EXHIBIT10.1**EMPLOYMENT AGREEMENT**     THIS AGREEMENT (the “Agreement”) is made and entered into as of the 23rd of April, 2007, byand between PAYLESS SHOESOURCE, INC., a Delaware corporation, (“Payless”) and William E. May(“Executive”). The renewal date of this Agreement is May 31, 2009, for the first Renewal Date andMay 31 of each calendar year thereafter (the “Renewal Date”).     In consideration of mutual promises and agreements set forth in this Agreement, Payless andExecutive agree as follows:1. (a) Payless and/or its subsidiaries and affiliates agree to employ Executive, and Executiveagrees to render personal services to Payless, for the period commencing on the date of thisAgreement through May 31, 2009, (the “Contract Term”) as Executive Vice President-ChiefOperating Officer of Payless and/or to perform such other executive duties as may from time totime be required of Executive by Payless. Upon the Renewal Date of this Agreement, theContract Term shall automatically be extended by one (1) year unless, within 30 days of theRenewal Date, Payless shall deliver to Executive, or Executive shall deliver to Payless,written notice that the Contract Term shall not be extended.     (b) Payless agrees to pay Executive basic compensation for such services during theContract Term at the annual rate of $600,000, payable in equal bi-weekly installments, and inaccordance with Paragraph 5, which annual rate will be subject to an annual review duringPayless’ regularly scheduled review time.     (c) Executive shall be eligible to participate in such annual and long-term cash incentivebonus programs and arrangements established from time to time for executives of Payless (the“Incentive Plans”), in accordance with and subject to all of the terms and provisions of suchIncentive Plans.     (d) Payless shall reimburse Executive for all items of normal expense incurred byExecutive as an employee of Payless in accordance with Payless’ reimbursement policies in effectfrom time to time.     (e) Payless has adopted certain employee benefit plans and has established certainarrangements concerning executive perquisites which may, from time to time, confer rights andbenefits on Executive in accordance with their terms, and Payless may, in the future, adoptadditional employee benefit plans and establish additional arrangements concerning executiveperquisites, and may in the future amend, modify or terminate any of the aforesaid employeebenefit plans and arrangements, all in accordance with their terms and in accordance withapplicable law. Executive shall be entitled to whatever rights and benefits may be conferred onExecutive, from time to time in accordance with the terms of such plans and arrangements, asthey may be amended from time to time, independent of this Agreement.

 
     (f) Executive will be eligible for future grants of restricted stock, stock-settledappreciation rights, and stock options, if any, as may be made under the terms of the PaylessShoeSource, Inc. Stock Incentive Plan, in accordance with the criteria established from time totime by the Compensation Committee of Payless ShoeSource, Inc. Board of Directors.     (g) All references to payment dates or vesting dates in this Paragraph 1 or in such plansand arrangements, shall require that Executive be employed by Payless on such date to receivesuch payment or be vested in such benefit.2. (a) At all times during the Contract Term, Executive will:     (i) faithfully and diligently perform Executive’s duties in conformity with thedirections of Payless and serve Payless to the best of Executive’s ability;     (ii) devote Executive’s undivided time and attention to the business of Payless, subjectto reasonable vacations in accordance with Payless’ vacation policy as it applies from timeto time, to such extent as may be reasonably necessary for the proper performance of thepersonal services to be rendered by Executive under this Agreement;     (iii) maintain Executive’s residence within reasonable access to the CorporateHeadquarters of Payless for the Contract Term.(b) At all times during the Contract Term, Executive will not:     (i) engage in any activity which conflicts or interferes with or adversely affectsExecutive’s performance of Executive’s duties hereunder, or     (ii) accept any other employment, whether as an Executive or as a consultant or in anyother capacity, and whether or not compensated therefor, or     (iii) violate the terms of any of the policies described in Payless’ Policy of BusinessConduct distributed from time to time to Executive.3. (a) At all times during the Contract Term and for a period of one (1) year immediatelyfollowing Executive’s last day of employment with Payless or, if there is more than one (1)year remaining in the Contract Term at the time of termination of employment, for theremainder of the Contract Term, Executive will not directly or indirectly:     (i) own, manage, operate, finance, join, control, or participate in the ownership,management, operation, financing or control of, or be employed by any Competing Business(asdefined below), or     (ii) solicit for employment, hire or offer employment to, or disclose information to orotherwise aid or assist any person or entity other than Payless or any subsidiary of Paylessin
2

 
soliciting for employment, hiring or offering employment to, any employee of Payless orany subsidiary of Payless, or     (iii) take any action which is intended to harm Payless or its reputation, which Paylessreasonably concludes could harm Payless or its reputation or which Payless reasonablyconcludes could lead to unwanted or unfavorable publicity to Payless.     Nothing in this Pargaraph 3(a) shall prevent Executive, however, from performingExecutive’s duties and responsibilities for Payless. In addition, ownership of an investment ofless than the greater of $25,000 or 1% of any class of equity or debt security of a CompetingBusiness shall not constitute ownership or participation in ownership in violation of Paragraph3(a)(i).(b) The term “Competing Business” shall include, but not be limited to,     (i) any retail business with gross sales or revenue in the prior fiscal year of morethan $25 million (or which is a subsidiary, affiliate or joint venture partner of a businesswith gross sales or revenue in the prior fiscal year of more than $25 million) which sellsfootwear at retail to consumers at price points competitive, or likely to be competitive,with Payless (e.g., including, without limitation, Wal-Mart Stores, Inc., K-Mart Corporation,Target Corporation., Aldo Group, Genesco Inc., Foot Locker, Inc., Brown Shoe Company, Inc.,Shoe Carnival, Inc., Jones Apparel Group, Inc., DSW, Inc., Kohl’s Corporation, Liz ClaiborneInc., Big Five Sporting Goods Corporation, Shoe Zone, Bata, J.C. Penney Company, Inc. andSears, Roebuck and Co.) within 20 miles of any Payless store or the store of any wholesalecustomer of Payless in the United States, or anywhere in any foreign country in which Paylesshas retail stores, franchisees or wholesale customers;     (ii) any franchising or wholesaling business with gross sales or revenue in the priorfiscal year of more than $25 million (or which is a subsidiary, affiliate or joint venturepartner of a business with gross sales or revenue in the prior fiscal year of more than $25million) which sells footwear at wholesale to franchisees, retailers or other footweardistributors located within 20 miles of any Payless store or the store of any wholesalecustomer of Payless in the United States, or anywhere in any foreign country in which Paylesshas retail stores, franchisees or wholesale customers:     (iii) any footwear manufacturing business with gross sales or revenue in the priorfiscal year of more than $25 million (or which is a subsidiary, affiliate or joint venturepartner of a business with gross sales or revenue in the prior fiscal year of more than $25million) which sells footwear to retailers or other footwear distributors located within 20miles of any Payless store or the store of any wholesale customer of Payless in the UnitedStates, or anywhere in any foreign country in which Payless has retail stores, franchisees,or wholesale customers with such footwear manufacturing businesses (including, withoutlimitation, Jones Apparel Group, Inc., Dexter, Stride Rite Corporation, Wolverine Worldwide,Inc., The Timberland Company, Nike Inc., Reebok International Ltd., K-Swiss, Keds andAdidas-Salomon); or
3

 
     (iv) any business which provides buying office services to any store or group of storesor businesses referred to in Paragraph 3.(b) (i), 3. (b) (ii) or 3. (b) (iii).(c) Background of non-compete restrictions:     (i) Payless is one of the leading retail companies in North America, with self-serviceshoe stores throughout the United States and its territories, Canada and Central America;     (ii) In connection with its business, Payless has expended a great deal of time, moneyand effort to develop and maintain its confidential, proprietary and trade secretinformation; this information, if misused or disclosed, could be very harmful to Payless’business and its competitive position in the marketplace;     (iii) Executive desires to be employed by Payless, to be eligible for opportunities foradvancement within Payless, to be eligible for potential compensation increases and to begiven access to confidential and proprietary information of Payless necessary for Executiveto perform Executive’s job, but which Payless would not make available to Executive but forExecutive’s signing and agreeing to abide by the terms of this Agreement as a condition ofExecutive’s employment by Payless;     (iv) Executive recognizes and acknowledges that Executive’s position with Paylessprovides Executive with access to Payless’ confidential and proprietary trade secretinformation and other confidential business information; and     (v) Payless compensates its associates to, among other things, develop and preservegoodwill and relationships on Payless’ behalf and to develop and preserve businessinformation for Payless’ exclusive ownership and use;     (vi) long-term customer and supplier relationships often can be difficult to developand require a significant investment of time, effort and expense;     (vii) Executive recognizes and acknowledges that if Executive’s employment with Paylesswere to cease, Payless would need certain protections in order to ensure that Executive doesnot appropriate or use any confidential information entrusted to Executive during the courseof Executive’s employment by Payless or take any other action which could result in a loss ofPayless’ goodwill that was generated on Payless’ behalf and at its expense, and, moregenerally, to prevent Executive from having an unfair competitive advantage over Payless.     (d) Reasonableness of non-compete restrictions. Executive acknowledges and agrees thatthe restrictions in Paragraph 3 are reasonable and enforceable in view of the background for thenon-compete restrictions set forth in Paragraph 3(c) and in view of, among other things, thefollowing:     (i) the markets in which Payless and its subsidiaries operate their business;     (ii) the confidential information to which Executive has or will have access;
4

 
     (iii) Executive’s training and background, which are such that neither Payless norExecutive believes that the restraint will pose an undue hardship on Executive;     (iv) a Competing Business could benefit greatly if it were to obtain Payless’confidential information;     (v) Payless would not have adequate protection if Executive were permitted to work forany Competing Business since Payless would be unable to verify whether its confidentialinformation was being disclosed or misused;     (vi) the limited duration and limited scope of, and the limited activities prohibitedby, the restrictions in Paragraph 3;     (vii) Payless’ legitimate interests in protecting its confidential information, goodwilland relationships.     (e) If Executive violates Executive’s obligations under Paragraph 3, then Payless shall beentitled to all legal and equitable rights and remedies under this Agreement, including all ofits rights and remedies referred to in Paragraph 8 of this Agreement. Further, any time inwhich Executive is in violation of Executive’s obligations shall not count toward satisfying thetime during which any injunctive restriction shall apply. For example, if Executive were tojoin a competitor at the end of the Contract Term in violation of the restrictions in Paragraph3(a) and work for such competitor for one month before a court enjoined such violation, then theone year time period of the restriction would begin when such injunction were issued; the onemonth in which Executive violated the restriction would not count toward the time that therestriction applies.4. If Executive becomes Disabled and remains continuously so Disabled for a period of 180days, then Payless’ obligations under this Employment Agreement, at Payless’ option, may beterminated by notice in writing to that effect given during the continuance of suchDisability, such termination to take effect the later of (a) the last day of the month duringwhich such notice is given or (b) the last day of such 180 day period. If Executive has madea previous election to participate in the Payless ShoeSource, Inc. Long-Term Disability Plan(subject to the terms and provisions of that plan), then the terms of that plan shall apply.“Disability” or “Disabled” shall mean the inability of Executive to perform the essentialduties of Executive’s job under this Agreement.5. (a) If Executive’s employment terminates during the Contract Term by reason of Executive’sdeath or Disability, by Executive’s voluntary termination of employment or by Payless forCause,     (i) Executive’s basic compensation and employee benefits shall cease on the date ofsuch termination, except as otherwise provided herein or in any applicable employee benefitplan or program; and     (ii) Executive (or Executive’s legal representative(s)) shall be entitled to suchportion of any incentive compensation as shall be payable under the terms of the IncentivePlan;
5

 
     (iii) Executive will have the opportunity to continue coverage in Payless’ medical,dental, and vision plans in which Executive is participating on the date or termination orresignation, through COBRA.     (b) In addition, if Executive’s employment is terminated by reason of death, thenExecutive’s obligations under Paragraphs 1 and 2 shall cease on the effective date of suchtermination.     (c) In addition, if Executive’s employment is terminated by reason of Disability, byExecutive voluntarily or by Payless for Cause, then Executive’s obligations under Paragraphs 1and 2 shall cease on the effective date of such termination and Executive’s obligations underParagraphs 3 and 6 remain in full force and effect, and Payless shall be entitled to all legaland equitable rights and remedies under this Agreement, including all of its rights and remediesreferred to in Paragraph 8 of this Agreement.     (d) If Executive’s employment is terminated by Payless without Cause, then     (i) Executive’s employment (and status as an employee) shall cease immediately;     (ii) Provided that Executive is not in violation of Paragraphs 3, 6, or 9 of thisAgreement, Executive shall be entitled to a severance payment in an amount equal to two (2)times Executive’s then current-base salary at the time of termination of employment, payablein a lump sum, less applicable withholdings and deductions, on the next regular pay periodfollowing termination of employment;     (iii) Executive shall be entitled to the amount of any Annual Award payable to Executiveunder the Payless ShoeSource, Inc. Incentive Compensation Plan (“ICP”) for the fiscal year inwhich Executive’s employment is terminated, prorated by the number of days Executive isactively employed in that fiscal year divided by 365, and payable at the time and pursuant tothe terms of the ICP, less applicable withholdings and deductions; provided, however, suchAnnual Award must be paid no later than the time period established under IRC Section 409Aand the regulations thereunder to be exempt from IRC Section 409A under the “short-termdeferral” exception;     (iv) Executive shall be entitled to the long-term portion of Executive’s cash incentivebonus, if any, that would be payable under the ICP for the 2005-07, 2006-08, and 2007-09performance periods, prorated based on the number of months actively employed during eachrespective performance period, and payable no later than the time period established underIRC Section 409A and the regulations thereunder to be exempt from IRC Section 409A under the“short-term deferral” exception, less applicable taxes and withholding;     (v) Executive will receive a special payment which is the equivalent, before taxes, tothe portion paid by Payless towards 24 months of COBRA coverage under Payless’ medical,dental, and vision plans, provided Executive is participating in such plan(s) on the date ortermination;
6

 
     (vi) Except as expressly provided in this Paragraph 5(d), Executive’s post-terminationobligations under this Agreement, including, without limitation, the provisions of Paragraphs3 and 6, shall continue to apply following such termination.(e) “Cause” means     (i) an intentional act of fraud, embezzlement, theft or any other material violation oflaw in connection with Executive’s duties or in the course of Executive’s employment withPayless; or     (ii) intentional damage to assets of Payless;     (iii) intentional disclosure of confidential information of Payless contrary to thepolicy of Payless;     (iv) breach of Executive’s obligations under this Agreement;     (v) intentional engagement in any competitive activity which would constitute a breachof Executive’s duty of loyalty or of Executive’s obligations under this Agreement;     (vi) intentional breach of any policy of Payless;     (vii) the willful and continued failure by Executive to substantially performExecutive’s duties with Payless (other than any such failure resulting from Executive’sincapacity due to physical or mental illness); and/or     (viii) the willful engaging by Executive in conduct which is demonstrably and materiallyinjurious to Payless, monetarily or otherwise.     For purposes of Paragraph 5(e)(ii),(iii),(iv), an act, or a failure to act, shall not bedeemed “willful” or “intentional” unless it is done, or omitted to be done, by Executive in badfaith or without reasonable belief that Executive’s action or omission was in the best interestof Payless. Failure to meet performance standards or objectives, by itself, will not constitute“Cause”.     (f) Executive agrees that, in addition to any other remedies, Payless shall be permitted,as part of the computation of any final amount or amounts due to Executive as wages,compensation, bonus, deferred compensation or otherwise, and before any such amount shall be dueand owing, to reduce any amount which Payless may otherwise owe to Executive by any unpaidamount which Executive owes to Payless.6. (a) Executive will not, at any time, directly or indirectly, use or disclose any of Payless’Confidential Information except as authorized and within the scope of Executive’s employmentwith Payless.     (b) At Payless’ request and/or termination of Executive’s employment with Payless,Executive will return to Payless all documents, records, notebooks, computer diskettes and tapesand anything
7

 
else containing Payless’ Confidential Information, including all copies thereof, aswell as any other Payless property, in Executive’s possession, custody or control. Executivewill also delete from Executive’s own computer or other electronic storage medium any ofPayless’ proprietary or Confidential Information. Not later than 20 days after Executive’semployment is terminated, Executive will certify in writing to Payless that Executive hascomplied with these obligations.     (c) During Executive’s employment with Payless and thereafter, Executive will     (i) notify and provide Payless immediately with the details of any unauthorizedpossession, use or knowledge of any of Payless’ Confidential Information,     (ii) assist in preventing any reoccurrence of this possession, use or knowledge, and     (iii) cooperate with Payless in any litigation or other action to protect or retrievePayless’ Confidential information.     (d) “Confidential Information” means any non-public information pertaining to Payless’business. Confidential Information includes information disclosed by Payless to Executive, andinformation developed or learned by Executive during the course of or as a result of Executive’semployment with Payless, which Executive also agrees is Payless’ property. Executive furtheragrees that any item of intellectual or artistic property generated or prepared by Executive,for Executive or with others, in connection with Executive’s employment by Payless is Payless’sole property and shall remain so unless Payless otherwise specifically agrees in writing.Confidential Information includes, without limitation, information and documents concerningPayless’ processes; suppliers (including Payless’ terms, conditions and other businessarrangements with suppliers); supplier and customer lists; advertising, marketing plans andstrategies; profit margins; seasonal plans, goals, objectives and projections, compilations,analyses and projections regarding Payless’ divisions, businesses, product segments, productlines, suppliers, sales and expenses; files; trade secrets and patent applications (prior totheir being public); salary, staffing and employment information (including information aboutperformance of other executives); and “know-how,” techniques or any technical information not ofa published nature relating, for example, to how Payless conducts its business.     (e) Executive agrees that Executive will not disclose to Payless or use, or induce Paylessto use, any proprietary information, trade secret or confidential business information of anyother person or entity, including any previous employer of Executive. Executive also representsthat Executive does not have any property or any confidential, proprietary or trade secretinformation belonging to any prior employer.7. (a) If any court of competent jurisdiction determines that, but for the provisions of thisParagraph 7, any provision of this Agreement is illegal, void as against public policy orotherwise unenforceable because it is deemed to be overbroad or unreasonable, then suchprovision shall automatically be amended to the extent (but only to the extent) necessary tomake it sufficiently narrow in scope, time and geographic area so that it is enforceable, not illegal,void as against
8

 
public policy or unreasonable. All other remaining terms and provisions shallremain in full force and effect.     (b) If Executive raises any question regarding the enforceability of any aspect of thisAgreement, including, without limitation, Paragraphs 3 or 6, Executive specifically agrees thatExecutive will abide fully by such provisions unless and until a court of competent jurisdictionhas rendered a final judgment that such provisions are not fully enforceable.8. (a) Payless and Executive shall each be entitled to pursue all legal and equitable rightsand remedies to secure performance of the obligations and duties of the other under thisAgreement, and enforcement of one or more of such rights and remedies shall in no way precludePayless or Executive from pursuing any and all other rights and remedies available to each ofthem.     (b) Executive acknowledges and agrees that the individualized services and capabilitiesthat Executive will render and provide to Payless during the Contract Term are of a personal,special, unique, unusual, extraordinary and intellectual character.     (c) Executive acknowledges and agrees that the restrictions in this Agreement on Executiveare reasonable in order to protect Payless’ expectations and rights under this Agreement and toprovide Payless with the protections that Payless needs to, among other things, safeguard itsConfidential Information. Executive agrees that any breach of this Agreement by Executive willcause immediate irreparable injury to Payless, for which an award of damages alone may beinadequate. Therefore, Payless shall be entitled, in addition to any other right or remedy itmay have, to an injunction without the posting of any bond or other security, enjoining orrestraining Executive from any violation or threatened violation of this Agreement. In theevent that Payless is successful in any suit or proceeding relating to the enforcement of thisAgreement, Executive agrees to pay Payless’ reasonable attorneys’ fees and costs.9. The Executive agrees to disclose fully to Payless, and hereby assigns and transfers toPayless, and agrees to execute any additional documentation Payless may reasonably request toevidence the assignment and transfer, immediately upon the conception, development, making oracquisition thereof, the right, title, and interest in and to any and all inventions,discoveries, improvements, innovations, and/or designs (the “Work Product”) conceived,discovered, developed, acquired or secured by Executive, solely or jointly with others orotherwise, together with all associated U.S. and foreign intellectual property rights (i.e.,patents, copyrights, trademarks or trade secrets) either:     (a) during the period of Executive’s employment, if such Work Product is related directlyor indirectly, to the business of, or to the research or development work of Payless;     (b) with the use of the time, materials, or facilities of Payless; or     (c) within one (1) year after termination of such employment if conceived, discovered,developed, acquired or secured as a result of and is attributable to work done during suchemployment and relates to Work Product within the scope of the business of Payless, togetherwith rights to all intellectual property rights which may be granted thereon.
9

 
     Upon discovery, development, making, or acquisition of any such Work Product, Executiveshall notify Payless and shall execute and deliver to Payless, without further compensation,such documents prepared by Payless as may be reasonable or necessary to prepare or prosecuteapplications for such Work Product and to assign and transfer to Payless Executive’s right,title and interest in and to such Work Product and intellectual property rights thereof.Executive acknowledges that Executive has carefully read and considered the provisions of thisparagraph and, having done so, agrees that the restrictions set forth herein are fair andreasonable and are reasonably required for the protection of the interests of Payless, itsofficers, directors, and other executives.10. With the sole exception of the Change of Control Agreement dated April 23, 2007 and theIndemnification Agreement dated April 23, 2007, each between Payless and the Executive, andeach amended from time to time (collectively, the “Related Agreements”), the entireunderstanding and agreement between the parties has been incorporated into this Agreement, andthis Agreement supersedes all other agreements (except the Related Agreements) andunderstandings between the Executive and Payless, with respect to the employment of Executiveby Payless and its parents and subsidiaries. This Agreement shall inure to the benefit of,and shall be binding upon, Payless, its successors and assigns and upon Executive andExecutive’s heirs, successors and assigns; provided, however, that, since this is an agreementfor the rendering of personal services, Executive cannot assign any of Executive’s obligationsunder this Agreement to anyone else. This Agreement may be executed in counterparts, in whichcase each of the two (2) counterparts shall be deemed to be an original and the finalcounterpart shall be deemed to have been executed in Topeka, Kansas.11. Executive hereby represents and warrants that he is not a party to any instrument, agreement,document, arrangement restricting him from being employed by Payless, or preventing him fromentering into this Agreement.12. This Agreement has been executed by Payless at Payless’ corporate headquarters and principalexecutive offices in Topeka, Kansas. Any questions or other matter arising under or relatingdirectly or indirectly to this Agreement, including but not limited to any questionsconcerning the validity, interpretation, or performance of the Agreement, shall be governed byand construed in accordance with the laws of the State of Kansas applicable to agreements madeand to be performed in such state without regard to such state’s conflicts of law provision.All actions and proceedings arising out of or relating directly or indirectly to thisAgreement shall be filed and litigated exclusively in any state court or federal court locatedin the City of Topeka, Kansas or in Shawnee County, Kansas. The parties hereto expresslyconsent to the jurisdiction of any such court and to venue therein and consent to service ofprocess if made upon Payless’ registered agent or if made at Executive’s last known address onthe records of Payless.**BY SIGNING THIS AGREEMENT, EXECUTIVE HEREBY CERTIFIES THAT EXECUTIVE (A) HAS RECEIVED A COPY OFTHIS AGREEMENT FOR REVIEW AND STUDY BEFORE SIGNING IT; (B) HAS READ THIS AGREEMENT CAREFULLYBEFORE SIGNING IT; (C) HAS HAD SUFFICIENT OPPORTUNITY TO REVIEW THE AGREEMENT WITH ANY ADVISORWHICH EXECUTIVE MAY DESIRE TO**
10

 
**CONSULT, INCLUDING LEGAL COUNSEL; (D) HAS HAD SUFFICIENTOPPORTUNITY BEFORE SIGNING IT TO ASK ANY QUESTIONS EXECUTIVE HAS ABOUT THIS AGREEMENT AND HASRECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS; AND (E) UNDERSTANDS EXECUTIVE’S RIGHTS ANDOBLIGATIONS UNDER THIS AGREEMENT.**IN WITNESS WHEREOF, this Agreement has been executed by Executive, and then by Payless inTopeka, Kansas, effective as of the date first above written.         /s/ William E. May         William E. May           Date: April 11, 2007                  **Payless ShoeSource, Inc.**           By: