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                                                                      APPENDIX C

                                                                   Exhibit 10.26


PAYLESS SHOESOURCE, INC.

Deferred Compensation 401(k) Mirror Plan

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                            EFFECTIVE OCTOBER 1, 2000


















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Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan
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                                TABLE OF CONTENTS

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PURPOSE......................................................................................................1

ARTICLE 1     DEFINITIONS....................................................................................1


ARTICLE 2     SELECTION, ENROLLMENT, ELIGIBILITY.............................................................9

     2.1      SELECTION BY COMMITTEE.........................................................................9
     2.2      ENROLLMENT REQUIREMENTS........................................................................9
     2.3      ELIGIBILITY; COMMENCEMENT OF PARTICIPATION.....................................................9
     2.4      TERMINATION OF PARTICIPATION AND/OR DEFERRALS..................................................9
     2.5      PRIOR PARTICIPATION............................................................................9

ARTICLE 3     DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES.........................................10

     3.1      MINIMUM DEFERRALS.............................................................................10
     3.2      MAXIMUM DEFERRAL..............................................................................10
     3.3      ELECTION TO DEFER; EFFECT OF ELECTION FORM....................................................11
     3.4      WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS........................................................12
     3.5      COMPANY CONTRIBUTION AMOUNT...................................................................12
     3.6      COMPANY MATCHING AMOUNT.......................................................................12
     3.7      STOCK OPTION AMOUNT...........................................................................12
     3.8      INVESTMENT OF TRUST ASSETS....................................................................13
     3.9      SOURCES OF STOCK..............................................................................13
     3.10     VESTING.......................................................................................13
     3.11     CREDITING/DEBITING OF ACCOUNT BALANCES........................................................14
     3.12     FICA AND OTHER TAXES..........................................................................16
     3.13     DISTRIBUTIONS.................................................................................17

ARTICLE 4     SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION...................18

     4.1      SHORT-TERM PAYOUT.............................................................................18
     4.2      OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM................................................18
     4.3      WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.........................18

ARTICLE 5     RETIREMENT BENEFIT............................................................................19

     5.1      RETIREMENT BENEFIT............................................................................19
     5.2      PAYMENT OF RETIREMENT BENEFIT.................................................................19
     5.3      DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT...............................................19
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Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan
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ARTICLE 6     PRE-RETIREMENT SURVIVOR BENEFIT...............................................................20

     6.1      PRE-RETIREMENT SURVIVOR BENEFIT...............................................................20
     6.2      PAYMENT OF PRE-RETIREMENT SUVIVOR BENEFIT.....................................................20
     6.3      DEATH OF BENEFICIARY PRIOR TO COMPLETION OF PRE-RETIREMENT SUVIVOR BENEFIT....................20

ARTICLE 7     TERMINATION BENEFIT...........................................................................21

     7.1      TERMINATION BENEFIT...........................................................................21
     7.2      PAYMENT OF TERMINATION BENEFIT................................................................21
     7.3      DEATH PRIOR TO COMPLETION OF TERMINATION BENEFIT..............................................21

ARTICLE 8     DISABILITY WAIVER AND BENEFIT.................................................................22

     8.1      DISABILITY WAIVER.............................................................................22
     8.2      CONTINUED ELIGIBILITY; DISABILITY BENEFIT.....................................................22

ARTICLE 9     BENEFICIARY DESIGNATION.......................................................................23

     9.1      BENEFICIARY...................................................................................23
     9.2      BENEFICIARY DESIGNATION AND CHANGE OF BENEFICARY .............................................23
     9.3      ACKNOWLEDGEMENT...............................................................................23
     9.4      NO BENEFICIARY DESIGNATION....................................................................23
     9.5      DOUBT AS TO BENEFICIARY.......................................................................23
     9.6      DISCHARGE OF OBLIGATIONS......................................................................23

ARTICLE 10    LEAVE OF ABSENCE..............................................................................24

     10.1     PAID LEAVE OF ABSENCE.........................................................................24
     10.2     UNPAID LEAVE OF ABSENCE.......................................................................24

ARTICLE 11    TERMINATION, AMENDMENT OR MODIFICATION........................................................25

     11.1     TERMINATION...................................................................................25
     11.2     AMENDMENT.....................................................................................25
     11.3     EFFECT OF PAYMENT.............................................................................26

ARTICLE 12    ADMINISTRATION................................................................................27

     12.1     COMMITTEE DUTIES..............................................................................27
     12.2     ADMINISTRATION UPON CHANGE IN CONTROL.........................................................27
     12.3     AGENTS........................................................................................28
     12.4     BINDING EFFECT OF DECISIONS...................................................................28
     12.5     INDEMNITY OF COMMITTEE........................................................................28
     12.6     EMPLOYER INFORMATION..........................................................................28
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Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan
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ARTICLE 13     OTHER BENEFITS AND AGREEMENTS.................................................................29

      13.1     COORDINATION WITH OTHER BENEFITS..............................................................29

ARTICLE 14     CLAIMS PROCEDURES.............................................................................30

      14.1     PRESENTATION OF CLAIM.........................................................................30
      14.2     NOTIFICATION OF DECISION......................................................................30
      14.3     REVIEW OF A DENIED CLAIM......................................................................30
      14.4     DECISION OF REVIEW............................................................................31
      14.5     LEGAL ACTION..................................................................................31

ARTICLE 15     TRUST.........................................................................................32

      15.1     ESTABLISHMENT OF THE TRUST....................................................................32
      15.2     INTERRELATIONSHIP OF THE PLAN AND THE TRUST...................................................32
      15.3     DISTRIBUTIONS FROM THE TRUST..................................................................32
      15.4     STOCK TRANSFERRED TO THE TRUST................................................................32

ARTICLE 16     MISCELLANEOUS.................................................................................33

      16.1     STATUS OF PLAN................................................................................33
      16.2     UNSECURED GENERAL CREDITOR....................................................................33
      16.3     EMPLOYER'S LIABILITY..........................................................................33
      16.4     NONASSIGNABILITY..............................................................................33
      16.5     NOT A CONTRACT OF EMPLOYMENT..................................................................33
      16.6     FURNISHING INFORMATION........................................................................33
      16.7     TERMS.........................................................................................34
      16.8     CAPTIONS......................................................................................34
      16.9     GOVERNING LAW.................................................................................34
      16.10    NOTICE........................................................................................34
      16.11    SUCCESSORS....................................................................................34
      16.12    VALIDITY......................................................................................34
      16.13    INCOMPETENT...................................................................................34
      16.14    COURT ORDER...................................................................................35
      16.15    DISTRIBUTION IN THE EVENT OF TAXATION.........................................................35
      16.17    TRUST.........................................................................................35
      16.18    LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL..........................................35
</TABLE>


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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

                            PAYLESS SHOESOURCE, INC.

                    DEFERRED COMPENSATION 401(K) MIRROR PLAN

                           Effective October 1, 2000

                                    PURPOSE

         The purpose of this Plan is to provide specified benefits to a select
group of management and highly compensated Employees who contribute materially
to the continued growth, development and future business success of Payless
ShoeSource, Inc., a Delaware corporation, and its subsidiaries, if any, that
sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes
of Title I of ERISA.

                                    ARTICLE 1
                                   DEFINITIONS

         For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:

1.1      "Account Balance" shall mean, with respect to a Participant, a credit
         on the records of the Employer equal to the sum of (i) the Deferral
         Account balance, (ii) the Company Contribution Account balance, (iii)
         the Company Matching Account balance and (iv) the Stock Option Account
         balance. The Account Balance, and each other specified account balance,
         shall be a bookkeeping entry only and shall be utilized solely as a
         device for the measurement and determination of the amounts to be paid
         to a Participant, or his or her designated Beneficiary, pursuant to
         this Plan.

1.2      "Annual Deferral Amount" shall mean that portion of a Participant's
         Annual Salary and Bonus that a Participant elects to have, and is
         deferred, in accordance with Article 3, for any one Plan Year. In the
         event of a Participant's Retirement, Disability (if deferrals cease in
         accordance with Section 8.1), death or a Termination of Employment
         prior to the end of a Plan Year, such year's Annual Deferral Amount
         shall be the actual amount withheld prior to such event.

1.3      "Annual Installment Method" shall mean annual installments over the
         number of years selected by the Participant or Committee in accordance
         with this Plan, calculated in accordance with this Section 1.3. Each
         annual installment shall be paid during the month of January of each
         calendar year. The Account Balance of the Participant shall be
         calculated on the day in which the payment is made; provided, however,
         that for the Plan Year in which the Participant Retires, experiences a
         Termination of Employment, suffers a Disability or dies, the Account
         Balance of the Participant shall be calculated as of the date of such
         event. The annual installment shall be calculated by multiplying this
         balance by a fraction, the numerator of which is one, and the
         denominator of which is the remaining



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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         number of annual installments due the Participant. By way of example,
         if the Participant elects a 10-year Annual Installment Method, the
         first annual installment shall be 1/10 of the Account Balance,
         calculated as described in this definition. The following year, the
         annual installment shall be 1/9 of the Account Balance, calculated as
         described in this definition.

1.4      "Annual Stock Option Amount" shall mean, with respect to a Participant
         for any one Plan Year, the amount of Qualifying Gains deferred on
         Eligible Stock Option exercise in accordance with Section 3.7 of this
         Plan, calculated using the closing price of Stock as of the end of the
         business day closest to the date of such Eligible Stock Option exercise

1.5      "Annual Salary" shall mean the annual cash compensation relating to
         services performed during any Plan Year, whether or not paid in such
         Plan Year or included on the Federal Income Tax Form W-2 for such Plan
         Year, excluding bonuses, commissions, royalties, overtime, fringe
         benefits, relocation expenses, incentive payments, non-monetary awards,
         directors fees and other fees, automobile and other allowances paid to
         a Participant for employment services rendered (whether or not such
         allowances are included in the Employee's gross income). Annual Salary
         shall be calculated before reduction for compensation voluntarily
         deferred or contributed by the Participant pursuant to all qualified or
         non-qualified plans of any Employer and shall be calculated to include
         amounts not otherwise included in the Participant's gross income under
         Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans
         established by any Employer; provided, however, that all such amounts
         will be included in compensation only to the extent that, had there
         been no such plan, the amount would have been payable in cash to the
         Employee.

1.6      "Beneficiary" shall mean one or more persons, trusts, estates or other
         entities, designated in accordance with Article 9, that are entitled to
         receive benefits under this Plan upon the death of a Participant.

1.7      "Beneficiary Designation Form" shall mean the form established from
         time to time by the Committee that a Participant completes, signs and
         returns to the Committee to designate one or more Beneficiaries.

1.8      "Board" shall mean the board of directors of the Company.

1.9      "Bonus" shall mean any compensation, in addition to Annual Salary
         relating to services performed during any Plan Year, whether or not
         paid in such Plan Year or included on the Federal Income Tax Form W-2,
         payable to a Participant as an Employee under any Employer's bonus,
         commissions, royalties and cash incentive plans, excluding stock based
         incentive programs.

1.10     "Change in Control" shall mean the first to occur of any of the
         following events:

         (a)  The acquisition by any individual, entity or group (within the
              meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
              Act of 1934, as amended (the "Exchange Act")) (a "Person") of
              beneficial ownership (within


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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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              the meaning of Rule 13d-3 promulgated under the Exchange Act) of
              twenty percent (20%) or more of either (i) the then-outstanding
              shares of common stock of the Company (the "Outstanding Company
              Common Stock") or (ii) the combined voting power of the
              then-outstanding voting securities of the Company entitled to vote
              generally in the election of directors (the "Outstanding Company
              Voting Securities"); provided, however, that, for purposes of this
              Section 1.10, none of the following shall constitute a Change of
              Control: (i) any acquisition directly from the Company, (ii) any
              acquisition by the Company, (iii) any acquisition by any employee
              benefit plan (or related trust) sponsored or maintained by the
              Company or any affiliated company, (iv) any acquisition by any
              corporation pursuant to a transaction which complies with clauses
              (i), (ii) and (iii) of Subsection (c) of this Section 1.10, or (v)
              any acquisition by the Company which, by reducing the number of
              shares of Outstanding Company Common Stock or Outstanding Company
              Voting Securities, increases the proportionate number of
              Outstanding Company Common Stock or Outstanding Company Voting
              Securities beneficially owned by any Person to twenty percent
              (20%) or more of the Outstanding Company Common Stock or
              Outstanding Company Voting Securities, provided, however, that if
              such Person shall thereafter become the beneficial owner of any
              additional shares of Outstanding Company Common Stock or
              Outstanding Company Voting Securities and beneficially owns twenty
              percent (20%) or more of either Outstanding Company Common Stock
              or Outstanding Company Voting Securities, then such additional
              acquisition shall constitute a Change in Control; or

         (b)  Individuals who, as of the date hereof, constitute the Board (the
              "Incumbent Board") cease for any reason to constitute at least a
              majority of the Board; provided, however, that any individual
              becoming a director subsequent to the date hereof whose election,
              or nomination for election by the Company's shareholders, was
              approved by a vote of at least a majority of the directors then
              comprising the Incumbent Board shall be considered as though such
              individual were a member of the Incumbent Board, but excluding,
              for this purpose, any such individual whose initial assumption of
              office occurs as a result of an actual or threatened election
              contest with respect to the election or removal of directors or
              other actual or threatened solicitation of proxies or consents by
              or on behalf of a Person other than the Board;

         (c)  Consummation of a reorganization, merger or consolidation of the
              Company or any direct or indirect subsidiary of the Company or
              sale or other disposition of all or substantially all of the
              assets of the Company (a "Business Combination"), in each case,
              unless, following such Business Combination, (i) all or
              substantially all of the individuals and entities who were the
              beneficial owners, respectively, of the Outstanding Company Common
              Stock and Outstanding Company Voting Securities immediately prior
              to such Business Combination


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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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              beneficially own, directly or indirectly, more than fifty percent
              (50%), respectively, of the then-outstanding shares of common
              stock and the combined voting power of the then-outstanding voting
              securities entitled to vote generally in the election of
              directors, as the case may be, of the corporation resulting from
              such Business Combination (including, without limitation, a
              corporation that, as a result of such transaction, owns the
              Company or all or substantially all of the Company's assets either
              directly or through one or more subsidiaries) in substantially the
              same proportions as their ownership immediately prior to such
              Business Combination of the Outstanding Company Common Stock and
              Outstanding Company Voting Securities, as the case may be, (ii) no
              Person (excluding any corporation resulting from such Business
              Combination or any employee benefit plan (or related trust) of the
              Company or such corporation resulting from such Business
              Combination and any Person beneficially owning, immediately prior
              to such Business Combination), beneficially owns, directly or
              indirectly, twenty percent (20%) or more of, respectively, the
              then outstanding shares of common stock of the corporation
              resulting from such Business Combination or the combined voting
              power of the then-outstanding voting securities of such
              corporation except to the extent that such ownership existed prior
              to the Business Combination and (iii) at least a majority of the
              members of the Board resulting from such Business Combination were
              members of the Incumbent Board at the time of the execution of the
              initial agreement, or of the action of the Board, providing for
              such Business Combination; or

         (d)  Approval by the shareholders of the Company of a complete
              liquidation or dissolution of the Company.

1.11     "Claimant" shall have the meaning set forth in Section 14.1.

1.12     "Code" shall mean the Internal Revenue Code of 1986, as it may be
         amended from time to time.

1.13     "Committee" shall mean the administrative committee appointed pursuant
         to the Plan as described in Article 12. The Committee shall consist of
         the members of the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan
         Committee as such term is defined in the Payless ShoeSource, Inc.
         401(k) Profit Sharing Plan.

1.14     "Company" shall mean Payless ShoeSource, Inc., a Delaware corporation,
         and any successor to all or substantially all of the Company's assets
         or business.


1.15     "Company Contribution Account" shall mean (i) the sum of the
         Participant's Company Contribution Amounts, plus (ii) amounts credited
         in accordance with all the applicable crediting provisions of this Plan
         that relate to the Participant's Company Contribution



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

         Account, less (iii) all distributions made to the Participant or his or
         her Beneficiary pursuant to this Plan that relate to the Participant's
         Company Contribution Account.

1.16     "Company Contribution Amount" shall mean, for any one Plan Year, the
         amount determined in accordance with Section 3.5.

1.17     "Company Matching Account" shall mean (i) the sum of all of a
         Participant's Company Matching Amounts, plus (ii) amounts credited in
         accordance with all the applicable crediting provisions of this Plan
         that relate to the Participant's Company Matching Account, less (iii)
         all distributions made to the Participant or his or her Beneficiary
         pursuant to this Plan that relate to the Participant's Company Matching
         Account.

1.18     "Company Matching Amount" for any one Plan Year shall be the amount
         determined in accordance with Section 3.6.

1.19     "Deduction Limitation" shall mean the following described limitation on
         a benefit that may otherwise be distributable pursuant to the
         provisions of this Plan. Except as otherwise provided, this limitation
         shall be applied to all distributions that are "subject to the
         Deduction Limitation" under this Plan. If an Employer determines in
         good faith prior to a Change in Control that there is a reasonable
         likelihood that any compensation paid to a Participant for a taxable
         year of the Employer would not be deductible by the Employer solely by
         reason of the limitation under Code Section 162(m), then to the extent
         deemed necessary by the Employer to ensure that the entire amount of
         any distribution to the Participant pursuant to this Plan prior to the
         Change in Control is deductible, the Employer may defer all or any
         portion of a distribution under this Plan. Any amounts deferred
         pursuant to this limitation shall continue to be credited/debited with
         additional amounts in accordance with Section 3.11 below, even if such
         amount is being paid out in installments. The amounts so deferred and
         amounts credited/debited thereon shall be distributed to the
         Participant or his or her Beneficiary (in the event of the
         Participant's death) at the earliest possible date, as determined by
         the Employer in good faith, on which the deductibility of compensation
         paid or payable to the Participant for the taxable year of the Employer
         during which the distribution is made will not be limited by Section
         162(m), or if earlier, the effective date of a Change in Control.
         Notwithstanding anything to the contrary in this Plan, the Deduction
         Limitation shall not apply to any distributions made after a Change in
         Control.

1.20     "Deferral Account" shall mean (i) the sum of all of a Participant's
         Annual Deferral Amounts, plus (ii) amounts credited in accordance with
         all the applicable crediting provisions of this Plan that relate to the
         Participant's Deferral Account, less (iii) all distributions made to
         the Participant or his or her Beneficiary pursuant to this Plan that
         relate to his or her Deferral Account.

1.21     "Disability" shall mean a period of disability during which a
         Participant qualifies for permanent disability benefits under the
         Participant's Employer's long-term disability plan,




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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

         or, if a Participant does not participate in such a plan, a period of
         disability during which the Participant would have qualified for
         permanent disability benefits under such a plan had the Partici  pant
         been a participant in such a plan, as determined in the sole discretion
         of the Committee. If the Participant's Employer does not sponsor such a
         plan, or discontinues to sponsor such a plan, Disability shall be
         determined by the Committee in its sole discretion.

1.22     "Disability Benefit" shall mean the benefit set forth in Article 8.

1.23     "Election Form" shall mean the form established from time to time by
         the Committee that a Participant completes, signs and returns to the
         Committee to make an election under the Plan.

1.24     "Eligible Stock Option" shall mean one or more non-qualified stock
         option(s) selected by the Committee in its sole discretion and
         exercisable under a plan or arrangement of any Employer permitting a
         Participant under this Plan to defer gain with respect to such option.

1.25     "Employee" shall mean a person who is an employee of any Employer.

1.26     "Employer(s)" shall mean the Company and/or any of its subsidiaries
         (now in existence or hereafter formed or acquired).

1.27     "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
         as it may be amended from time to time.

1.28     "401(k) Plan" shall be the Payless ShoeSource, Inc. 401(k) Profit
         Sharing Plan adopted by the Company, and as amended from time to time.

1.29     "Participant" shall mean any Employee (i) who is selected to
         participate in the Plan, (ii) who elects to participate in the Plan,
         (iii) who signs an Election Form, (iv) whose signed Election Form is
         accepted by the Committee, (v) who commences participation in the Plan,
         and (vi) whose participation has not terminated. A spouse or former
         spouse of a Participant shall not be treated as a Participant in the
         Plan or have an account balance under the Plan, even if he or she has
         an interest in the Participant's benefits under the Plan as a result of
         applicable law or property settlements resulting from legal separation
         or divorce.

1.30     "Plan" shall mean the new Payless ShoeSource, Inc. Deferred
         Compensation 401(k) Mirror Plan, which shall be evidenced by this
         instrument, as it may be amended from time to time.

1.31     "Plan Year" shall mean the fiscal year of the Company.

1.32     "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
         Article 6.

1.33     "Qualifying Gain" shall mean the value accrued upon exercise of an
         Eligible Stock Option (i) using a Stock-for-Stock payment method and
         (ii) having an aggregate fair market value



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

         in excess of the total Stock purchase price necessary to exercise the
         option. In other words, the Qualifying Gain upon exercise of an
         Eligible Stock Option equals the total market value of the shares (or
         share equivalent units) acquired minus the total stock purchase price.
         For example, assume a Participant elects to defer the Qualifying Gain
         accrued upon exercise of an Eligible Stock Option to purchase 1000
         shares of Stock at an exercise price of $20 per share, when Stock has a
         current fair market value of $25 per share. Using the Stock-for-Stock
         payment method, the Participant would deliver 800 shares of Stock
         (worth $20,000) to exercise the Eligible Stock Option and receive, in
         return, 800 shares of Stock plus a Qualifying Gain (in this case, in
         the form of an unfunded and unsecured promise to pay money or property
         in the future) equal to $5,000 (i.e., the current value of the
         remaining 200 shares of Stock).

1.34     "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an
         Employee, voluntary severance from employment from all Employers for
         any reason other than a leave of absence, death or Disability on or
         after the attainment of (a) age sixty-five (65) or (b) age fifty-five
         (55) with five (5) Years of Service.

1.35     "Retirement Benefit" shall mean the benefit set forth in Article 5.

1.36     "Short-Term Payout" shall mean an in-service distribution payout as set
         forth in Section 4.1.

1.37     "Stock" shall mean Payless ShoeSource, Inc. common stock, $ .001 par
         value, or any other equity securities of the Company designated by the
         Committee.

1.38     "Stock Option Account" shall mean the sum of (i) the Participant's
         Annual Stock Option Amounts, plus (ii) amounts credited/debited in
         accordance with all the applicable crediting/debiting provisions of
         this Plan that relate to the Participant's Stock Option Account, less
         (iii) all distributions made to the Participant or his or her
         Beneficiary pursuant to this Plan that relate to the Participant's
         Stock Option Account.

1.39     "Stock Option Amount" shall mean, for any Eligible Stock Option, the
         amount of Qualifying Gains deferred in accordance with Section 3.7 of
         this Plan, calculated using the closing price of Stock as of the end of
         the business day closest to the date of exercise of such Eligible Stock
         Option.

1.40     "Termination Benefit" shall mean the benefit set forth in Article 7.


1.41     "Termination of Employment" shall mean the severing of employment with
         all Employers, voluntarily or involuntarily, for any reason other than
         Retirement, Disability, death or an authorized leave of absence.

1.42     "Trust" shall mean one or more trusts established, effective as of
         October 1, 2000 between the Company and the Trustee named therein, as
         amended from time to time.


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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

1.43     "Unforeseeable Financial Emergency" shall mean an unanticipated
         emergency that is caused by an event beyond the control of the
         Participant that would result in severe financial hardship to the
         Participant resulting from (i) a sudden and unexpected illness or
         accident of the Participant or a dependent of the Participant, (ii) a
         loss of the Participant's property due to casualty, or (iii) such other
         extraordinary and unforeseeable circumstances arising as a result of
         events beyond the control of the Participant, all as determined in the
         sole discretion of the Committee.

1.44     "Variable Account" shall mean, with respect to a Participant, a credit
         on the records of the Employer equal to the sum of (i) the Deferral
         Account balance, (ii) the Company Contribution Account balance, and
         (iii) the Company Matching Account balance. The Variable Account, and
         each other specified account balance, shall be a bookkeeping entry only
         and shall be utilized solely as a device for the measurement and
         determination of the amounts to be paid to a Participant, or his or her
         designated Beneficiary, pursuant to this Plan.

1.45     "Year of Service" shall have the same meaning as the term Vesting
         Service under the 401(k) Plan.



                                      -8-
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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                    ARTICLE 2
                       SELECTION, ENROLLMENT, ELIGIBILITY

2.1      SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
         select group of management and highly compensated Employees of the
         Employers, as determined by the Committee in its sole discretion. From
         that group, the Committee shall select, in its sole discretion,
         Employees to participate in the Plan.

2.2      ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
         Employee shall complete, execute and return to the Committee an
         Election Form within 30 days after he or she is selected to participate
         in the Plan. In addition, the Committee shall establish from time to
         time such other enrollment requirements as it determines in its sole
         discretion are necessary.

2.3      ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee
         selected to participate in the Plan has met all enrollment requirements
         set forth in this Plan and required by the Committee, including
         returning all required documents to the Committee within the specified
         time period, that Employee shall commence participation in the Plan on
         the first day of the month following the month in which the Employee
         completes all enrollment requirements. If an Employee fails to meet all
         such requirements within the period required, in accordance with
         Section 2.2, that Employee shall not be eligible to participate in the
         Plan until the first day of the Plan Year following the delivery to and
         acceptance by the Committee of the required documents.

2.4      TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
         determines in good faith that a Participant no longer qualifies as a
         member of a select group of management or highly compensated employees,
         as membership in such group is determined in accordance with Sections
         201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the
         right, in its sole discretion, to (i) terminate any deferral election
         the Participant has made for the remainder of the Plan Year in which
         the Participant's membership status changes, (ii) prevent the
         Participant from making future deferral elections and/or (iii)
         immediately distribute the Participant's then Account Balance as a
         Termination Benefit and terminate the Participant's participation in
         the Plan.

2.5      PRIOR PARTICIPATION. Each Employee who participated in the Payless
         ShoeSource, Inc. Deferred Compensation Plan (last amended March 19,
         1998) immediately prior to October 1, 2000, shall automatically
         participate in the new Plan on and after October 1, 2000. Any deferral
         election in effect as of October 1, 2000 shall continue to remain in
         effect until changed by the Participant pursuant to the provisions of
         the Plan.



                                      -9-
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                                    ARTICLE 3
              DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES

3.1      MINIMUM DEFERRALS.

         (a)      ANNUAL SALARY AND BONUS. For each Plan Year, a Participant may
                  elect to defer, as his or her Annual Deferral Amount, Annual
                  Salary, and/or Bonus in the following combined minimum amount.

<TABLE>
<CAPTION>
                  DEFERRAL                       MINIMUM AMOUNT
                  --------                       --------------
                  <S>                            <C>
                  Annual Salary                      $  0
                  Bonus                              $  0
                  Annual Salary plus  Bonus          $500
</TABLE>

                  If an election is made for less than the stated minimum
                  amount, or if no election is made, the amount deferred shall
                  be zero.

         (b)      SHORT PLAN YEAR. Notwithstanding the foregoing, if a
                  Participant first becomes a Participant after the first day of
                  a Plan Year the minimum Annual Salary deferral shall be an
                  amount equal to the minimum set forth above, multiplied by a
                  fraction, the numerator of which is the number of complete
                  months remaining in the Plan Year and the denominator of which
                  is 12.

         (c)      STOCK OPTION AMOUNT. For each Eligible Stock Option, a
                  Participant may elect to defer, as his or her Stock Option
                  Amount, the following minimum percentage of Qualifying Gain
                  with respect to exercise of the Eligible Stock Option:

<TABLE>
<CAPTION>
                  DEFERRAL                       MINIMUM PERCENTAGE
                  --------                       ------------------
                  <S>                            <C>
                  Qualifying Gain                        10%
</TABLE>

                  provided, however, that such Stock Option Amount shall be no
                  less than the lesser of $10,000 or 100% of such Qualifying
                  Gain.

3.2      MAXIMUM DEFERRAL.

         (a)      ANNUAL SALARY AND BONUS. For each Plan Year, a Participant may
                  elect to defer, as his or her Annual Deferral Amount, Annual
                  Salary and/or Bonus up to the following maximum percentages
                  for each deferral elected:



                                      -10-
<PAGE>   15
       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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<TABLE>
<CAPTION>
                  DEFERRAL                       MAXIMUM AMOUNT
                  --------                       --------------
                  <S>                            <C>
                  Annual Salary                       50%

                                             100% of Bonus reduced by
                  Bonus                     any and all social security
                                             and Medicare taxes due on
                                                    the Bonus
</TABLE>


         (b)      Notwithstanding the foregoing, if a Participant first becomes
                  a Participant after the first day of a Plan Year the maximum
                  Annual Deferral Amount, with respect to Annual Salary, and
                  Bonus shall be limited to the amount of compensation not yet
                  earned by the Participant as of the date the Participant
                  submits an Election Form to the Committee for acceptance.

         (c)      For each Eligible Stock Option, a Participant may elect to
                  defer, as his or her Stock Option Amount, Qualifying Gain up
                  to the following maximum percentage with respect to exercise
                  of the Eligible Stock Option:

<TABLE>
<CAPTION>
                  DEFERRAL                       MAXIMUM PERCENTAGE
                  --------                       ------------------
                  <S>                         <C>
                                             100% of Qualifying Gain reduced
                                             by any and all social security
                  Qualifying Gain            and Medicare taxes due on the
                                                   Qualifying Gain
</TABLE>

         (d)      Stock Option Amounts may also be limited by other terms or
                  conditions set forth in the stock option plan or agreement
                  under which such options are granted.

3.3      ELECTION TO DEFER; EFFECT OF ELECTION FORM.

         (a)      FIRST PLAN YEAR. In connection with a Participant's
                  commencement of participation in the Plan, the Participant
                  shall make an irrevocable deferral election for the Plan Year
                  in which the Participant commences participation in the Plan,
                  along with such other elections as the Committee deems
                  necessary or desirable under the Plan. For these elections to
                  be valid, the Election Form must be completed and signed by
                  the Participant, timely delivered to the Committee (in
                  accordance with Section 2.2 above) and accepted by the
                  Committee.

         (b)      SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an
                  irrevocable deferral election for that Plan Year, and such
                  other elections as the Committee deems necessary or desirable
                  under the Plan, shall be made by timely delivering to the
                  Committee, in accordance with its rules and procedures, before
                  the end of the Plan Year preceding the Plan Year for which the
                  election is made, a new Election Form.




                                      -11-
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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                  If no such Election Form is timely delivered for a Plan Year,
                  the Annual Deferral Amount shall be zero for that Plan Year.

         (c)      STOCK OPTION DEFERRAL. Subject to the shareholders of the
                  Company approving the use of Company Stock under the Plan, for
                  an election to defer gain upon an Eligible Stock Option
                  exercise to be valid: (i) a separate Election Form must be
                  completed and signed by the Participant with respect to the
                  Eligible Stock Option; (ii) the Election Form must be timely
                  delivered to the Committee and accepted by the Committee at
                  least six (6) months prior to the date the Participant elects
                  to exercise the Eligible Stock Option; (iii) the Eligible
                  Stock Option must be exercised using an actual or phantom
                  stock-for-stock payment method; and (iv) the Stock actually or
                  constructively delivered by the Participant to exercise the
                  Eligible Stock Option must have been owned by the Participant
                  during the entire six (6) month period prior to its delivery.


3.4      WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Annual
         Salary portion of the Annual Deferral Amount shall be withheld from
         each regularly scheduled Annual Salary payroll in equal amounts, as
         adjusted from time to time for increases and decreases in Annual
         Salary. The Bonus portion of the Annual Deferral Amount shall be
         withheld at the time the Bonus is or otherwise would be paid to the
         Participant, whether or not this occurs during the Plan Year itself.

3.5      COMPANY CONTRIBUTION AMOUNT. For each Plan Year, an Employer, in its
         sole discretion, may, but is not required to, credit any amount it
         desires to any Participant's Company Contribution Account under this
         Plan, which amount shall be for that Participant. The amount so
         credited to a Participant may be smaller or larger than the amount
         credited to any other Participant, and the amount credited to any
         Participant for a Plan Year may be zero, even though one or more other
         Participants receive a Company Contribution Amount for that Plan Year.
         If a Participant is not employed by an Employer as of the last day of a
         Plan Year other than by reason of his or her Retirement, Disability or
         death (while employed), the Company Contribution Amount for that Plan
         Year shall be zero.

3.6      COMPANY MATCHING AMOUNT. For each Plan Year, an Employer, in its sole
         discretion, may, but is not required to, credit any amount it desires
         to any Participant's Matching Contribution Account under this Plan,
         which amount shall be for that Participant.

3.7      STOCK OPTION AMOUNT. Subject to any terms and conditions imposed by the
         Committee and at its sole discretion, Participants may elect to defer,
         under the Plan, Qualifying Gains attributable to an Eligible Stock
         Option exercise. Stock Option Amounts shall be credited/debited to the
         Participant on the books of the Employer at the time Stock would
         otherwise have been delivered to the Participant pursuant to the
         Eligible Stock Option exercise, but for the election to defer.


                                      -12-
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3.8      INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be
         authorized, upon written instructions received from the Committee or
         investment manager appointed by the Committee, to invest and reinvest
         the assets of the Trust in accordance with the applicable Trust
         Agreement.

3.9      SOURCES OF STOCK. If Stock is credited under the Plan in the Trust
         pursuant to Section 3.7 in connection with an Eligible Stock Option
         exercise, the shares so credited shall be deemed to have originated,
         and shall be counted against the number of shares reserved, under such
         other plan, program or arrangement.

3.10     VESTING.

         A Participant shall at all times be 100% vested in his or her Deferral
         Account and Stock Option Account.

         (a)      A Participant shall be vested in his or her Company
                  Contribution Account and Company Matching Account as follows:
                  (i) with respect to all benefits under this Plan other than
                  the Termination Benefit, a Participant's Company Contribution
                  Account and Company Matching Account shall equal 100% of such
                  Participant's Company Contribution Account and Company
                  Matching Account; and (ii) with respect to the Termination
                  Benefit, a Participant's Company Contribution Account and
                  Company Matching Account shall vest on the basis of the
                  Participant's Years of Service at the time the Participant
                  experiences a Termination of Employment, in accordance with
                  the following schedule:

<TABLE>
<CAPTION>
                                                                     VESTED PERCENTAGE OF COMPANY
                         YEARS OF SERVICE AT                           CONTRIBUTION ACCOUNT AND
                  DATE OF TERMINATION OF EMPLOYMENT                    COMPANY MATCHING ACCOUNT
                  ---------------------------------                  ----------------------------
                  <S>                                                <C>
                          Fewer than 2 years                                        0%
                               2 years                                             25%
                               3 years                                             50%
                               4 years                                             75%
                            5 years or more                                       100%
</TABLE>

         (b)      Notwithstanding anything to the contrary contained in this
                  Section 3.10, a Participant's Company Contribution Account and
                  Company Matching Account shall immediately become 100% vested
                  (if it is not already vested in accordance with the above
                  vesting schedules) in the event of the following with respect
                  to a Participant: Retirement; Disability; death; or a Change
                  in Control.

         (c)      Notwithstanding subsection (a), the vesting schedule for a
                  Participant's Company Contribution Account and Company
                  Matching Account shall not be accelerated to


                                      -13-
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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

                  the extent that the Committee determines that such
                  acceleration would cause the deduction limitations of Section
                  280G of the Code to become effective (except as may be
                  provided in agreements that exist from time to time between
                  any Employer and a Participant which provides for acceleration
                  of vesting upon a Change in Control). In the event that all of
                  a Participant's Company Contribution Account and/or Company
                  Matching Account is not vested pursuant to such a
                  determination, the Participant may request independent
                  verification of the Committee's calculations with respect to
                  the application of Section 280G. In such case, the Committee
                  must provide to the Participant within 15 business days of
                  such a request an opinion from a nationally recognized
                  accounting firm selected by the Participant (the "Accounting
                  Firm"). The opinion shall state the Accounting Firm's opinion
                  that any limitation in the vested percentage hereunder is
                  necessary to avoid the limits of Section 280G and contain
                  supporting calculations. The cost of such opinion shall be
                  paid for by the Company.


3.11     CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
         to, the rules and procedures that are established from time to time by
         the Committee, in its sole discretion, amounts shall be credited or
         debited to a Participant's Account Balance in accordance with the
         following rules:

         (a)      ELECTION OF MEASUREMENT FUNDS FOR VARIABLE ACCOUNT. A
                  Participant, in connection with his or her initial deferral
                  election in accordance with Section 3.3(a) above, shall elect,
                  on the Election Form, one or more Measurement Fund(s) (as
                  described in Section 3.11(c) below) to be used to determine
                  the additional amounts to be credited to his or her Variable
                  Account when the Participant commences participation in the
                  Plan and continuing thereafter for each subsequent business
                  day in which the Participant participates in the Plan, unless
                  changed in accordance with the next sentence. Commencing with
                  the business day that follows the Participant's commencement
                  of participation in the Plan and continuing thereafter for
                  each subsequent business day in which the Participant
                  participates in the Plan, the Participant may (but is not
                  required to) elect, by submitting an Election Form to the
                  Committee that is accepted by the Committee, to reallocate
                  among the available Measurement Fund(s) to be used to
                  determine the additional amounts to be credited to his or her
                  Variable Account, or to change the portion of his or her
                  Variable Account allocated to each previously or newly elected
                  Measurement Fund. If an election is made in accordance with
                  the previous sentence, it shall apply as soon as
                  administratively possible and shall continue thereafter for
                  each subsequent business day in which the Participant
                  participates in the Plan, unless changed in accordance with
                  the previous sentence. A Participant shall be permitted to
                  request that the Committee reallocate the amount available in
                  the Measurement Fund(s) once during a calendar month.


         (b)      PROPORTIONATE ALLOCATION. In making any election described in
                  Section 3.11(a) above, the Participant shall specify on the
                  Election Form, in increments of one


                                      -14-
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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

                  percentage points (1%), the percentage of his or her Variable
                  Account to be allocated to a Measurement Fund (as if the
                  Participant was making an investment in that Measurement Fund
                  with that portion of his or her Variable Account).

         (c)      MEASUREMENT FUNDS. The Participant may elect one or more
                  measurement funds (the "Measurement Funds") for the purpose of
                  crediting additional amounts to his or her Variable Account.
                  The Committee shall, in its sole discretion, select,
                  discontinue, substitute or add a Measurement Fund at any time.
                  Subject to the shareholders of the Company approving the use
                  of Company Stock under the Plan, the Committee may offer a
                  Payless ShoeSource, Inc. Stock Fund (the "Stock Fund") as a
                  Measurement Fund.

         (d)      CREDITING OR DEBITING METHOD. The performance of each elected
                  Measurement Fund (either positive or negative) will be
                  determined by the Committee, in its reasonable discretion,
                  based on the performance of the Measurement Funds themselves.
                  A Participant's Account balance shall be credited or debited
                  on a daily basis based on the performance of each Measurement
                  Fund selected by the Participant for the Variable Account and
                  for the Stock Option Account, as determined by the Committee
                  in its sole discretion, as though (i) a Participant's Account
                  Balance were invested in the selected or required Measurement
                  Fund(s), or both in the percentages applicable to such
                  business day, as of the close of business on the business day,
                  at the closing price on such date; (ii) the portion of the
                  Annual Deferral Amount that was actually deferred as of the
                  business day were invested in the Measurement Fund(s) selected
                  by the Participant, in the percentages applicable to such
                  business day, as soon as administratively possible after the
                  day on which such amounts are actually deferred from the
                  Participant's Annual Salary through reductions in his or her
                  payroll; and (iii) any distribution made to a Participant that
                  decreases such Participant's Account Balance ceased being
                  invested in the Measurement Fund(s), in the percentages
                  applicable to such business day, as soon as administratively
                  possible. The Participant's Company Matching Amount, if any,
                  shall be credited to his or her Company Matching Account for
                  purposes of this Section 3.11(d) on the date selected by the
                  Committee in its sole and absolute discretion. The
                  Participant's Company Contribution Amount, if any, shall be
                  credited to his or her Company Contribution Account for
                  purposes of this Section 3.11(d) on the date selected by the
                  Committee, in its sole and absolute discretion. The
                  Participant's Annual Stock Option Amount(s) shall be credited
                  to his or her Stock Option Account as soon as administratively
                  possible after the date on which the Eligible Stock Option was
                  exercised or otherwise disposed of.

         (e)      SPECIAL RULE FOR STOCK OPTION ACCOUNT AND VARIABLE ACCOUNT
                  INVESTED IN STOCK. Notwithstanding any provision of this Plan
                  that may be construed to the contrary, (i) the Participant's
                  Stock Option Account must be allocated to the ShoeSource Stock
                  Fund at all times prior to distribution from this Plan, (ii)
                  the portion of the Participant's Variable Account allocated to
                  the Stock Fund must at


                                      -15-
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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

                  all times prior to distribution be allocated to the Stock
                  Fund, and (iii) the Participant's Stock Option Account and
                  that portion of the Variable Account allocated to the Stock
                  Fund must be distributed in the form of Stock.

         (f)      NO ACTUAL INVESTMENT. Notwithstanding any other provision of
                  this Plan that may be interpreted to the contrary, the
                  Measurement Funds are to be used for measurement purposes
                  only, and a Participant's election of any such Measurement
                  Fund, the allocation to his or her Account Balance thereto,
                  the calculation of additional amounts and the crediting or
                  debiting of such amounts to a Participant's Account Balance
                  shall not be considered or construed in any manner as an
                  actual investment of his or her Account Balance in any such
                  Measurement Fund. In the event that the Company or the Trustee
                  (as that term is defined in the Trust), in its own discretion,
                  decides to invest funds in any or all of the Measurement
                  Funds, no Participant shall have any rights in or to such
                  investments themselves. Without limiting the foregoing, a
                  Participant's Account Balance shall at all times be a
                  bookkeeping entry only and shall not represent any investment
                  made on his or her behalf by the Company or the Trust; the
                  Participant shall at all times remain an unsecured creditor of
                  the Company.

         (g)      AMOUNTS PREVIOUSLY DEFERRED. Each Participant with a balance
                  under the Payless ShoeSource, Inc. Deferred Compensation Plan
                  (last amended March 19, 1998) as of October 1, 2000 shall
                  elect on the Election Form one or more Measurement Fund(s) to
                  be used to determine the additional amounts to be credited to
                  his or her Variable Account commencing October 1, 2000 and
                  continuing thereafter for each subsequent business day in
                  which the Participant participates in the Plan unless changed
                  in accordance with Section 3.11(a).

3.12     FICA AND OTHER TAXES.

         (a)      ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an Annual
                  Deferral Amount is being withheld from a Participant, the
                  Participant's Employer(s) shall withhold from that portion of
                  the Participant's Annual Salary and Bonus that is not being
                  deferred, in a manner determined by the Employer(s), the
                  Participant's share of FICA and other employment taxes on such
                  Annual Deferral Amount. If necessary, the Committee may reduce
                  the Deferral Account in order to comply with this Section
                  3.12.

         (b)      COMPANY MATCHING ACCOUNT AND COMPANY CONTRIBUTION ACCOUNT.
                  When a Participant becomes vested in a portion of his or her
                  Company Matching Account or Company Contribution Account, or
                  both, the Participant's Employer(s) shall withhold from the
                  Participant's Annual Salary and/or Bonus that is not deferred,
                  in a manner determined by the Employer(s), the Participant's
                  share of FICA and other employment taxes on such vested
                  portions of his or her Company Matching Account and/or Company
                  Contribution Account. If necessary, the Committee may


                                      -16-
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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                  reduce the vested portion of the Participant's Company
                  Matching Account or Company Contribution Account, or both, as
                  the case may be, in order to comply with this Section 3.12.


         (c)      ANNUAL STOCK OPTION AMOUNTS. For each Plan Year in which an
                  Annual Stock Option Amount is being first withheld from a
                  Participant, the Participant's Employer(s) shall withhold from
                  that portion of the Participant's Annual Salary, Bonus and/or
                  Qualifying Gains that are not being deferred, in a manner
                  determined by the Employer(s), the Participant's share of FICA
                  and other employment taxes on such Annual Stock Option Amount.
                  If necessary, the Committee may reduce the Stock Option
                  Account in order to comply with this Section 3.12.

3.13     DISTRIBUTIONS. The Participant's Employer(s), or the Trustee of the
         Trust, shall withhold from any distributions made to a Participant
         under this Plan all federal, state and local income, employment and
         other taxes required to be withheld by the Employer(s), or the Trustee
         of the Trust, in connection with such distributions, in amounts and in
         a manner to be determined in the sole discretion of the Employer(s) and
         the Trustee of the Trust.


                                      -17-
<PAGE>   22

       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                    ARTICLE 4
             SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
                               WITHDRAWAL ELECTION

4.1      SHORT-TERM PAYOUT. In connection with each election to defer an Annual
         Deferral Amount, a Participant may irrevocably elect, at the sole
         discretion of the Committee, to receive a future "Short-Term Payout"
         from the Plan with respect to such Annual Deferral Amount. Subject to
         the Deduction Limitation, the Short-Term Payout shall be a lump sum
         payment in an amount that is equal to the Annual Deferral Amount plus
         amounts credited or debited in the manner provided in Section 3.11
         above on that amount, determined at the time that the Short-Term Payout
         becomes payable (rather than the date of a Termination of Employment,
         Retirement, Disability or death). Subject to the Deduction Limitation
         and the other terms and conditions of this Plan, each Short-Term Payout
         elected shall be paid out during a 60 day period commencing immediately
         after the last day of any calendar year designated by the Participant
         that is at least three Plan Years after the Plan Year in which the
         Annual Deferral Amount is actually deferred.

4.2      OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur
         that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral
         Amount, plus amounts credited or debited thereon, that is subject to a
         Short-Term Payout election under Section 4.1 shall not be paid in
         accordance with Section 4.1 but shall be paid in accordance with the
         other applicable Article.

4.3      WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.
         If the Participant experiences an Unforeseeable Financial Emergency,
         the Participant may petition the Committee to (i) suspend any deferrals
         required to be made by a Participant and/or (ii) receive a partial or
         full payout from the Plan. The payout shall not exceed the lesser of
         the Participant's Account Balance, calculated as if such Participant
         were receiving a Termination Benefit, or the amount reasonably needed
         to satisfy the Unforeseeable Financial Emergency. If, subject to the
         sole discretion of the Committee, the petition for a suspension and/or
         payout is approved, suspension shall take effect upon the date of
         approval and any payout shall be made within 60 days of the date of
         approval. The payment of any amount under this Section 4.3 shall not be
         subject to the Deduction Limitation. Any suspension of deferrals
         pursuant to this Section 4.3 shall continue for the remainder of the
         Plan Year in which the suspension is approved.



                                      -18-
<PAGE>   23
       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                    ARTICLE 5
                               RETIREMENT BENEFIT

5.1      RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant
         who Retires shall receive, as a Retirement Benefit, his or her Account
         Balance.


5.2      PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or
         her commencement of participation in the Plan, shall elect on an
         Election Form to receive the Retirement Benefit pursuant to a lump sum
         or an Annual Installment Method paid over a period not to exceed 15
         years as approved by the Committee. The Participant may annually change
         his or her election to an allowable alternative payout period by
         submitting a new Election Form to the Committee, provided that any such
         Election Form is submitted at least 2 years prior to the Participant's
         Retirement and is accepted by the Committee in its sole discretion. The
         Election Form most recently accepted by the Committee shall govern the
         payout of the Retirement Benefit. If a Participant does not make any
         election with respect to the payment of the Retirement Benefit, then
         such benefit shall be payable in a lump sum. The lump sum payment shall
         be made no later than 60 days after his or her Retirement date.
         Payments made pursuant to the Annual Installment Method shall be made
         in accordance with Section 1.3. Any payment made shall be subject to
         the Deduction Limitation.

5.3      DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
         after Retirement but before the Retirement Benefit is paid in full, the
         Participant's unpaid Retirement Benefit payments shall continue and
         shall be paid to the Participant's Beneficiary over the remaining
         period of time and in the same amounts as that benefit would have been
         paid to the Participant had the Participant survived.


                                      -19-
<PAGE>   24

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                                    ARTICLE 6
                         PRE-RETIREMENT SURVIVOR BENEFIT

6.1      PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation,
         the Participant's Beneficiary shall receive a Pre-Retirement Survivor
         Benefit equal to the Participant's Account Balance if the Participant
         dies before he or she Retires, experiences a Termination of Employment
         or suffers a Disability.

6.2      PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in
         connection with his or her commencement of participation in the Plan,
         shall elect on an Election Form the form of payment to be made to his
         or her Beneficiary. The Pre-Retirement Survivor Benefit shall be paid
         in a lump sum or an Annual Installment Method paid over a period not to
         exceed 15 years as approved by the Committee. The Participant may
         annually change his or her election to an allowable alternative payout
         period by submitting a new Election Form to the Committee. The Election
         Form most recently accepted by the Committee shall govern the payout of
         the Pre-Retirement Survivor Benefit. If a Participant does not make any
         election with respect to the payment of the Pre-Retirement Survivor
         Benefit, then such benefit shall be payable in a lump sum. The lump sum
         payment shall be made no later than 60 days after the date the
         Committee is provided with proof that is satisfactory to the Committee
         of the Participant's death. Payments made pursuant to the Annual
         Installment Method shall be made in accordance with Section 1.3. Any
         payment made shall be subject to the Deduction Limitation.

6.3      DEATH OF BENEFICIARY PRIOR TO COMPLETION OF PRE-RETIREMENT SURVIVOR
         BENEFIT. If a Beneficiary dies before the Pre-Retirement Survivor
         Benefit is paid in full, the unpaid Pre-Retirement Survivor Benefit
         shall be made to the Beneficiary's estate in a lump sum within 60 days
         after the death of the Beneficiary.



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                    ARTICLE 7
                               TERMINATION BENEFIT

7.1      TERMINATION BENEFIT. Subject to the Deduction Limitation, the
         Participant shall receive a Termination Benefit, which shall be equal
         to the Participant's Account Balance if a Participant experiences a
         Termination of Employment prior to his or her Retirement, death or
         Disability.

7.2      PAYMENT OF TERMINATION BENEFIT. A Participant, in connection with his
         or her commencement of participation in the Plan, shall elect on an
         Election Form to receive the Termination Benefit pursuant to a lump sum
         or an Annual Installment Method paid over a period not to exceed 15
         years as approved by the Committee. Notwithstanding the above, if the
         Participant's Account Balance at the time of his or her Termination of
         Employment is less than $25,000, payment of his or her Termination
         Benefit shall be paid in a lump sum. The Participant may annually
         change his or her election to an allowable alternative payout period by
         submitting a new Election Form to the Committee, provided that any such
         Election Form is submitted at least 2 years prior to the Participant's
         Termination of Employment date and is accepted by the Committee in its
         sole discretion. The Election Form most recently accepted by the
         Committee shall govern the payout of the Termination Benefit. If a
         Participant does not make any election with respect to the payment of
         the Termination Benefit, then such benefit shall be payable in a lump
         sum. The lump sum payment shall be made no later than 60 days after his
         or her Termination of Employment date. Payments made pursuant to the
         Annual Installment Method shall be made in accordance with Section 1.3.
         Any payment made shall be subject to the Deduction Limitation.

7.3      DEATH PRIOR TO COMPLETION OF TERMINATION BENEFIT. If a Participant dies
         after Termination of Employment but before to the Termination Benefit
         is paid in full, the Participant's unpaid Termination Benefit shall
         continue and shall be paid to the Participant's Beneficiary over the
         remaining period of time and in the same amounts as that benefit would
         have been paid to the Participant had the Participant survived.



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                    ARTICLE 8
                          DISABILITY WAIVER AND BENEFIT

8.1      DISABILITY WAIVER.

         (a)      WAIVER OF DEFERRAL. A Participant who is determined by the
                  Committee to be suffering from a Disability shall be (i)
                  excused from fulfilling that portion of the Annual Deferral
                  Amount commitment that would otherwise have been withheld from
                  a Participant's Annual Salary and/or Bonus for the Plan Year
                  during which the Participant first suffers a Disability and
                  (ii) excused from fulfilling any unexercised Stock Option
                  Amount commitments. During the period of Disability, the
                  Participant shall not be allowed to make any additional
                  deferral elections, but will continue to be considered a
                  Participant for all other purposes of this Plan.

         (b)      RETURN TO WORK. If a Participant returns to employment with an
                  Employer, after a Disability ceases, the Participant may elect
                  to defer an Annual Deferral Amount and Stock Option Amount for
                  the Plan Year following his or her return to employment or
                  service and for every Plan Year thereafter while a Participant
                  in the Plan; provided such deferral elections are otherwise
                  allowed and an Election Form is delivered to and accepted by
                  the Committee for each such election in accordance with
                  Section 3.3 above.

8.2      CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
         Disability shall, for benefit purposes under this Plan, continue to be
         considered to be employed, and shall be eligible for the benefits
         provided for in Articles 4, 5, 6 or 7 in accordance with the provisions
         of those Articles. Notwithstanding the above, the Committee shall have
         the right to, in its sole and absolute discretion and for purposes of
         this Plan only, and must in the case of a Participant who is otherwise
         eligible to Retire, deem the Participant to have Retired, or in the
         case of a Participant who is not eligible to Retire, to have
         experienced a Termination of Employment, after such Participant is
         determined to be suffering a Disability, in which case the Participant
         shall receive a Disability Benefit equal to his or her Account Balance
         at the time of the Committee's determination. The Participant shall be
         paid in accordance with Article 5 in the case of a deemed Retirement
         and in accordance with Article 7 in the case of a deemed Termination of
         Employment. Any payment made shall be subject to the Deduction
         Limitation.



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                                    ARTICLE 9
                             BENEFICIARY DESIGNATION

9.1      BENEFICIARY. Each Participant shall have the right, at any time, to
         designate his or her Beneficiary(ies) (both primary as well as
         contingent) to receive any benefits payable under the Plan to a
         beneficiary upon the death of a Participant. The Beneficiary designated
         under this Plan may be the same as or different from the Beneficiary
         designation under any other plan of an Employer in which the
         Participant participates.

9.2      BENEFICIARY DESIGNATION AND CHANGE OF BENEFICIARY. A Participant shall
         designate his or her Beneficiary by completing and signing the
         Beneficiary Designation Form, and returning it to the Committee or its
         designated agent. A Participant shall have the right to change a
         Beneficiary by completing, signing and otherwise complying with the
         terms of the Beneficiary Designation Form and the Committee's rules and
         procedures, as in effect from time to time. Upon the acceptance by the
         Committee of a new Beneficiary Designation Form, all Beneficiary
         designations previously filed shall be canceled. The Committee shall be
         entitled to rely on the last Beneficiary Designation Form filed by the
         Participant and accepted by the Committee prior to his or her death.

9.3      ACKNOWLEDGMENT. No designation or change in designation of a
         Beneficiary shall be effective until received and acknowledged in
         writing by the Committee or its designated agent.

9.4      NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
         Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
         designated Beneficiaries predecease the Participant or die prior to
         complete distribution of the Participant's benefits, then the
         Participant's designated Beneficiary shall be deemed to be his or her
         estate.

9.5      DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
         proper Beneficiary to receive payments pursuant to this Plan, the
         Committee shall have the right, exercisable in its discretion, to cause
         the Participant's Employer to withhold such payments until this matter
         is resolved to the Committee's satisfaction.

9.6      DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
         Beneficiary shall fully and completely discharge all Employers and the
         Committee from all further obligations under this Plan with respect to
         the Participant, and that Participant's participation in the Plan shall
         terminate upon such full payment of benefits.



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Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan
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                                   ARTICLE 10

                                LEAVE OF ABSENCE

10.1     PAID LEAVE OF ABSENCE. If a Participant is authorized by the
         Participant's Employer for any reason to take a paid leave of absence
         from the employment of the Employer, the Participant shall continue to
         be considered employed by the Employer and the Annual Deferral Amount
         shall continue to be withheld during such paid leave of absence in
         accordance with Section 3.3.

10.2     UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
         Participant's Employer for any reason to take an unpaid leave of
         absence from the employment of the Employer, the Participant shall
         continue to be considered employed by the Employer and the Participant
         shall be excused from making deferrals until the earlier of the date
         the leave of absence expires or the Participant returns to a paid
         employment status. Upon such expiration or return, deferrals shall
         resume for the remaining portion of the Plan Year in which the
         expiration or return occurs, based on the deferral election, if any,
         made for that Plan Year. If no election was made for that Plan Year, no
         deferral shall be withheld.


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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                   ARTICLE 11
                     TERMINATION, AMENDMENT OR MODIFICATION

11.1     TERMINATION. Although each Employer anticipates that it will continue
         the Plan for an indefinite period of time, there is no guarantee that
         any Employer will continue the Plan or will not terminate the Plan at
         any time in the future. Accordingly, each Employer reserves the right
         to discontinue its sponsorship of the Plan and/or to terminate the Plan
         at any time with respect to any or all of its participating Employees,
         by action of its board of directors. Upon the termination of the Plan
         with respect to any Employer, the affected Participants who are
         employed by that Employer shall terminate and their Account Balances,
         determined as if they had experienced a Termination of Employment on
         the date of Plan termination or, if Plan termination occurs after the
         date upon which a Participant was eligible to Retire, then with respect
         to that Participant as if he or she had Retired on the date of Plan
         termination, shall be paid to the Participants as follows: Prior to a
         Change in Control, if the Plan is terminated with respect to all of its
         Participants, an Employer shall have the right, in its sole discretion,
         and notwithstanding any elections made by the Participant, to pay such
         benefits in a lump sum or pursuant to an Annual Installment Method of
         up to 15 years, with amounts credited and debited during the
         installment period as provided herein. If the Plan is terminated with
         respect to less than all of its Participants, an Employer shall have
         the right to pay such benefits in a lump sum. After a Change in
         Control, the Account Balances of all participants shall be fully vested
         and the Employer shall be required to pay such benefits in a lump sum
         within five (5) business days of such Change in Control unless
         otherwise prohibited by court order. The termination of the Plan shall
         not adversely affect any Participant or Beneficiary who has become
         entitled to the payment of any benefits under the Plan as of the date
         of termination; provided however, that the Employer shall have the
         right to accelerate installment payments without a premium or
         prepayment penalty by paying the Account Balance in a lump sum or
         pursuant to an Annual Installment Method using fewer years (provided
         that the present value of all payments that will have been received by
         a Participant at any given point of time under the different payment
         schedule shall equal or exceed the present value of all payments that
         would have been received at that point in time under the original
         payment schedule).

11.2     AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
         whole or in part with respect to that Employer by the action of its
         board of directors; provided, however, that: (i) no amendment or
         modification shall be effective to decrease or restrict the value of a
         Participant's vested Account Balance in existence at the time the
         amendment or modification is made, calculated as if the Participant had
         experienced a Termination of Employment as of the effective date of the
         amendment or modification or, if the amendment or modification occurs
         after the date upon which the Participant was eligible to Retire, the
         Participant had Retired as of the effective date of the amendment or
         modification, and (ii) no amendment or modification of this Section
         11.2 or Section 12.2 of the Plan shall be effective. The amendment or
         modification of the Plan shall not affect any Participant or
         Beneficiary who has become entitled to the payment of benefits under
         the

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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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         Plan  as of the date of the amendment or modification; provided,
         however, that the Employer shall have the right to accelerate
         installment payments by paying the Account Balance in a lump sum or
         pursuant to an Annual Installment Method using fewer years (provided
         that the present value of all payments that will have been received by
         a Participant at any given point of time under the different payment
         schedule shall equal or exceed the present value of all payments that
         would have been received at that point in time under the original
         payment schedule).

11.3     EFFECT OF PAYMENT. The full payment of the applicable benefit under
         Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
         obligations to a Participant and his or her designated Beneficiaries
         under this Plan and the Participant's participation in the Plan shall
         terminate.



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                   ARTICLE 12
                                 ADMINISTRATION

12.1     COMMITTEE DUTIES. Except as otherwise provided in this Article 12, this
         Plan shall be administered by a Committee which shall consist of the
         members of the Payless ShoeSource, Inc. 401(k) Profit Sharing Plan
         Committee, or such other committee as the Board shall appoint. Members
         of the Committee may be Participants in this Plan. The Committee shall
         also have the discretion and authority to (i) make, amend, interpret,
         and enforce all appropriate rules and regulations for the
         administration of this Plan and (ii) decide or resolve any and all
         questions including interpretations of this Plan, as may arise in
         connection with the Plan. Any individual serving on the Committee who
         is a Participant shall not vote or act on any matter relating solely to
         himself or herself. When making a determination or calculation, the
         Committee shall be entitled to rely on information furnished by a
         Participant or the Company.

12.2     ADMINISTRATION UPON CHANGE IN CONTROL. For purposes of this Plan, the
         Committee shall be the "Administrator" at all times prior to the
         occurrence of a Change in Control. Upon and after the occurrence of a
         Change in Control, the "Administrator" shall be an independent third
         party selected by the individual who, immediately prior to such event,
         was the Company's Chief Executive Officer if such individual is still
         employed by the Company immediately after the Change in Control or, if
         not so identified or not so employed, the Company's highest ranking
         officer, as determined prior to the Change in Control, who is still
         employed with the Company(the "Ex-CEO"). The Administrator shall have
         the discretionary power to determine all questions arising in
         connection with the administration of the Plan and the interpretation
         of the Plan and Trust including, but not limited to benefit entitlement
         determinations and responses to legal inquiries and challenges;
         provided, however, upon and after the occurrence of a Change in
         Control, the Administrator shall have no power to direct the investment
         of Plan or Trust assets or select any investment manager or custodial
         firm for the Plan or Trust. Any responsibilities not expressly
         delegated to the Administrator upon and after a Change in Control shall
         remain with the Committee as identified prior to the Change in Control.
         Upon and after the occurrence of a Change in Control, the Company must:
         (i) pay out the account balances of all participants, in a lump sum
         within five (5) business days of such Change in Control unless
         otherwise prohibited by court order (ii) pay all reasonable
         administrative expenses and fees of the Administrator; (iii) indemnify
         the Administrator against any costs, expenses and liabilities
         including, without limitation, attorney's fees and expenses arising in
         connection with the performance of the Administrator hereunder, except
         with respect to matters resulting from the gross negligence or willful
         misconduct of the Administrator or its employees or agents; and (iv)
         supply full and timely information to the Administrator on all matters
         relating to the Plan, the Trust, the Participants and their
         Beneficiaries, the Account Balances of the Participants, the date of
         circumstances of the Retirement, Disability, death or Termination of
         Employment of the Participants, and such other pertinent information as
         the Administrator may reasonably require. Upon and after a


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         Change in Control, the Administrator may be terminated (and a
         replacement appointed) by the Ex-CEO. Upon and after a Change in
         Control, the Administrator may not be terminated by the Company.

12.3     AGENTS. In the administration of this Plan, the Committee may, from
         time to time, employ agents and delegate to them such administrative
         duties as it sees fit (including acting through a duly appointed
         representative) and may from time to time consult with counsel who may
         be counsel to any Employer.

12.4     BINDING EFFECT OF DECISIONS. The decision or action of the
         Administrator with respect to any question arising out of or in
         connection with the administration, interpretation and application of
         the Plan and the rules and regulations promulgated hereunder shall be
         final and conclusive and binding upon all persons having any interest
         in the Plan.

12.5     INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
         the members of the Committee, and any Employee to whom the duties of
         the Committee may be delegated, and the Administrator against any and
         all claims, losses, damages, expenses or liabilities arising from any
         action or failure to act with respect to this Plan, except in the case
         of willful misconduct by the Committee, any of its members, any such
         Employee or the Administrator.

12.6     EMPLOYER INFORMATION. To enable the Committee and/or Administrator to
         perform its functions, the Company and each Employer shall supply full
         and timely information to the Committee and/or Administrator, as the
         case may be, on all matters relating to the compensation of its
         Participants, the date and circumstances of the Retirement, Disability,
         death or Termination of Employment of its Participants, and such other
         pertinent information as the Committee or Administrator may reasonably
         require.



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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                   ARTICLE 13
                          OTHER BENEFITS AND AGREEMENTS

13.1     COORDINATION WITH OTHER BENEFITS. The benefits provided for a
         Participant and Participant's Beneficiary under the Plan are in
         addition to any other benefits available to such Participant under any
         other plan or program for employees of the Participant's Employer. The
         Plan shall supplement and shall not supersede, modify or amend any
         other such plan or program except as may otherwise be expressly
         provided.

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                                   ARTICLE 14
                                CLAIMS PROCEDURES

14.1     PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
         Participant (such Participant or Beneficiary being referred to below as
         a "Claimant") may deliver to the Committee a written claim for a
         determination with respect to the amounts distributable to such
         Claimant from the Plan. If such a claim relates to the contents of a
         notice received by the Claimant, the claim must be made within 60 days
         after such notice was received by the Claimant. All other claims must
         be made within 180 days of the date on which the event that caused the
         claim to arise occurred. The claim must state with particularity the
         determination desired by the Claimant.

14.2     NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
         claim within a reasonable time, and shall notify the Claimant in
         writing:

         (a)      that the Claimant's requested determination has been made, and
                  that the claim has been allowed in full; or

         (b)      that the Committee has reached a conclusion contrary, in whole
                  or in part, to the Claimant's requested determination, and
                  such notice must set forth in a manner calculated to be
                  understood by the Claimant:

                  (i)      the specific reason(s) for the denial of the claim,
                           or any part of it;

                  (ii)     specific reference(s) to pertinent provisions of the
                           Plan upon which such denial was based;

                  (iii)    a description of any additional material or
                           information necessary for the Claimant to perfect the
                           claim, and an explanation of why such material or
                           information is necessary; and

                  (iv)     an explanation of the claim review procedure set
                           forth in Section 14.3 below.

14.3     REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
         the Committee that a claim has been denied, in whole or in part, a
         Claimant (or the Claimant's duly authorized representative) may file
         with the Committee a written request for a review of the denial of the
         claim. Thereafter, but not later than 30 days after the review
         procedure began, the Claimant (or the Claimant's duly authorized
         representative):

         (a)      may review pertinent documents;

         (b)      may submit written comments or other documents; and/or


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         (c)      may request a hearing, which the Committee, in its sole
                  discretion, may grant.

14.4     DECISION ON REVIEW. The Committee shall render its decision on review
         promptly, and not later than 60 days after the filing of a written
         request for review of the denial, unless a hearing is held or other
         special circumstances require additional time, in which case the
         Committee's decision must be rendered within 120 days after such date.
         Such decision must be written in a manner calculated to be understood
         by the Claimant, and it must contain:

         (a)      specific reasons for the decision;

         (b)      specific reference(s) to the pertinent Plan provisions upon
                  which the decision was based; and

         (c)      such other matters as the Committee deems relevant.

14.5     LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
         this Article 14 is a mandatory prerequisite to a Claimant's right to
         commence any legal action with respect to any claim for benefits under
         this Plan.


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       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
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                                   ARTICLE 15
                                     TRUST

15.1     ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
         each Employer shall at least annually transfer over to the Trust such
         assets as the Employer determines, in its sole discretion, are
         necessary to provide, on a present value basis, for its respective
         future liabilities created with respect to the Annual Deferral Amounts,
         Company Contribution Amounts, Company Matching Amounts and Annual Stock
         Option Amounts for such Employer's Participants for all periods prior
         to the transfer, as well as any debits and credits to the Participants'
         Account Balances for all periods prior to the transfer, taking into
         consideration the value of the assets in the trust at the time of the
         transfer.

15.2     INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
         shall govern the rights of a Participant to receive distributions
         pursuant to the Plan. The provisions of the Trust shall govern the
         rights of the Employers, Participants and the creditors of the
         Employers to the assets transferred to the Trust. Each Employer shall
         at all times remain liable to carry out its obligations under the Plan.

15.3     DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the
         Plan may be satisfied with Trust assets distributed pursuant to the
         terms of the Trust, and any such distribution shall reduce the
         Employer's obligations under this Plan.

15.4     STOCK TRANSFERRED TO THE TRUST. Subject to the shareholders of the
         Company approving the use of Company Stock under the Plan,
         notwithstanding any other provision of this Plan or the Trust, if Trust
         assets are distributed to a Participant in a distribution which reduces
         the Participant's Stock Option Account balance under this Plan or such
         portion of the Participant's Variable Account invested in the Stock
         Fund, such distribution must be made in the form of Stock.



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Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan
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                                   ARTICLE 16

                                  MISCELLANEOUS

16.1     STATUS OF PLAN. The Plan is intended to be a plan that is not qualified
         within the meaning of Code Section 401(a) and that "is unfunded and is
         maintained by an employer primarily for the purpose of providing
         deferred compensation for a select group of management or highly
         compensated employees within the meaning of ERISA Sections 201(2),
         301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted
         to the extent possible in a manner consistent with that intent.

16.2     UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
         heirs, successors and assigns shall have no legal or equitable rights,
         interests or claims in any property or assets of an Employer. For
         purposes of the payment of benefits under this Plan, any and all of an
         Employer's assets shall be, and remain, the general, unpledged
         unrestricted assets of the Employer. An Employer's obligation under the
         Plan shall be merely that of an unfunded and unsecured promise to pay
         money in the future.

16.3     EMPLOYER'S LIABILITY. An Employer's liability for the payment of
         benefits shall be defined only by the Plan. An Employer shall have no
         obligation to a Participant under the Plan except as expressly provided
         in the Plan.

16.4     NONASSIGNABILITY. Neither a Participant nor any other person shall have
         any right to commute, sell, assign, transfer, pledge, anticipate,
         mortgage or otherwise encumber, transfer, hypothecate, alienate or
         convey in advance of actual receipt, the amounts, if any, payable
         hereunder, or any part thereof, which are, and all rights to which are
         expressly declared to be, unassignable and non-transferable. No part of
         the amounts payable shall, prior to actual payment, be subject to
         seizure, attachment, garnishment or sequestration for the payment of
         any debts, judgments, alimony or separate maintenance owed by a
         Participant or any other person, be transferable by operation of law in
         the event of a Participant's or any other person's bankruptcy or
         insolvency or be transferable to a spouse as a result of a property
         settlement or otherwise.

16.5     NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
         shall not be deemed to constitute a contract of employment between any
         Employer and the Participant. Such employment is hereby acknowledged to
         be an "at will" employment relationship that can be terminated at any
         time for any reason, or no reason, with or without cause, and with or
         without notice, unless expressly provided in a written employment
         agreement. Nothing in this Plan shall be deemed to give a Participant
         the right to be retained in the service of any Employer, either as an
         Employee or a director, or to interfere with the right of any Employer
         to discipline or discharge the Participant at any time.

16.6     FURNISHING INFORMATION. A Participant or his or her Beneficiary will
         cooperate with the Committee by furnishing any and all information
         requested by the Committee and take such other actions as may be
         requested in order to facilitate the administration of the Plan

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         and the payments of benefits hereunder, including but not limited to
         taking such physical examinations as the Committee may deem necessary.

16.7     TERMS. Whenever any words are used herein in the masculine, they shall
         be construed as though they were in the feminine in all cases where
         they would so apply; and whenever any words are used herein in the
         singular or in the plural, they shall be construed as though they were
         used in the plural or the singular, as the case may be, in all cases
         where they would so apply.

16.8     CAPTIONS. The captions of the articles, sections and paragraphs of this
         Plan are for convenience only and shall not control or affect the
         meaning or construction of any of its provisions.

16.9     GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
         construed and interpreted according to the internal laws of the State
         of Kansas without regard to its conflicts of laws principles.

16.10    NOTICE. Any notice or filing required or permitted to be given to the
         Committee under this Plan shall be sufficient if in writing and
         hand-delivered, or sent by registered or certified mail, to the address
         below:

                                    Payless ShoeSource, Inc.
                                    3231 SE Sixth Street
                                    Topeka, KS 66607-2207

         Such notice shall be deemed given as of the date of delivery or, if
         delivery is made by mail, as of the date shown on the postmark on the
         receipt for registration or certification.

         Any notice or filing required or permitted to be given to a Participant
         under this Plan shall be sufficient if in writing and hand-delivered,
         or sent by mail, to the last known address of the Participant.

16.11    SUCCESSORS. The provisions of this Plan shall bind and inure to the
         benefit of the Participant's Employer and its successors and assigns
         and the Participant and the Participant's designated Beneficiaries.

16.12    VALIDITY. In case any provision of this Plan shall be illegal or
         invalid for any reason, said illegality or invalidity shall not affect
         the remaining parts hereof, but this Plan shall be construed and
         enforced as if such illegal or invalid provision had never been
         inserted herein.

16.13    INCOMPETENT. If the Committee determines in its discretion that a
         benefit under this Plan is to be paid to a minor, a person declared
         incompetent or to a person incapable of handling the disposition of
         that person's property, the Committee may direct payment of such
         benefit


                                      -34-
<PAGE>   39

       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

         to the guardian, legal representative or person having the care and
         custody of such minor, incompetent or incapable person. The Committee
         may require proof of minority, incompetence, incapacity or
         guardianship, as it may deem appropriate prior to distribution of the
         benefit. Any payment of a benefit shall be a payment for the account of
         the Participant and the Participant's Beneficiary, as the case may be,
         and shall be a complete discharge of any liability under the Plan for
         such payment amount.

16.14    COURT ORDER. The Committee is authorized to make any payments directed
         by court order in any action in which the Plan or the Committee has
         been named as a party. In addition, if a court determines that a spouse
         or former spouse of a Participant has an interest in the Participant's
         benefits under the Plan in connection with a property settlement or
         otherwise, the Committee, in its sole discretion, shall have the right,
         notwithstanding any election made by a Participant, to immediately
         distribute the spouse's or former spouse's interest in the
         Participant's benefits under the Plan to that spouse or former spouse.

16.15    DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any
         portion of a Participant's benefits under this Plan becomes taxable to
         the Participant prior to receipt, a Participant may petition the
         Committee before a Change in Control, or the newly appointed
         Administrator upon and after a Change in Control, for a distribution of
         that portion of his or her benefit that has become taxable. Upon the
         grant of such a petition, which grant shall not be unreasonably
         withheld (and, after a Change in Control, shall be granted), a
         Participant's Employer shall distribute to the Participant immediately
         available funds in an amount equal to the taxable portion of his or her
         benefit (which amount shall not exceed a Participant's unpaid Account
         Balance under the Plan). If the petition is granted, the tax liability
         distribution shall be made within 90 days of the date when the
         Participant's petition is granted. Such a distribution shall affect and
         reduce the benefits to be paid under this Plan.

16.17    TRUST. If the Trust terminates and benefits are distributed from the
         Trust to a Participant, the Participant's benefits under this Plan
         shall be reduced to the extent of such distributions.

16.18    LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and
         each Employer is aware that upon the occurrence of a Change in Control,
         the Board or the board of directors of a Participant's Employer (which
         might then be composed of new members) or a shareholder of the Company
         or the Participant's Employer, or of any successor corporation might
         then cause or attempt to cause the Company, the Participant's Employer
         or such successor to refuse to comply with its obligations under the
         Plan and might cause or attempt to cause the Company or the
         Participant's Employer to institute, or may institute, litigation
         seeking to deny Participants the benefits intended under the Plan. In
         these circumstances, the purpose of the Plan could be frustrated.
         Accordingly, if, following a Change in Control, it should appear to any
         Participant that the Company, the Participant's Employer or any
         successor corporation has failed to comply with any of its obligations
         under the Plan or any agreement thereunder or, if the Company, such
         Employer or any


                                      -35-
<PAGE>   40



Payless ShoeSource, Inc. Deferred Compensation 401(k) Mirror Plan
--------------------------------------------------------------------------------

other person takes any action to declare the Plan void or unenforceable or
institutes any litigation or other legal action designed to deny, diminish or to
recover from any Participant the benefits intended to be provided, then the
Company and the Participant's Employer irrevocably authorize such Participant to
retain counsel of his or her choice at the expense of the Company and the
Participant's Employer (who shall be jointly and severally liable) to represent
such Participant in connection with the initiation or defense of any litigation
or other legal action, whether by or against the Company, the Participant's
Employer or any director, officer, shareholder or other person affiliated with
the Company, the Participant's Employer or any successor thereto in any
jurisdiction.

                          SIGNATURES ON FOLLOWING PAGE




                                      -36-
<PAGE>   41

       PAYLESS SHOESOURCE, INC. DEFERRED COMPENSATION 401(k) MIRROR PLAN
================================================================================

         IN WITNESS WHEREOF, the Company has signed this Plan document effective
as of October 1, 2000.

                                Payless ShoeSource, Inc., a Delaware corporation

                                By:    /s/ Jeffrey A. Long
                                       -----------------------------------------

                                Title: Vice President Compensation & Benefits
                                       -----------------------------------------

                                      -37-