Performance
          Rank) for the most recently ended Long-Term Performance Period, then
          100% of the shares of such Performance Restricted Stock shall
          immediately forfeit to the Company.
        
     For purposes of this Section 3(b), the terms Long-Term Performance Period,
     Relative Performance Rank, Target Long-Term EPS Objective and Threshold
     Long-Term EPS Objective shall have the same meanings as in the Company's
     Executive Incentive Compensation Plan for Payless Executives. No
     restrictions shall lapse on any Performance Restricted Stock until the
     Committee certifies, in writing, that the requirements set forth in this   
     Section 3(b) have been satisfied.
        
          (c)  Forfeiture. All shares of Stock forfeited under this Section 3 
     shall be returned to the Company forthwith, and all the rights of the
     Participant to such shares shall immediately terminate without any payment
     or consideration by the Company.
        
     4.   TERMINATION OF EMPLOYMENT BY REASON OF DEATH OR DISABILITY. If a 
Participant who has been in the continuous employment of the Company or of a
Subsidiary since the date as of which a Restricted Stock Grant was made to such
Participant shall, while in such employment, die or become Disabled and such
Participant's death or Disability shall occur more than one year after the date
as of which the Restricted Stock Grant was made to such Participant, then the
restrictions set forth in Part IV, Section 2 shall lapse as to all shares of
Restricted Stock granted to such Participant pursuant to such Restricted Stock
Grant on the date of such event. A Participant may file a written designation
of beneficiary to receive, in the event of the Participant's death, any shares
for which restrictions lapse on the date of death. The Company shall prescribe
procedures and requirements for beneficiary designations not inconsistent with
this provision and has the right to review and approve such designations.
        
     5.   AGREEMENT BY EMPLOYEE REGARDING WITHHOLDING TAXES. Each Participant 
shall agree that, subject to the provisions of Part IV, Section 6,

          (i) no later than the date as of which the restrictions mentioned in 
     Part IV, Section 2 and in the instrument evidencing the making of the
     Restricted Stock Grant shall lapse, such Participant will pay to the
     Company in cash, or, if the Committee approves, in Stock, or make other
     arrangements satisfactory to the Committee regarding payment of, any
     Federal, state or local taxes of any kind required by law to be withheld
     with respect to the shares of Stock subject to such Restricted Stock
     Grant, and
        
          (ii) the Company and its Subsidiaries shall, to the extent permitted 
     by law, have the right to deduct from any payment of any kind otherwise
     due to the Participant any Federal, state or local taxes of any kind
     required by law to be withheld with respect to the shares of Stock subject
     to such Restricted Stock Grant.
        
     6.   ELECTION TO RECOGNIZE GROSS INCOME IN THE YEAR OF GRANT. If any 
Participant properly elects, within thirty (30) days of the date of grant, to
include in gross income for Federal income tax purposes an amount equal to the
Fair Market Value of the shares of Stock granted on the date of grant, such
Participant shall pay to the Company, or make arrangements satisfactory to the
Committee to pay to the Company in the year of such grant, any Federal, state
or local taxes required to be withheld with respect to such shares. If such
Participant shall fail to make such payments, the Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to the employee any Federal, state or local
taxes of any kind required by law to be withheld with respect to such shares.
        
     7.   RESTRICTIVE LEGEND; CERTIFICATES MAY BE HELD IN CUSTODY. Each 
certificate evidencing shares of Stock granted pursuant to a Restricted Stock
Grant shall, (i) if issued to any  person other than the Company for
        



                                     10
<PAGE>   11

safekeeping while the restrictions apply, bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Restricted Stock
Grant and (ii) if issued to the Company for safekeeping while the restrictions
apply, be noted as restricted on the records of the transfer agent. Any attempt
to dispose of such shares of Stock in contravention of such terms, conditions
and restrictions shall be ineffective. The Committee may adopt rules which
provide that the certificates evidencing such shares may be held in custody by
a bank or other institution, or that the Company may itself hold such shares in
custody, until the restrictions thereon shall have lapsed.
        
     8.   RESTRICTIONS UPON MAKING OF RESTRICTED STOCK GRANTS. The listing upon
the New York Stock Exchange or the registration or qualification under any
Federal or state law of any shares of Stock to be granted pursuant to
Restricted Stock Grants (whether to permit the making of Restricted Stock
Grants or the resale or other disposition of any such shares of Stock by or on
behalf of the employees receiving such shares) may be necessary or desirable as
a condition of or in connection with such Restricted Stock Grants and if, in
any such event, the Board in its sole discretion so determines, delivery of the
certificates for such shares of Stock shall not be made until such listing,
registration or qualification shall have been completed. In such connection,
the Company agrees that it will use its best effort to effect any such listing,
registration or qualification; provided, however, the Company shall not be
required to use its best efforts to effect such registration under the
Securities Act of 1933 other than on Form S-8, as presently in effect, or such
other forms as may be in effect from time to time calling for information
comparable to that presently required to be furnished under Form S-8.
        
     9. RESTRICTIONS UPON RESALE OF STOCK. If the shares of Stock that have 
been granted to a Participant pursuant to the terms of the Plan are not
registered under the Securities Act of 1933, as amended, pursuant to an
effective registration statement, such Participant, if the Committee shall deem
it advisable, may be required to represent and agree in writing that (i) any
shares of Stock acquired by such employee pursuant to the Plan will not be sold
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, or pursuant to an exemption from registration under said
Act and (ii) such Participant is acquiring such shares of Stock for the
Participant's own account and not with a view to the distribution thereof.
        

V.   PERFORMANCE UNITS

     1.   GENERAL. The Committee may, from time to time and upon such terms and
conditions as it may determine, grant Performance Units which will become
payable to a Participant upon the achievement of specified performance
objectives. Each grant of Performance Units shall be evidenced by a Performance
Unit Agreement which shall contain such terms and conditions consistent with
the Plan as the Committee shall determine; provided, however that each grant of
Performance Units shall satisfy the following requirements:
        
     (a)  Each grant shall specify the number of Performance Units to which it 
     pertains.

     (b)  The performance period with respect to each Performance Unit shall 
     be such period of time commencing with the date of grant as shall be 
     determined by the Committee at the time of grant.

     (c)  Each grant shall specify performance objectives, if any, that are to 
     be achieved in order for payments to be made with respect to such
     Performance Units.
        
     (d)  Each grant shall specify a minimum acceptable level of achievement in
     respect of the specified performance objective below which no payment will
     be made and shall set forth a formula for determining the amount of
     payment to be made if performance is at or above such minimum, but short
     of full achievement of the performance objectives.
        
     (e)  Each grant shall specify the time and manner of payment (whether in 
     cash, shares of Stock or a combination thereof) of Performance Units which
     have been earned. If the value of a Performance Unit is paid in whole or
     in part with Stock, the number of shares issued with respect to such Unit
     or portion thereof that is paid in Stock shall be based on the Fair Market
     Value of the Stock on the date the Performance Unit is earned. In no event
     shall the


                                     11
<PAGE>   12

     total payment of a Performance Unit (whether in cash, shares of Stock
     or a combination thereof) exceed the amount earned based on the
     performance objectives established at the time of grant.
        
     (f)  The Committee may adjust the performance objectives and the related 
     minimum acceptable level of achievement if, in the sole judgment of the
     Committee, events or transactions, such as stock splits,
     recapitalizations, mergers, combinations, divestitures, spin-offs and the
     like, have occurred after the date of grant which are unrelated to the
     performance of the Participant and result in distortion of the performance
     objectives or the related minimum.
        
     2.   PAYMENT FOR PERFORMANCE UNITS. Full and/or partial payment of 
Performance Units will be made only upon certification by the Committee of the
attainment by the Participant of the performance objectives.
        
     3.   TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY OR
RETIREMENT. The Committee may, in its sole discretion, determine that
Performance Units awarded to a Participant shall become partially or fully
vested upon such Participant's termination of employment due to death,
Disability or Retirement.

VI.  CANCELLATION AND RESCISSION.

     1.   COMPETITION; CONFIDENTIAL INFORMATION.

          (a) Unless an Option Agreement or a Stock Appreciation Right 
     Agreement (any such agreement being referred to herein as an "Agreement")
     specifies otherwise, the Committee may
        
          (1) cancel at any time any unexercised Option or Right; or

          (2) rescind any exercise of an Option or Right;

     if the Participant is not in compliance with all other applicable
     provisions of the Agreement or the Plan or if, prior to any such exercise
     or within six months after such exercise, the Participant
        
          (i) engages in a Competing Business, as such term is defined in the 
          Agreement; or

          (ii) solicits for employment, hires or offers employment to, or 
          discloses information to or otherwise aids or assists any other
          person or entity other than the Company in soliciting for employment,
          hiring or offering employment to, any employee of the Company; or
                
          (iii) takes any action which is intended to harm the Company or its 
          reputation, which the Company reasonably concludes could harm the
          Company or its reputation or which the Company reasonably concludes
          could lead to unwanted or unfavorable publicity to the Company; or
                
          (iv) discloses to anyone outside the Company, or uses in other than 
          the Company's business, any "confidential information", as such term
          is defined in the Agreement.
        
          (b) Upon exercise of an Option or Right, the Participant shall 
     certify on a form acceptable to the Committee that the Participant is in
     compliance with the terms and conditions of the Agreement and the Plan.
        
          (c) The Company shall immediately notify the Participant in writing 
     of any cancellation of any unexercised Option or Right. Following receipt
     of such notice, the Participant shall have no further rights with respect
     to such Option or Right.
        
          (d) The Company shall notify the Participant in writing of any 
     rescission of an exercise of an Option or Right within one year after the
     activity referred to in Part VI, Section 1(a). Within ten days after
     receiving such a notice from the Company, the Participant shall either (i)
     pay to the Company the excess of the Fair Market Value of the Stock on the
     date of exercise of an Option over the exercise price for the Option or
     the Fair Market Value of the Stock and/or cash distributed to the
     Participant as a result of the exercise of a Right or (ii) return the
     Stock received 



                                     12
<PAGE>   13

     upon the exercise of an Option (in which case the Company will return the
     exercise price to the Participant) or return the Stock and/or cash
     distributed upon the exercise of a Right.
        
     2.   AGREEMENT BY PARTICIPANT REGARDING DEDUCTION. The Participant shall 
agree and consent to a deduction from any amounts the Company owes to the
Participant from time to time (including amounts owed as wages or other
compensation, fringe benefits, or vacation pay, as well as any other amounts
owed to the Participant by the Company), to the extent of the amounts the
Participant owes the Company under this Article VI. Whether or not the Company
elects to make any set-off in whole or in part, if the Company does not recover
by means of set-off the full amount owed by the Participant, calculated as set
forth in this Article VI, then the Participant agrees to pay immediately the
unpaid balance to the Company.
        

VII. MISCELLANEOUS

     1.   EFFECTIVE DATE. The Plan became effective on April 30, 1996, subject 
to approval by shareowners, and the Plan was approved by shareowners on 
April 30, 1996.

     2.   DURATION OF PLAN. Unless sooner terminated, the Plan shall remain in 
effect until April 30, 2006. Termination of the Plan shall not affect any
Options or Rights previously granted, which Options or Rights shall remain in
effect until exercised, surrendered, or canceled, or until they have expired,
all in accordance with their terms. Termination of the Plan shall not affect
any Restricted Stock Grants previously made, or Stock previously granted
pursuant to a Restricted Stock Grant; the terms, conditions and restrictions
applicable to shares issued pursuant to a Restricted Stock Grant shall remain
in effect until such terms, conditions and restrictions shall have lapsed all
in accordance with their terms. Termination of the Plan shall not affect any
grant of Performance Units previously made; the terms and conditions applicable
to such Performance Units shall remain in effect until the Performance Units
are earned in accordance with their terms.
        
     3.   CHANGES IN CAPITAL STRUCTURE. In the event that there is any change 
in the capital structure of the Company through merger, consolidation,
reorganization, recapitalization, spin-off or otherwise, or if there shall be
any dividend on the Company's Stock, payable in such Stock, or if there shall
be a Stock split or a combination of shares, then:
        
          (i)   the number of shares reserved for Options (both in the 
     aggregate and with respect to each Participant) and the number of shares
     subject to outstanding Options and the price per share of each such
     Option;
        
          (ii) the number of shares with respect to which Rights may be 
     exercised (both in the aggregate and with respect to each Participant); and

          (iii) the number of shares of Stock reserved for Restricted Stock 
Grants under the Plan shall be proportionately adjusted by the Board as it
deems equitable, in its absolute discretion, to prevent dilution or enlargement
of the rights of a Participant and any shares issued pursuant to such change in
capital structure shall be subject to the same terms, conditions and
restrictions as the shares of Stock with respect to which newly issued shares
are issued. The issuance of Stock for consideration and the issuance of Stock
rights shall not be considered a change in the Company's capital structure. No
adjustment provided for in this Section 3 shall require the issuance of any
fractional share.
        
     4.   CHANGE IN CONTROL. If while unexercised Options, Rights, Restricted 
Stock Grants or Performance Units remain outstanding under the Plan:

          (i) any "person," as such term is used in Sections 13(d) and 14(d) of
     the Securities Exchange Act of 1934, as amended (the "Exchange Act")
     (other than the Company, any trustee or other fiduciary holding securities
     under an employee benefit plan of the Company, or any company owned,
     directly or indirectly, by the shareowners of the Company in substantially
     the same proportions as their ownership of stock of the Company), is or
     becomes the "beneficial owner" (as defined in Rule 13d-3 under the
     Exchange Act), directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's
     then outstanding securities;
        
        (ii) during any period of two consecutive years, individuals who at the
     beginning of such period constitute the Board, and any new director (other
     than a director designated by a person who has entered into an agreement



                                     13


<PAGE>   14
     with the Company to effect a transaction described in clause (i), (iii) or
     (iv) of this Section) whose election by the Board or nomination for
     election by the Company's shareowners was approved by a vote of at least
     two-thirds (2/3) of the directors then still in office who either were
     directors at the beginning of the period or whose election or nomination
     for election was previously so approved, cease for any reason to
     constitute at least a majority thereof;
        
         (iii) the shareowners of the Company approve a merger or consolidation 
     of the Company with any other Company, other than (1) a merger or
     consolidation which would result 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) more than 50% of the combined voting power of the voting
     securities of the Company or such surviving entity outstanding immediately
     after such merger or consolidation or (2) a merger or consolidation
     effected to implement a recapitalization of the Company (or similar
     transaction) in which no "person" (as hereinabove defined) acquires more
     than 50% of the combined voting power of the Company's then outstanding
     securities; or
        
         (iv) the shareowners of the Company approve a plan of complete 
     liquidation of the Company or an agreement for the sale or disposition by
     the Company of all or substantially all of the Company's assets,
        
then from and after the date of the first of the foregoing events to occur, (a)
all Options and Rights held by active employees on such date shall be
exercisable in full, whether or not otherwise exercisable; (b) the restrictions
set forth in Part IV, Section 2 on all outstanding Restricted Stock Grants,
including Performance Restricted Stock Grants, shall lapse; and (c) Performance
Units shall be earned and become fully payable.
        
     5.  AMENDMENT OR TERMINATION. The Board may, by resolution, amend or 
terminate the Plan at any time; provided, however, that

     (i) shareowner approval shall be required for (1) any changes to the Plan 
     which would require shareowner approval under the New York Business
     Corporation Law, Rule 16b-3 of the Securities Exchange Act of 1934, as
     amended, or Section 162(m) of the Code, and (2) except as otherwise
     provided herein or except for changes which do not otherwise involve in
     the aggregate more than 5% of the total shares authorized under the Plan,
     any other changes to the Plan that would (a) increase the maximum number
     of shares that may be issued under the Plan, (b) permit participation by
     persons who are not employees of the Company, (c) permit regranting or
     repricing of previously granted stock options, or (d) waive restrictions
     on previously granted restricted stock awards except in the case of
     retirement or other termination of employment; and
        
     (ii) the Board may not, without the written consent of the Participant, 
     alter, impair or adversely affect any right of such Participant with
     respect to any Option, Right or Performance Unit previously granted, or
     Restricted Stock Grant grant previously made to such Participant under the
     Plan except as authorized herein.
        
Notwithstanding the foregoing, the Board may, by resolution, amend the Plan in
any way that it deems necessary or appropriate in order to make income with
respect to the Plan deductible for Federal income tax purposes under Section
162(m) of the Code without regard to the foregoing provisos (i) and (ii), and
any such amendment shall be effective as of such date as is necessary to make
such income under the Plan so deductible.
        
     7.   UNFUNDED PLAN. The Plan shall be unfunded. Neither the Company nor 
the Committee shall be required to segregate any assets that may at any time be
represented by Options or Rights under the Plan. Neither the Company nor the
Committee shall be deemed to be a trustee of any amounts to be paid under the
Plan. Any liability of the Company to any Participant with respect to a right
shall be based solely upon any contractual obligations created by the Plan, a
Performance Unit Agreement, a Stock Appreciation Right Agreement or an Option
Agreement; no such obligation shall be deemed to be secured by any pledge or
any encumbrance on any property of the Company.
        


                                     14



















                                     15
<PAGE>   15
     8.   GOVERNING LAW. The law of the State of Kansas shall apply to all 
          awards and interpretations under the Plan without regard to the 
          application of such state's conflict of laws principles.








                                      15