Exhibit 10.6


 


FAMILY
DOLLAR STORES, INC.


 


2006
INCENTIVE PLAN


 


Guidelines
for Annual Cash Bonus Awards


 


1.             Purpose


 


Family Dollar Stores, Inc. (the “Company”)
maintains for the benefit of eligible individuals the Family Dollar Stores, Inc.
2006 Incentive Plan  (the “Plan”),  which is intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of such individuals
upon whose judgment, interest, and special effort the successful conduct of the
Company’s operation is largely dependent. 
These Guidelines for Annual Cash Bonus Awards
(the “Guidelines”) are intended to implement the Plan by providing eligible
Associates of the Company an opportunity to participate in the Company’s
success by earning annual
incentive compensation in the form of a cash bonus
based on the Company’s achievement of pre-tax earnings goals and the Associates’
contributions to meeting such goals.


 


These Guidelines are adopted pursuant to
relevant provisions of the Plan and are to be interpreted and applied in
accordance with the terms and provisions thereof.  Specifically, these Guidelines provide for
the grant of Performance-Based Cash Awards under Article 9 of the Plan
and, with respect to Covered Employees, the grant of Qualified Performance-Based
Awards under Article 14 of the Plan. 
Unless otherwise provided herein, capitalized terms used in these
Guidelines will have the meaning given such terms in the Plan.


 


2.             Scope


 


The Guidelines cover eligible Associates as
described in Section 3 of these Guidelines.  The Guidelines cover the Company’s fiscal
(not calendar) year that is the 12-month period that generally runs from
approximately September to August. 
The actual dates for the fiscal year are determined and announced by the
Company prior to the beginning of each fiscal year.


 


3.             Eligibility


 


Eligibility
for participation in the Plan under these Guidelines shall be determined by any
of the Chairman and Chief Executive Officer, the President or the Senior Vice
President, Human Resources (or their designees) and communicated to department
heads.  Additional eligibility
requirements are as follows:


 


	
  ·

  	
   

  	
  An Associate must be classified as a regular, full-time employee for
  the entire fiscal year or the Associate’s entire employment period in the fiscal
  year if the Associate was hired subsequent to the beginning of the fiscal
  year.

  



 

















 


	
  ·

  	
   

  	
  An Associate must be hired and on the active payroll as a full-time
  employee as of the first business day after May 31 of the applicable
  fiscal year in order to participate during that fiscal year.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  If an Associate, whose position was previously not identified as
  eligible for participation in the Plan under these Guidelines and who was
  eligible to participate in another bonus plan, is promoted to a position eligible
  to participate in the Plan under these Guidelines during the relevant fiscal
  year, such Associate will participate in each plan, subject to its
  conditions, on a prorated basis. The prorated calculation will be based upon
  the number of weeks and respective salary in each position.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  If an Associate’s position is changed during the relevant fiscal year
  and as a result of that change the bonus percentage applied in his or her
  individual bonus calculation under these Guidelines is affected, such Associate
  will participate on a prorated basis at each bonus percentage level based
  upon the number of weeks and respective salary in each position.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Except as otherwise provided below, an Associate must be on the
  payroll in a regular, full-time, active status when bonus checks are issued
  in order to receive payment under these Guidelines. An Associate on leave of
  absence, regardless of type, will receive the bonus payment only upon return
  to regular, full-time, active status; provided, however, that Associates on a
  Company approved family medical leave or approved military leave will be
  issued payment at the time bonus checks are issued even if they have not
  returned  to regular, full-time, active status
  at that time.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  An Associate whose employment with the Company terminates for any
  reason, other than death or termination of employment due to Disability or
  Retirement, prior to the issuance of bonus checks will forfeit any bonus such
  Associate otherwise would have been entitled to receive.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  An Associate who dies or terminates employment due to Disability or
  Retirement after the end of the fiscal year but before the issuance of bonus
  checks will not forfeit the bonus which the Associate would have otherwise
  been entitled to receive.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  An Associate who dies or terminates employment due to Disability
  during a fiscal year will participate on a prorated basis in the bonus
  program based upon the number of weeks of employment with the Company during
  such fiscal year and based upon an assumed performance rating of
  Satisfactory.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  An Associate who terminates employment due to Retirement during a
  fiscal year will participate on a prorated basis in the bonus program based
  upon the number of weeks of employment with the Company during such fiscal
  year; provided that the Associate’s term of employment is at least one-half
  of the fiscal year. An Associate who terminates employment due to Retirement
  in the first half of the

  



 

















 


	
   

  	
   

  	
  fiscal year will not receive any bonus amounts pursuant to these Guidelines
  for such fiscal year.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  These Guidelines do not in any manner restrict the right of the
  Company or the Associate to terminate employment at any time, for any reason,
  with or without cause.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  An Associate otherwise meeting all of the eligibility requirements of
  these Guidelines, but whose performance rating for the fiscal year is at the
  Unsatisfactory/Does Not Meet Expectations level, will not participate in the
  Plan under these Guidelines or be eligible for bonus for that fiscal year.

  



 


4.             Target
Bonus Amount and Adjustments for Performance


 


The target bonus amount for an Associate
under these Guidelines equals a percentage of the Associate’s base compensation
received in the relevant fiscal year, generally ranging from 10% to 100%.  (See above for changes in the Associate’s
position during the fiscal year.)  The
applicable percentage for an Associate will be established by Human Resources
and communicated to department heads. 
The actual bonus amount for the fiscal year, if any, will be determined
as a percentage of the target bonus amount depending on Company and individual
performance as follows:


 


	
  A.

  	
   

  	
  Company
  pre-tax earnings vs. Target

  
	
   

  	
   

  	
   

  
	 
	
  ·

  	
   

  	
  The Board of Directors of the Company determines prior to, or within
  90 days after the beginning of, each fiscal year a pre-tax earnings goal for
  the fiscal year.

  
	 
	
   

  	
   

  	
   

  
	 
	
  ·

  	
   

  	
  In addition, under relevant provisions of the Plan, the pre-tax
  earnings goal for the relevant fiscal year may be further adjusted to reflect
  extraordinary events or circumstances affecting the Company or its business,
  which render such goal unsuitable.

  
	 
	
   

  	
   

  	
   

  
	 
	
  ·

  	
   

  	
  Achievement of the pre-tax earnings goal determines the first part of
  the bonus calculation under these Guidelines. Achievement at the 100% level
  would provide for payment at the Guidelines’ “target” payout percentage (a
  percentage of the Associate’s base salary times an established individual
  performance multiplier – See B below).

  
	 
	
   

  	
   

  	
   

  
	 
	
  ·

  	
   

  	
  If the pre-tax earnings goal is exceeded, the target bonus amount
  will increase by 3.33%  for each 1%
  by which the goal is exceeded, to a maximum of 50% additional bonus for
  exceeding the goal by 15%, and thereafter will increase by 5% for each 1% by
  the goal is exceeded, to a maximum of an additional 50% bonus (up to a total
  of 200%) for exceeding the goal by 25%.

  
				



 

















 


	
  ·

  	
   

  	
  If the pre-tax earnings goal is not achieved, the target bonus amount
  will decrease by 3.3% for each 1% by which the goal is not achieved, with no
  bonus being payable if pre-tax earnings are less than 85% of the goal.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Calculation of the target bonus payout percentage as described in the
  previous two paragraphs is reflected in the following chart:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Performance Level Against 

  Pre-Tax Earnings Goal *

  	
   

  	
  Payout as Percent (%) of 

  Target Bonus Opportunity

  	
   

  	
   

  
	
   

  	
   

  	
  >= 125%

  	
   

  	
  200%

  	
   

  	
   

  
	
   

  	
   

  	
  115%

  	
   

  	
  150%

  	
   

  	
   

  
	
   

  	
   

  	
  100%

  	
   

  	
  100%

  	
   

  	
   

  
	
   

  	
   

  	
  85%

  	
   

  	
  50%

  	
   

  	
   

  
	
   

  	
   

  	
  < 85%

  	
   

  	
  0%

  	
   

  	
   

  



 


	
   

  	
   

  	
  * Linear interpolation will be used for performance between stated
  levels.

  



 


B.            Individual
Associate performance level for the fiscal year as determined on a five point
rating scale and the incentive grouping / position level of the Associate.


 


	
  ·

  	
   

  	
  A performance multiplier is applied to the target bonus amount for
  which an individual Associate is eligible, as determined by the Associate’s
  position level. The multiplier is determined using two factors: individual
  performance level and incentive level grouping as determined by position.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Six incentive groupings have been established based upon position
  levels within the Company. The higher the position level, the more heavily
  weighted the Company pre-tax earnings performance becomes. The following
  ratios are used to establish the multiplier:

  



 


1. 
Incentive Group 1


80/20 (80% individual performance, 20% Company performance)


2. 
Incentive Group 2


60/40 (60% individual performance, 40% Company performance)


3. 
Incentive Group 3


40/60 (40% individual performance, 60% Company performance)


4. 
Incentive Group 4


20/80 (20% individual performance, 80% Company performance)


 

















 


5. 
Incentive Group 5


10/90 (10% individual
performance, 90% Company performance)


6.  Incentive Group 6


100% (100% Company performance), subject to
additional rules set forth below.


 


	
  ·

  	
   

  	
  A matrix is developed annually by the Company that incorporates the
  Company payout ratio, the incentive groups outlined above, and the eligible
  individual performance ratings ranging from Outstanding (Exceeds
  Expectations) to Needs Improvement (Meets Most Expectations). The resulting
  multiplier is a function of these elements and is reflective of individual
  eligibility and performance level.

  



 


 


C.            Qualified Performance-Based
Awards


 


Notwithstanding anything in
these Guidelines to the contrary, the following provisions will apply to any
Associate who is a Covered Employee for purposes of benefiting from the Section 162(m) Exemption
applicable to Qualified Performance-Based Awards under Article 14 of the
Plan.  Please refer
to the Plan document for further information.


 


	
  ·

  	
   

  	
  All determinations under these Guidelines will be made by the
  Committee which, pursuant to section 4.1 of the Plan, will consist of all the
  members of the Compensation Committee who are “outside directors” within the
  meaning of Section 162(m) of the Code.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  The Committee will establish the target bonus amount for each
  Associate covered by this Section 4.C and the pre-tax earnings goal for
  the fiscal year.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Notwithstanding the foregoing, the Committee will adjust the pre-tax
  earnings goal for the fiscal year with respect to each Associate covered by
  this Section 4.C to adequately reflect the occurrence, during such
  fiscal year, of any of the events described in Section 14.4 of the Plan.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Payment of any cash bonus under these Guidelines to any Associate
  covered by this Section 4.C is conditioned upon the written
  certification of the Committee that the performance goals and any other
  material conditions applicable to such award were satisfied.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  The Committee will retain the discretion to decrease, but not
  increase, the amount of any cash bonus otherwise payable to any Associate
  covered by this Section 4.C in accordance with the applicable
  performance formula described above. Specifically, with respect to any
  Associate covered by this Section 4.C who is not a member of the
  Incentive Group 6 described above (and whose bonus therefore is calculated in
  part on the basis of the Associate’s individual performance), the Committee
  will use the Associate’s individual performance level for the relevant fiscal
  year solely

  



 

















 


	
   

  	
   

  	
  for purposes of decreasing (to the extent permitted by the
  performance formula described above) the amount of any cash bonus otherwise
  payable to the Associate, if the Committee deems it appropriate in its
  discretion.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  In no event will the amount of any cash bonus otherwise payable to
  any Associate covered by this Section 4.C in accordance with the
  applicable performance formula described above exceed $1,000,000.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Payment of any cash bonus under these Guidelines to any Associate
  covered by this Section 4.C is conditioned upon the Plan having been
  previously approved by the shareholders of the Company.

  



 


6.             Additional
Rules


 


	
  ·

  	
   

  	
  Notwithstanding anything in these Guidelines to the contrary, the
  pre-tax earnings goal and the total annual bonus pool available for awards
  made pursuant to these Guidelines to participating Associates in the relevant
  fiscal year shall be determined by the Committee (subject to the
  rules described above relating to Qualified Performance-Based Awards)
  after the end of such fiscal year and shall be computed on a consolidated
  basis determined in accordance with generally accepted accounting principles
  (“GAAP”), before any deduction for federal or state income taxes. In no event
  will the total annual bonus pool exceed 7% of the net profit realized by the
  Company and its subsidiaries during the fiscal year, before any deduction in
  respect of, or provision for, (i) appropriations or distributions made
  or to be made under these Guidelines, or (ii) payments made to officers
  or other employees under any agreement or other arrangements based upon or
  relating to profits of the Company or any of its subsidiaries, years of
  service with the Company or any of its subsidiaries or performance of the
  Company’s retail stores (collectively, (i) and (ii) being referred
  to as the “bonus payments”); provided that the Committee may make the same
  adjustments to such net profit as may be made by the Committee with
  respect to the pre-tax earnings goal to recognize or to exclude any
  adjustment as set forth in Section 14.4 of the Plan. The Company shall
  not be considered to have achieved the pre-tax earnings goal in any fiscal
  year in which the pre-tax earnings goals is achieved on a GAAP basis only if
  the bonus payments to be paid and accrued pursuant to GAAP are excluded from
  such calculation.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  Bonuses earned under these Guidelines are expected to be paid within
  seventy-five (75) days following the end of the month in which the fiscal
  year comes to an end.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  All bonus payments under these Guidelines are considered supplemental
  pay and will be taxed as such. Appropriate withholding and deductions will be
  taken from such payments. Percentages will be rounded to the

  



 

















 


	
   

  	
   

  	
  nearest 1/10 of a percent (for example, 10.3%). Amount of bonus will
  be rounded up to the nearest whole dollar.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  The amount of an Associate’s earnings for the fiscal year which have
  actually been paid to the Associate will be used in determining the
  calculation. This calculation excludes the salary elements for Company
  Aircraft, Company Car, GTL Imputed Income, or any bonus payments issued
  during the fiscal year.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  These Guidelines cannot be changed or modified by a verbal
  communication or course of dealing, but only by a written communication
  signed by the Chairman, Chief Executive Officer or President of the Company.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  In the event of major economic changes, catastrophic events, or any
  other circumstances not contemplated by the Company (but subject to the
  rules described above relating to Qualified Performance-Based Awards),
  the Committee reserves the right to alter, amend, or terminate these Guidelines
  and any awards hereunder.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  The Chairman, Chief Executive Officer or President of the Company
  will make all final decisions, rulings and interpretations under these
  Guidelines (subject to the rules described above relating to Qualified
  Performance-Based Awards, which may require action by the Committee). By
  participating in the Plan under these Guidelines, each Associate agrees that
  such decisions, rulings and interpretations will be final and that each
  Associate will be bound by them. Each Associate further agrees that if and
  when any circumstances arise relating to these Guidelines which are not
  covered by this description of the Plan, the Associate will be bound by the
  final decision, ruling or interpretation of the Chairman, Chief Executive
  Officer or President of the Company.

  
	
   

  	
   

  	
   

  
	
  ·

  	
   

  	
  In the event the Company restates its financial results within twelve
  (12) months of the payment of a bonus under these Guidelines due to material
  non-compliance by the Company with any financial reporting requirements of
  the federal securities laws, as a result of intentional misconduct (as
  determined by the members of the Board who are “independent” under the
  Company’s Corporate Governance Guidelines), the Company’s executive officers
  shall reimburse the Company the difference between (x) the amount of the
  bonus actually awarded to the executive officer and (y) the amount of
  the bonus such executive officer would have received had the amount of the
  bonus been calculated based on the restated financial statements.

  



 


Adopted by the Compensation Committee: October 3, 2006


 


Amended: August 28, 2007, November 5, 2007, October 7,
2008