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                                                                   EXHIBIT 10.26

                              SEPARATION AGREEMENT

                                       AND

                                 GENERAL RELEASE

This is a Separation Agreement and General Release ("Separation Agreement") by
and between Ken C. Hicks ("Employee") and Payless ShoeSource, Inc., its
subsidiaries, affiliates, successors, and assigns, and its agents and
representatives (collectively "PSS"). Employee is currently employed as
President under that certain Employment Agreement between PSS and Employee dated
as of May 29, 2001, (hereinafter the "Employment Agreement").

PSS wishes Employee's active employment to terminate February 2, 2002. In
consideration of the payments and mutual promises contained in this Separation
Agreement, PSS and Employee agree as follows:

1.       Except as provided below, Employee will receive special salary
         continuation payments, at Employee's current rate, on normal pay dates,
         through February 2, 2003.

2.       Employee's employment with PSS shall terminate, Employee's salary
         continuation payments shall cease, and the term of the Employment
         Agreement is hereby amended to terminate, all effective as of the close
         of business February 2, 2003, or on such earlier date as Employee
         commences full-time employment with an employer other than PSS. The
         employer-employee relationship shall cease on such date, for all
         purposes, including without limitation for purposes of all compensation
         plans, all employee benefit plans, any retirement and supplemental
         retirement plans, and all fringe benefit arrangements provided by PSS.
         All payments and participation in all plans shall cease on such date,
         including but not limited to the Medical Plan (except as provided by
         COBRA), Life Insurance Plan, Long-Term Disability Plan, Profit Sharing
         Plan, Deferred Compensation Plan, Deferred Compensation 401(k) Mirror
         Plan, 1996 Stock Incentive Plan (and any such plan for all subsequent
         years), Executive Incentive Compensation Plan (EICP) for fiscal year
         2002 and all subsequent years, car allowance, and any other plan,
         program, practice, or payment. The above notwithstanding, vacation
         accrual shall cease as of February 2, 2002.

3.       PSS agrees to pay Employee the following (Employee has been provided
         with a document entitled "Transition Package," which contains estimates
         of certain bonus payments based on Incentive plan targets and stock
         option valuations based upon certain stock value assumptions. These are
         estimates only, and PSS does not represent that these amounts will be
         paid, and the actual amounts paid may be less than those stated):

         (1)      If Employee begins other employment prior to February 2, 2003,
                  payments under this Separation Agreement shall cease,
                  Employee's employment will terminate, and Employee will be
                  paid a lump sum (less legally required withholding for
                  applicable taxes) representing the equivalent of salary
                  payments from the date payments cease under this Separation
                  Agreement through May 31, 2004. If

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                  Employee has not commenced other employment prior to February
                  2, 2003, then on or about February 2, 2003, Employee will be
                  paid the lump sum amount of Eight Hundred Fifty Thousand and
                  00/100 dollars ($850,000.00), less required withholding
                  representing the equivalent of salary payments (less required
                  withholding) from February 2, 2003 through May 31, 2004. Any
                  lump sum paid hereunder will not be subject to repayment or
                  reduction under Paragraph 5(d)(vi) of the Employment Agreement
                  provided Employee meets Employee's obligations under Paragraph
                  3 of the Employment Agreement as modified by Paragraph 5(ii)
                  below. Upon termination of payments under this Separation
                  Agreement, medical insurance conversion will be available as
                  provided in the applicable plan.

         (2)      PSS will also pay Employee on or about April 15, 2002, both
                  the annual and the long-term portion of Employee's fiscal 1999
                  - 2001 bonus, less required withholding.

         (3)      PSS will also pay Employee on or about April 15, 2003, a
                  prorated share of the long-term portion of the fiscal 2000 -
                  2002 bonus, less required withholding.

         (4)      PSS will also pay Employee on or about April 15, 2004, a
                  prorated share of the long-term portion of the fiscal 2001 -
                  2003 bonus, less required withholding.

         (5)      Employee will receive payment at termination for all unused
                  vacation granted as of February 2, 2002.

         (6)      All deferred compensation, if any, will be paid to Employee
                  according to the "Plan(s)" and election distribution schedule.

         (7)      The Employee's Payless Profit Sharing account will be paid out
                  according to the "Plan" and Employee will have the election to
                  roll over the account balances into another IRA/401(k) type
                  investment as long as Employee directs Payless ShoeSource to
                  transfer the funds directly to another investment vehicle
                  legally qualified to receive rollover distributions.

         (8)      The payments and other considerations set forth in Paragraphs
                  3(a), (b), (c), (d) and (e) above represent full satisfaction
                  of all payments and other consideration due Employee under
                  Employee's Employment Agreement and also includes additional
                  consideration in settlement of all claims which Employee may
                  have with respect to, arising out of or resulting from the
                  Employment Agreement, Employee's employment thereunder and the
                  termination thereof, and all potential claims listed in
                  Paragraph 10 below. Such payments are not made pursuant to any
                  employee welfare benefit plan as defined by the Employee
                  Retirement Income Security Act of 1974.


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         (9)      PSS's obligations to pay the amounts referred to in this
                  Paragraph 3 are hereby expressly made subject to Employee's
                  compliance with Employee's obligations hereunder, including,
                  without limitation, the terms of Paragraphs 5, 11 and 12.

         (10)     PSS agrees that it will respond to inquiries concerning
                  Employee's former employment only by confirming Employee's
                  employment status, period of employment and titles, except as
                  may otherwise be consented to by Employee. Employee agrees to
                  direct all inquiries concerning Employee's employment with PSS
                  to Bill Rainey and/or Steven Douglass.

         (11)     At any time during the November 19 - December 3, 2001, window
                  period provided pursuant to PSS "Trading in Securities"
                  policy, and at any time after February 28, 2002, and on or
                  prior to the date of termination of payments to Employee under
                  this Separation Agreement, Employee will have the right to (i)
                  exercise all previously vested stock options which have not
                  heretofore been exercised, and (ii) receive all shares of
                  restricted stock granted to Employee in which Employee has
                  vested.

         (12)     PSS and Employee agree to honor the terms of the
                  Indemnification Agreement between PSS and Employee pursuant to
                  the terms of that agreement and PSS agrees specifically to
                  provide Employee with such indemnification with respect to the
                  lawsuits entitled Home Shopping Network, Inc. v. Ken Hicks and
                  Payless ShoeSource, Inc. and Ken C. Hicks and Payless
                  ShoeSource, Inc. v. Home Shopping Network, Inc. PSS and
                  Employee further agree that any rights Employee may have under
                  the Change of Control Agreement dated March 22, 2000, are
                  hereby extinguished. PSS represents to Employee that
                  termination of Employee's employment has not been effected in
                  contemplation of any contingency contained in that Change of
                  Control Agreement.

         (13)     PSS will provide outplacement services for Employee to be
                  coordinated by PSS Human Resources Department. Employee must
                  commence utilizing the outplacement services no later than
                  thirty (30) days following February 2, 2002, or the right to
                  such services shall cease.

         (14)     Employee will be paid an additional lump sum payment equal to
                  the difference between the closing price of a share of PSS
                  stock on February 1, 2002, and $53.25 multiplied by 65,000
                  (less legally required withholding for applicable taxes),
                  provided that such payment shall in no case exceed $195,000.

4.       Federal, state, and local taxes shall be withheld by PSS from the
         payments hereunder which are required by law, as determined in PSS'
         sole discretion, in accordance with the W-4 filed by Employee. Employee
         agrees to pay any and all taxes found to be owed from payments made
         pursuant to this Separation Agreement and to hold PSS harmless from

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         any claims, assessments, demands, penalties and interest owed, or found
         to be owed, including reasonable attorney fees, as a result of any
         payment made pursuant to this Separation Agreement.

5.       Payless hereby releases Employee from all of Employee's obligations
         under the Employment Agreement (including any amendments to said
         agreement), except for

         (i)      Employee's post-termination obligations under Paragraph 6 of
                  the Employment Agreement, which obligations shall remain in
                  full force and effect;

         (ii)     Employee's post-termination obligations under Paragraph 3 of
                  the Employment Agreement, which obligations shall remain in
                  full force and effect until February 2, 2003, rather than May
                  31, 2004, as provided in the Employment Agreement; and

         (iii)    Employee's post-termination obligations under Paragraph 9 of
                  the Employment Agreement.

6.       In the event of Employee's death before all amounts payable hereunder
         have been paid, the balance shall be paid to Employee's estate less any
         required withholding.

7.       Employee hereby expressly acknowledges having been advised to and given
         an opportunity to discuss all aspects of this Separation Agreement with
         an attorney before signing it and Employee further acknowledges that
         Employee has consulted with an attorney or, in the alternative, has
         freely and voluntarily elected not to consult with an attorney prior to
         signing this Separation Agreement.

8.       Employee understands that Employee has forty-five (45) days from
         November 17, 2001, to consider the meaning and effect of this
         Separation Agreement, and has elected to execute this Separation
         Agreement on the date indicated below. Employee agrees that any
         changes, whether material or not, to this Separation Agreement do not
         restart the running of the forty-five (45) day period.

9.       Employee acknowledges that Employee has been informed in writing of (i)
         the class, unit, or group of individuals eligible to receive separation
         payments, (ii) the eligibility factors for such payments and any time
         limits to elect such payments, and (iii) the job titles and ages of all
         individuals eligible to receive separation payments and of all
         individuals in the same organizational unit who are not eligible to
         receive such payments. Employee further acknowledges that this
         information is provided with this Separation Agreement as Attachment 1,
         and is incorporated herein by reference.

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10.      Employee hereby fully releases and forever discharges PSS, its past or
         present parent, subsidiaries, affiliates, successors and assigns, and
         its or their respective officers, directors, shareholders, employees,
         agents, insurers, and representatives (collectively the "Released
         Parties"), from any and all claims, demands, liabilities or obligations
         (including attorney's fees), whether known or unknown, discovered or
         undiscovered, matured or unmatured, which have arisen between Employee
         and the Released Parties including, but not limited to, any claim of
         discrimination or any other claim arising out of Employee's employment
         with PSS, which have arisen up to the date of this Separation
         Agreement. Employee agrees not to sue or bring any action before any
         regulatory body or agency against any of the Released Parties with
         respect to such claims, demands, liabilities or obligations. Employee
         waives Employee's right to file any charge, complaint or other action,
         nor will Employee seek, claim entitlement to, or accept any relief or
         recovery from any charge, complaint or other action before any federal,
         sate or local administrative agency or court against the Released
         Parties. As part of this general release, Employee specifically waives
         any and all rights or claims which Employee might have under Title VII
         of the Civil Rights Act of 1964, as amended, the Civil Rights Act of
         1991, the Age Discrimination in Employment Act of 1967, as amended by
         the Older Worker's Benefit Protection Act of 1990, the Americans with
         Disabilities Act of 1990, the Family and Medical Leave Act of 1993, any
         and all state or local civil/human rights laws and any other similar
         laws, and any similar state, local or municipal statutes. For purposes
         of the Age Discrimination in Employment Act ("ADEA") only, this
         Separation Agreement does not affect the EEOC's right and
         responsibilities to enforce the ADEA, nor does this Separation
         Agreement prohibit Employee from filing a charge under the ADEA with
         the EEOC or participating in any investigation or proceeding conducted
         by the EEOC.

11.      Employee and PSS agree to treat the facts of this Separation Agreement
         in a confidential manner and will not disclose the terms herein to any
         third party and, specifically, the parties will not:

         (i)      orally, or in writing, make any public statements, the intent
                  of which is to bring Employee or PSS or its interests,
                  methods, officers, directors or employees into disrepute; and

         (ii)     disclose the fact of this Separation Agreement or any of its
                  terms to any person not a family member (including any friend,
                  acquaintance or current or potential business associate),
                  except (a) as required by law (upon advice of counsel
                  reflected in a written opinion of counsel which has been
                  provided to PSS in advance), (b) in Employee's income tax
                  returns, (c) to any financial planner, accountant or other
                  agent whose knowledge thereof is necessary in


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                  order to prepare such income tax returns (and then only upon
                  such financial planner's, accountant's or other agent's
                  agreement to be bound by the terms of this Section), and (d)
                  to any attorney representing Employee concerning this
                  Separation Agreement.

12.      Employee acknowledges and agrees that the "Confidential Information"
         provisions of Paragraph 6 of the Employment Agreement continue to apply
         to Employee after Employee's resignation and that Employee has reviewed
         and reaffirms that obligation. Employee also acknowledges that Employee
         has signed copies of PSS's confidential information policy, which
         policy by its terms continues to apply to Employee after termination of
         employment, and agrees that such policy continues to apply to Employee
         after Employee's resignation.

13.      This Separation Agreement sets forth all of the agreements between PSS
         and Employee concerning Employee's employment and concerning Employee's
         resignation, and all prior agreements are hereby incorporated herein.
         This Separation Agreement may not be amended, except in writing signed
         by both of the parties hereto.

14.      Should Employee fail to meet the obligations undertaken by Employee
         pursuant to this Separation Agreement, PSS shall have no further
         obligations under this Separation Agreement, including but not limited
         to payment of the amounts set forth in Paragraph 3. In addition, PSS
         shall have the right to recover from Employee any and all monies paid
         and the full value of any benefits extended to Employee pursuant to
         this Separation Agreement and may take any legal action necessary to
         enforce this Separation Agreement and/or recover damages to PSS caused
         by Employee's breach of this Separation Agreement, including reasonable
         attorney fees, unless prohibited from doing so by local, state or
         federal law.

15.      This Separation Agreement shall be interpreted in accordance with the
         plain meaning of its terms and not strictly for or against any of the
         parties hereto. Kansas law shall govern the validity, effect, and
         interpretation of this Separation Agreement. This Separation Agreement
         is to be enforced at least in part in Shawnee County, Kansas, and venue
         for any action to enforce this Separation Agreement shall be in the
         Kansas District Court for Shawnee County, Kansas.

16.      Should any provision of this Separation Agreement be declared or be
         determined by any court of competent jurisdiction to be illegal,
         invalid, or unenforceable, the legality, validity, and enforceability
         of the remaining parts, terms or provisions shall not be affected
         thereby, and said illegal, unenforceable, or invalid part, term or
         provision shall be deemed not be part of this Separation Agreement.

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17.      Employee agrees to close out Employee's business relationship with PSS
         in a professional and responsible manner, including contact with
         personnel both within and outside PSS, and acknowledges that failure to
         do so shall invalidate the payments specified above.

18.      Employee is eligible for re-hire by PSS. If Employee is offered and
         accepts employment with PSS prior to the end of Employee's Employment
         Agreement, any payments remaining to be paid under the Separation
         Agreement shall cease.

19.      This Separation Agreement shall be binding upon Employee and Employee's
         heirs, successors and assigns, and upon PSS and its successors and
         assigns.

20.      No payment hereunder shall be subject in any manner to anticipation,
         alienation, sale, transfer, assignment, pledge, encumbrance, levy or
         charge, and any attempt to so assign or otherwise encumber such payment
         shall be void. However, any valid garnishments, assignments or court
         ordered wage withholding orders received prior to payment of the
         amounts due pursuant to this Separation Agreement, will be executed by
         PSS as required by applicable law or procedure.

21.      Employee acknowledges that the right to receive payments hereunder is
         not secured by an particular assets of PSS, but is an unfunded
         obligation of PSS.

22.      The parties further hereby agree that this Separation Agreement shall
         not be construed as an admission by either party of any liability
         whatsoever, or as an admission of any violation of the rights of either
         party, violation of any order, law statute, duty, or contract,
         whatsoever against either party or any other person, or of any order,
         law statute, duty or contract on the part of PSS, its employees, or
         agents, or related companies or their employees or agents.

23.      Employee agrees to cooperate with and be readily available to PSS or
         its General Counsel, as PSS may reasonably request, to assist it in any
         matter, including litigation or potential litigation, over which
         Employee may have knowledge, information or expertise. Employee further
         agrees that Employee will not at any time discuss any matter concerning
         PSS with anyone adverse or potentially adverse to PSS on any matter
         including employment claims or customer claims, without the prior
         written consent of Counsel for PSS. However, if required by a
         governmental regulatory agency or self-regulatory agency to provide
         testimony or information regarding the Company, Employee will cooperate
         with said regulatory agency. If compelled to testify by a validly
         served subpoena or by regulatory authority, Employee will testify
         truthfully as to all matters concerning Employee's employment at PSS.
         If a regulatory agency or self-regulatory agency contacts Employee
         regarding the Company or if Employee receives a subpoena or other court
         or legal process relating in any way to the Company, or any present or
         former Company customer or employee, Employee immediately will give the
         General Counsel


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         for the Company prior notice and shall be available to be interviewed
         concerning the subject of such contact.

24.      Employee understands that Employee may revoke this Separation Agreement
         at any time during a period of seven (7) days following the day
         Employee executes this Separation Agreement and said Separation
         Agreement shall not become effective or enforceable until the
         revocation period has expired. Any revocation within this period must
         be submitted, in writing to PSS and state: "I hereby revoke my
         acceptance of our Separation Agreement and General Release." Said
         revocation must be personally delivered to William J. Rainey, Senior
         Vice President, General Counsel, or Employer's designee, or mailed to
         Payless ShoeSource, Inc., P.O. Box 1189, Topeka, Kansas 66601, and
         postmarked within seven (7) days of the execution of this Separation
         Agreement.

/s/ Ken C. Hicks                                             December 13, 2001
------------------                                           -----------------
Ken C. Hicks                                                 Date


Payless ShoeSource, Inc.

By:  /s/ Steven Douglass                                     December 13, 2001
   ---------------------------------                         -----------------
                                                             Date


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                                  ATTACHMENT 1

                     INFORMATION REGARDING JOB ELIMINATIONS

The decisional unit is all members of the Senior Management Committee. All
persons selected for termination by virtue of elimination of their positions in
the Senior Management Committee are selected for this program. The following is
a list of the age and job title of persons who were and were not selected for
termination.


                      PERSONS NOT SELECTED FOR TERMINATION


JOB TITLE                                                     AGE
---------                                                     ---

Chairman & Chief Executive Officer                             52

Executive Vice President - Operations                          46

Senior Vice President - Human Resources                        58

Senior Vice President - Financial Services & CFO               56

Senior Vice President - General Counsel                        55

Division Senior Vice President - Administration                46

Senior Vice President - Retail Operations                      43

Senior Vice President / GMM - Childrens'/Mens                  47

Senior Vice President - Merchandise Distribution / Planning    46

Senior Vice President - Marketing                              39

Senior Vice President / GMM - Parade                           46

Senior Vice President / GMM - Accessories                      48

Senior Vice President - Retail Operations Div. A               47

Senior Vice President - Retail Operations - International      47


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                        PERSONS SELECTED FOR TERMINATION


JOB TITLE                                                     AGE
---------                                                     ---


President                                                      49

Senior Vice President / GMM - Women's                          46

Senior Vice President - Trend Merchandising                    48

Senior Vice President - IS & Logistics                         53

Senior Vice President - Corporate Development                  52

Senior Vice President - Managing Director PSSI                 48

Senior Vice President - Retail Operations Div. B               55

Senior Vice President - Retail Operations Div. K               63

Senior Vice President - Retail Operations Div. L               51


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