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                                                                    EXHIBIT 10.1


                              SETTLEMENT AGREEMENT

This Settlement Agreement (the "Agreement"), dated October 20, 2005, is between
and among Duane Cantrell ("Cantrell"), Mark Willoughby ("Willoughby") (sometimes
referred to collectively herein as "DC/MW"), on the one hand, and Payless
ShoeSource, Inc., a Delaware corporation ("Payless"), and its subsidiaries,
affiliates, successors, and assigns, and its agents and representatives
(collectively, with Payless, "PSS"), on the other hand (collectively, with
DC/MW, the "Parties").

WHEREAS, Cantrell and Willoughby are former executives with Payless who were
terminated on or about October 2004;

WHEREAS, both Cantrell and Willoughby had employment agreements with Payless,
the most recent of which for Cantrell was made and entered into as of July 1,
2004 (the "Cantrell Agreement") and for Willoughby as of July 1, 2004 (the
"Willoughby Agreement") (collectively, the "Employment Agreements");

WHEREAS, Cantrell and Willoughby have asserted various claims and/or potential
claims relating to their employment with and/or termination of employment by
Payless, including claims of age discrimination and claims that they were
entitled to Supplementary Retirement Plan ("SERP"), severance and other
benefits;

WHEREAS, Payless vigorously disputes and denies Cantrell and Willoughby's
claims, and firmly believes that its terminations and treatment of Cantrell and
Willoughby were proper and that Cantrell and Willoughby's claims are without
merit;

WHEREAS, both DC/MW and Payless recognize (among other things) that litigation
would be very expensive and time-consuming for the Parties, and would involve
the commitment of time and resources that could be used more productively
elsewhere;

WHEREAS, in an attempt to resolve their disputes, the Parties have engaged in a
mediation (the "Mediation"); and

WHEREAS, the Parties have resolved their differences, in accordance with the
terms set forth below;

NOW, THEREFORE, in consideration of the payments and mutual promises contained
in this Agreement, the Parties hereto agree as follows:

1.(a)    Payless agrees to pay DC/MW a total of Nine Hundred Fifty Thousand
         and 00/100 dollars ($950,000.00). Of the $950,000 total, (i)
         $290,000.00 will be allocated to attorneys' fees, and Cantrell and
         Willoughby will each receive 1099's for their 1/2 share of the
         attorneys fees, i.e., for $145,000.00 each; and (ii) the $660,000.00
         balance will be divided equally between Cantrell and Willoughby, with
         each to receive $330,000.00, less all applicable withholdings, and
         Payless will provide W-2's to Cantrell and Willoughby with respect to
         these payments. The payments will be

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           made within twenty-one (21) days after this Agreement is fully
           executed, unless Cantrell or Willoughby revoke the Agreement in
           accordance with section 10 of this Agreement. The settlement amount
           is being paid in connection with alleged claims of unlawful
           discrimination as defined in 26 U.S.C. Section 62(e).

  (b)      Except as and only to the extent specifically listed in this
           Agreement, the payment set forth in Paragraph 1(a) above is in full
           consideration and in full and complete satisfaction and settlement of
           all claims that Cantrell and/or Willoughby, individually,
           collectively, and/or with others, have and/or may have relating to,
           arising out of or resulting from the Employment Agreements, Cantrell
           and/or Willoughby's employment thereunder, Cantrell and/or
           Willoughby's terminations, and all claims and potential claims of
           Cantrell and/or Willoughby whether or not listed in Paragraph 3
           below, and including all claims asserted and/or which could have been
           asserted in connection with the Mediation and all claims for
           attorneys fees leading up to this Agreement and/or in connection with
           the Mediation.

  (c)      Payless shall continue to pay Cantrell and Willoughby their basic
           compensation, through the balance of their respective Contract Terms,
           in accordance with the terms of their respective Employment
           Agreements, i.e., through May 31, 2007 for Cantrell and May 31, 2006
           for Willoughby. Payless shall also pay Cantrell and Willoughby any
           long-term award(s) to which they are entitled, if any, under the
           Payless Incentive Compensation Plan (the "ICP"), subject to and in
           accordance with the terms and conditions of such ICP and Paragraphs
           1(c) and 5(d) of their respective Employment Agreements. Other than
           these obligations and that set forth in Paragraph 1(a) above, Payless
           has no other compensation obligations to Cantrell or Willoughby,
           under the Employment Agreements, this Agreement, or otherwise.
           Cantrell and Willoughby's obligations under Paragraph 5(d)(v) of
           their respective Employment Agreements to use their best efforts to
           find other employment and the provision that all basic compensation
           otherwise payable under Paragraph 5(d) for the remainder of the
           Contract Term shall be reduced to the extent of the compensation
           received by Cantrell or Willoughby, respectively, from their other
           employment is hereby waived. Nothing herein, however, shall waive
           Cantrell and Willoughby's obligations (including their noncompetition
           obligations) under Paragraphs 3 and 6 through 12 of their respective
           Employment Agreements, and those obligations remain in full force and
           effect. To make sure there is no misunderstanding, although Cantrell
           and Willoughby need not use their best efforts to find other
           employment, any such employment found must not violate the
           noncompetition provisions in Section 3 of their respective Employment
           Agreements. Provided, however, that Cantrell and Willoughby will not
           be precluded from approaching Payless on a case by case basis to
           request that the noncompetition provisions be modified.

2.     Cantrell and Willoughby hereby expressly acknowledge having been advised
       to and given an opportunity to discuss all aspects of this Agreement with
       an attorney before signing it, and Cantrell and Willoughby further
       acknowledge that they have consulted with an attorney prior to signing
       this Agreement.

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 3.    Cantrell and Willoughby, and each of them, hereby fully release and
       forever discharge PSS and all of PSS' past parents, or present parent,
       subsidiaries, affiliates, successors and assigns, and all of their
       respective officers, directors, shareholders, employees, agents,
       insurers, benefit plans, representatives, and otherwise related parties
       (collectively the "Released Parties"), from any and all claims, actions,
       causes of action, demands, liabilities or obligations (including
       attorney's fees), whether known or unknown, discovered or undiscovered,
       matured or unmatured, which relate to, have arisen or may arise out of,
       or are in any way connected with Cantrell and/or Willoughby's employment
       with or termination from PSS. This total and unlimited release includes,
       but is not limited to, any claims based on any local, state or federal
       statute, or other regulations or laws (including common law), including
       any such claims or potential claims: (a) relating to bias, age, sex,
       religion, religious creed, citizenship, color, race, ancestry, national
       origin, veteran, familial or marital status, sexual orientation or
       preference, genetic predisposition or carrier status, physical or mental
       disability or past or present history of the same or any other form of
       discrimination (including, without limitation, the Age Discrimination in
       Employment Act of 1967, as amended (the "ADEA")), except that Cantrell
       and Willoughby do not waive ADEA rights or claims that may arise after
       the date of this Agreement, (b) relating to the Worker Adjustment and
       Retraining Notification Act, (c) for wrongful discharge, harassment or
       retaliation, (d) relating to any implied or express contract (whether
       oral or written), (e) for intentional or negligent infliction of
       emotional harm, defamation or any other tort, (f) for fraud or
       conversion, (g) for or based upon any invasion of privacy, estoppel, or
       breach of duty claim, (h) that were asserted, or could have asserted, in
       connection with the Mediation, including all claims that were asserted or
       could have been asserted under the ADEA, the Kansas Age Discrimination in
       Employment Act, as amended ("KADEA"), the Kansas Wage Payment Act, as
       amended ("KWPA"), the Employee Retirement Income Security Act of 1974, as
       amended ("ERISA"), the Payless SERP and/or any other benefit plans,
       federal common law and/or Kansas common law, and (i) for costs, fees, or
       other expenses, including attorneys' fees and disbursements. Cantrell and
       Willoughby each agree not to sue or bring any action before any
       regulatory body or agency against any of the Released Parties with
       respect to any such claims, demands, liabilities or obligations. Cantrell
       and Willoughby each waive any right to file any charge, complaint or
       other action, and Cantrell or Willoughby will not seek, claim entitlement
       to, or accept any relief or recovery from any charge, complaint or other
       action before any federal, state or local administrative agency or court
       against the Released Parties. As part of this general release, Cantrell
       and Willoughby each specifically waive any and all rights or claims which
       either of them might have under Title VII of the Civil Rights Act of
       1964, as amended, the Civil Rights Act of 1991, the ADEA, the KADEA, the
       KWPA, 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. Nothing herein, however, shall relieve Payless of its
       obligations under this Agreement.

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 4.    Cantrell and Willoughby shall treat the discussions and negotiations
       relating to, and the terms of, this Agreement in a confidential manner
       and will not disclose the same to any person (including any friend,
       acquaintance or current or potential business associate) other than a
       member of his immediate family (who must also agree to keep such
       information confidential), except (i) as required by law, (ii) to the
       limited extent necessary in DC/MW's income tax returns, (iii) to any
       financial planner, accountant or other agent whose knowledge thereof is
       necessary, and then only to the extent necessary, in 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
       Paragraph), (iv) to any attorney representing DC/MW concerning this
       Agreement, and (v) to the limited extent necessary to inform prospective
       employers of DC/MW's obligations under Paragraphs 3 and 6 through 12 of
       their respective Employment Agreements. DC/MW agree to respond to any
       inquiry concerning their employment termination by utilizing a statement
       such as: "All issues have been resolved to the mutual satisfaction of
       both parties."

5.     This Agreement may not be amended by the parties hereto, except in a
       writing signed by all of the parties hereto.

6.     This 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 Agreement. Any litigation arising out of or relating directly or
       indirectly to this Agreement, Cantrell or Willoughby's employment with
       PSS and/or their employment termination shall be brought and pursued
       exclusively in the Kansas District Court for Shawnee County, Kansas.

7.     This Agreement shall be binding upon Cantrell and Willoughby and upon
       PSS and its successors and assigns. Cantrell and Willoughby cannot assign
       any of their obligations under this Agreement to anyone else.

8.     The Parties further hereby agree that this Agreement shall not be
       construed as an admission by any party hereto of any liability
       whatsoever, or as an admission of any violation of the rights of any
       party, violation 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.

9.     Cantrell and Willoughby understand that each has been given more than
       twenty-one (21) days from October 20, 2005, to consider the meaning and
       effect of this Agreement, and each has elected to execute this Agreement
       on the date indicated below. Cantrell and Willoughby each agree that any
       changes, whether material or not, to this Agreement did not and do not
       restart the running of the twenty-one (21) day period.

10.    Cantrell and Willoughby each understand that they may revoke this
       Agreement at any time during a period of seven (7) days following the day
       they execute this Agreement and said 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 Agreement." Said revocation must be
       personally delivered to Jay Lentz, Senior Vice President, Human
       Resources, or Employer's designee, or by certified mail to Payless
       ShoeSource, Inc., P.O. Box 1189, Topeka, Kansas 66601, and postmarked
       within seven (7) days of the execution of this Agreement. Any revocation
       by either Cantrell or Willoughby will revoke this entire Agreement.

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/s/  Mark Willoughby                                     Date:  November 3, 2005
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/s/  Duane Cantrell                                      Date:  November 3, 2005
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Payless ShoeSource, Inc.


By:  /s/  Michael J. Massey                              Date:  November 7, 2005
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