UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Payment of Filing Fee (Check the appropriate box):

April 5, 2013

Dear Fellow Stockholder:

You are cordially invited to attend our Annual Meeting of Stockholders on Thursday, May 30, 2013, at 8:30 a.m. at the Tarrytown House Estate and Conference Center, 49 East Sunnyside Lane, Tarrytown, New York.

At the Annual Meeting, we will ask you to elect the Class I members of the Board of Directors, to ratify the selection of the independent registered public accounting firm, and to hold an advisory vote concerning named executive officer compensation. We will also update you on the Company’s progress during the past year and answer your questions.

This booklet includes the Notice of Annual Meeting and Proxy Statement. The Proxy Statement describes the business we will conduct at the Annual Meeting and provides information about the Company that you should consider when you vote your shares.

It is important that your stock be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting in person, we hope that you will vote on the matters to be considered. You may vote your proxy via the internet, by telephone, or by mail by signing, dating and returning your proxy card in the envelope provided.

Very truly yours,

Norman Matthews
Chairman of the Board

April 5, 2013

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

The 2013 Annual Meeting of Stockholders of The Children’s Place Retail Stores, Inc. will be held at the Tarrytown House Estate and Conference Center, 49 East Sunnyside Lane, Tarrytown, New York, on Thursday, May 30, 2013, at 8:30 a.m., for the following purposes:

Stockholders of record at the close of business on April 2, 2013 are entitled to vote at the Annual Meeting.

Your vote is important. We encourage you to vote by proxy, even if you plan to attend the Annual Meeting. You may vote your proxy via the internet or by telephone by following the instructions included on your proxy card. You may also vote by mail by signing, dating and returning your proxy card in the envelope provided. Voting now will not limit your right to change your vote or to attend the Annual Meeting.

By order of the Board of Directors,

Bradley P. Cost
Senior Vice President, General Counsel and Secretary
The Children’s Place Retail Stores, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094

If you have any questions or require any assistance with voting your shares, please contact:

MACKENZIE PARTNERS, INC.

105 Madison Avenue

New York, New York 10016

(212) 929-5500 (Call Collect)

or

Call Toll-Free (800) 322-2885

Email: proxy@mackenziepartners.com

TABLE OF CONTENTS

PROXY STATEMENT

The Children’s Place Retail Stores, Inc. (referred to in this Proxy Statement as “we,” “The Children’s Place” or the “Company”) is sending you this Proxy Statement in connection with the solicitation by the Board of Directors (the “Board”) of proxies to be voted at the 2013 Annual Meeting of Stockholders (the “Annual Meeting”).

We are mailing a printed copy of this Proxy Statement, a proxy card and the 2012 Annual Report on Form 10-K of the Company to our stockholders beginning on or about April 10, 2013. The 2012 Annual Report on Form 10-K mailed with the Proxy Statement is not part of the proxy-soliciting material.

VOTING PROCEDURES

Who Can Vote

The Company has one class of voting stock outstanding: Common Stock. If you were a record owner of Common Stock on April 2, 2013, the record date for voting at the Annual Meeting, you are entitled to vote at the Annual Meeting. At the close of business on April 2, 2013, there were 23,107,660 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock has one vote.

How to Vote

You can vote your shares in two ways: either by proxy or in person at the Annual Meeting by written ballot. If you choose to vote by proxy, you may do so by mail, using the internet or by telephone. Each of these procedures is more fully explained below. Even if you plan to attend the Annual Meeting, the Board recommends that you vote by proxy.

Voting by Proxy

Because many stockholders cannot attend the Annual Meeting in person, it is necessary that a large number of stockholders be represented by proxy. You may vote your proxy by mail, using the internet or by telephone, each as more fully explained below. In each case, we will vote your shares as you direct. When you vote your proxy, you can specify whether you wish to vote for or against or abstain from voting on each nominee for Class I Director, the ratification of the selection of BDO USA, LLP as the Company’s independent registered public accounting firm for fiscal 2013, and the approval of the compensation for the Company’s named executive officers on an advisory basis (“Say on Pay”).

If any other matters are properly presented for consideration at the Annual Meeting, the persons named on the voting web site and your proxy card as the Proxy Committee (the “Proxy Committee”) will have discretion to vote for you on those matters. At the time this Proxy Statement was printed, we knew of no other matters to be raised at the Annual Meeting. Attending the Annual Meeting alone will not be deemed to revoke your proxy.

You can vote your shares by completing and mailing the enclosed proxy card to us so that we receive it before 11:59 p.m. (Eastern Time) on Wednesday, May 29, 2013. If you sign and return your proxy card but do not specify how to vote, we will vote your shares in favor of the Board’s nominees for Class I Director and the ratification of the selection of the independent registered public accounting firm, as well as approval of the advisory “Say on Pay” vote.

You can vote your shares via the internet on the voting web site, which is www.voteproxy.com. Internet voting is available 24 hours a day, seven days a week, until 11:59 p.m. (Eastern Time) on Wednesday, May 29, 2013. Our internet voting procedures are designed to authenticate stockholders through individual control numbers. If you received a proxy card in the mail and choose to vote via the internet, you do not need to return your proxy card.

If you reside in the United States, Canada or Puerto Rico, you can also vote your shares by telephone by calling the toll-free number provided on the voting web site (www.voteproxy.com) and on the proxy card. Telephone voting is available 24 hours a day, seven days a week, until 11:59 p.m. (Eastern Time) on Wednesday, May 29, 2013. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. Our telephone voting procedures are designed to authenticate stockholders through individual control numbers. If you received a proxy card in the mail and choose to vote by telephone, you do not need to return your proxy card.

Voting at the Annual Meeting

If you wish to vote at the Annual Meeting, written ballots will be available from the ushers at the Annual Meeting. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Annual Meeting. Voting by proxy, whether by mail, using the internet or by telephone, will not limit your right to vote at the Annual Meeting if you decide to attend in person. However, if you vote by proxy and also attend the Annual Meeting, there is no need to vote again at the Annual Meeting unless you wish to change your vote.

Revocation of Proxies

You can revoke your proxy at any time before it is exercised at the Annual Meeting by taking any one of the following actions: (1) you can follow the instructions given for changing your vote using the internet or by telephone or deliver a valid written proxy with a later date; (2) you can notify the Secretary of the Company in writing that you have revoked your proxy (using the address in the Notice of Annual Meeting of Stockholders above); or (3) you can vote in person by written ballot at the Annual Meeting.

Quorum

To carry on the business of the Annual Meeting, a minimum number of shares, constituting a quorum, must be present. The quorum for the Annual Meeting is a majority of the votes represented by the outstanding Common Stock of the Company. This majority may be present in person or by proxy. Abstentions and “broker non-votes” (which are explained below) are counted as present to determine whether there is a quorum for the Annual Meeting.

Broker Non-Votes

A “broker non-vote” occurs when your broker submits a proxy for your shares but does not indicate a vote for a particular proposal because the broker does not have authority to vote on that proposal and has not received voting instructions from you. “Broker non-votes” are not counted as votes for or against the proposal in question or as abstentions, nor are they counted to determine the number of votes present for the particular proposal (but, are counted for purposes of determining whether a quorum for the Annual Meeting exists).

If your broker holds shares in your name and delivers this Proxy Statement to you, the broker is entitled to vote your shares on Proposal 2 even if the broker does not receive voting instructions from you. The broker is not entitled to vote your shares on Proposals 1 or 3 without your instructions.

Required Vote

Proposal 1: Election of Three Class I Directors. Each of the three nominees for Class I Director who receives at least a majority of the votes cast at the Annual Meeting, either in person or by proxy, will be elected. Votes cast include votes for or against each nominee and exclude abstentions and withheld authority. This means that if you abstain from voting or withhold authority to vote for a particular nominee, your vote will not count for or against the nominee. As more fully described in “Majority Voting in Director Elections” below, any nominee in this election who does not receive a majority of the votes cast must promptly offer to tender his or her resignation to the Board. The Nominating and Corporate Governance Committee will then consider the resignation and make a recommendation to the Board. When voting your proxy, the Proxy Committee will vote for each of the nominees unless you instruct otherwise. As discussed above, if your broker holds shares in your name and delivers this Proxy Statement to you, the broker is not entitled to vote your shares on this proposal without your instructions.

Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm. The affirmative vote of a majority of the votes cast at the Annual Meeting, either in person or by proxy, is required to ratify the selection of the independent registered public accounting firm. This means that if you abstain from voting on this proposal, your vote will not count for or against this proposal. When voting your proxy, the Proxy Committee will vote for this proposal unless you instruct otherwise.

Proposal 3: Advisory Vote on Named Executive Officer Compensation (“Say on Pay”). The affirmative vote of a majority of the votes cast at the Annual Meeting, either in person or by proxy, is required to approve the advisory vote on named executive officer compensation. This means that if you abstain from voting on this proposal, your vote will not count for or against this proposal. When voting your proxy, the Proxy Committee will vote for this proposal unless you instruct otherwise.

Proposal 4: Other Matters As May Properly Come Before the Annual Meeting. For any other matter that may properly come before the Annual Meeting, the affirmative vote of a majority of the votes cast at the Annual Meeting, either in person or by proxy, and entitled to vote on the proposal, is required for adoption of the proposed resolution. This means that if you abstain from voting on a stockholder proposal, your vote will not count for or against the proposal. When voting your proxy, the Proxy Committee will vote against these proposals unless you instruct otherwise.

Confidential Voting

All proxies, ballots and vote tabulations that identify stockholders are confidential. An independent tabulator will receive, inspect and tabulate your proxy whether you vote by mail, using the internet or by telephone. Your vote will not be disclosed to anyone other than the independent tabulator without your consent, except if doing so is necessary to meet legal requirements.

Majority Voting in Director Elections

Under the Company’s charter, in an uncontested election for directors (i.e., an election where there are the same number of nominees as seats on the Board up for election), directors must be elected by a majority of the votes cast at the Annual Meeting. A majority of votes cast is defined to mean that the number of shares voted “for” a director’s election exceeds 50% of the total number of votes cast “for” or “against” the election of the nominee.

If a nominee for director who is an incumbent director is not re-elected by a majority of the votes cast as set forth above, and no successor has been elected at the Annual Meeting, the Company’s Corporate Governance Guidelines require the director to promptly offer to tender his or her resignation to the Board.

The Nominating and Corporate Governance Committee will then make a recommendation to the Board as to whether to accept or reject the tendered resignation or to take other action. The Board will act on the tendered resignation, taking into account the Committee’s recommendation, and will publicly disclose its decision and rationale within 90 days from the date of certification of the election results. The Committee, in making its recommendation, and the Board, in making its decision, may each consider any factors or other information that it considers appropriate or relevant. The director who tenders his or her resignation shall not participate in the recommendation of the Committee or the decision of the Board with respect to the acceptance or rejection of his or her resignation.

If a director’s resignation is accepted by the Board, or if a nominee who is not an incumbent director is not elected, then the Board in its discretion may determine either to fill such vacancy or to reduce the size of the Board.

In contested elections, where there are more nominees than seats on the Board up for election, directors are elected by a plurality vote. This means that the nominees who receive the most votes of all the votes cast for directors will be elected.

GOVERNANCE OF THE COMPANY

The Company’s Corporate Governance Commitment

The Company’s Board strongly believes that good corporate governance accompanies and greatly aids our long-term business success. Reflecting its commitment to continuous improvement, the Board reviews its governance practices on an ongoing basis to ensure that they reflect best practices and promote stockholder value.

Board Independence, Experience and Diversity

Established Policies Guide Governance and Business Integrity

Board Focused on Key Business Priorities

Direct Access to Management

Ensuring Management Accountability

Board Practices Promote Effective Oversight

Continuous Improvement through Evaluation

The Board of Directors

The Board oversees the business, assets, affairs, performance and financial integrity of the Company. In accordance with the Company’s long-standing practice, the Board is independent, consisting of a substantial majority of outside directors. At the end of fiscal 2012, the Board had nine directors, with eight independent directors and one employee director, Jane Elfers, who is the President and Chief Executive Officer of the Company. Robert Fisch, who has served as a director since 2004 and as a member of our Compensation Committee, resigned from the Board on March 27, 2013. From and after the Annual Meeting, the Board has decreased the number of persons constituting the entire Board of Directors to eight from nine.

During fiscal 2012, the Board met five times, and the independent directors met regularly in executive session without Ms. Elfers present.

The Company’s charter provides for a “classified” Board comprised of three classes, designated Classes I, II and III, whose members serve staggered three-year terms. Class I directors were last elected at the Company’s 2010 annual meeting of stockholders, Class II directors were last elected at the Company’s 2011 annual meeting of stockholders and Class III directors were last elected at the Company’s 2012 annual meeting of stockholders. Class I directors are to be elected at this year’s Annual Meeting and will serve for a three-year term, extending until the third succeeding annual meeting of stockholders, and in each case until their successors are duly elected and qualified.

Board Nominees

The Company’s Corporate Governance Guidelines outline the characteristics expected of all directors, including independence, integrity, high personal and professional ethics, sound business judgment and the ability and willingness to commit sufficient time to the Board. The Nominating and Corporate Governance Committee annually reviews the individual skills and characteristics of the directors, as well as the composition of the Board as a whole. In evaluating the suitability of individual Board members, the Nominating and Corporate Governance Committee seeks directors with strong reputations and experience in areas relevant to the strategy and operations of our business and takes into account many factors, including a general understanding of retailing, apparel, marketing, finance and other disciplines relevant to the success of a publicly traded specialty apparel retailer in today’s business environment, educational and professional background, personal accomplishment, gender, age and ethnic diversity. The Nominating and Corporate Governance Committee, however, does not base its nomination of a candidate solely on these factors. The Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills so that, as a group, the Board will possess the appropriate talent, skills and expertise to oversee the Company’s business. Each nominee and continuing director set forth below satisfies the above criteria. Each nominee and continuing director has served in a senior executive position in a large, complex organization and has gained experience in core management skills, such as strategic and financial planning, financial reporting, corporate governance, risk management and leadership development. This variety and depth of experience enables the nominees and continuing Directors to understand the Company’s business and to make significant contributions to the deliberations of the Board.

Biographical information, membership on the Board’s standing committees, and memberships on other boards of directors of public companies of each director nominee for election at this year’s Annual Meeting are set forth below. Ms. Elfers has been a director since 2010, Ms. Griffith has been a director since 2012 and Mr. Lipschitz has been a director since 2008.

Continuing Directors

The following table sets forth certain information with respect to the Class II and Class III Directors, whose term of office continues beyond the Annual Meeting. Each of our continuing directors possesses strong experience and educational and professional background in areas relevant to the strategy and operations of our business. Each has complementary skills in areas such as strategic and financial planning, financial reporting, corporate governance and leadership development which enables our continuing directors to make significant contributions to our Board.

Director Independence

All of the nominees and continuing members of our Board (other than Ms. Elfers) are non-management Directors who meet the criteria for director independence of the listing standards of The NASDAQ Stock Market. All of the members of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are independent directors.

The Company’s Corporate Governance Guidelines provide that the Board intends that, except during periods of temporary vacancies, a substantial majority of our directors will be independent. The Board has determined that an independent director is one who the Board affirmatively determines has no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and is considered independent under the listing standards of The NASDAQ Stock Market and under the rules and regulations promulgated by the SEC, as they may from time to time be amended. The Board will also consider all other relevant factors and circumstances bearing on independence.

Each year each Director (and any Director-nominee) completes and submits to the Company a questionnaire which, among other purposes, is used by the Nominating and Corporate Governance Committee to help evaluate whether the Director has any material relationship with us (whether directly or as a partner, stockholder, or officer of an organization that has a relationship with us), including any material relationship with our affiliates or management, pertinent to determining the Director’s independence. With the assistance of the Nominating and Corporate Governance Committee, our Board made a determination that the following Directors, Messrs. Gromek, Iannone, Matthews and Reiss, and Dr. Alutto, and that Ms. Griffith and Mr. Lipschitz (Class I Director-nominees), are independent within the meaning of the listing standards of The NASDAQ Stock Market, and with respect to the members of the Audit Committee, the provisions of SEC Rule 10A-3.

Board Leadership Structure

The Board selects the Company’s CEO and Chairman of the Board in the manner that it determines to be in the best interests of the Company’s stockholders. The Board has determined that having an independent director serve as Chairman is in the best interest of the Company’s stockholders at this time. This structure ensures a greater role for the independent directors in the oversight of the Company and active participation of the independent directors in setting agendas and establishing Board priorities and procedures. Further, this structure permits the Chief Executive Officer to focus on strategic matters and the management of the Company’s day-to-day operations.

The Board does not have a policy as to whether the Chairman of the Board should be an independent director, an affiliated director, or a member of management. The Company’s Corporate Governance Guidelines provide that when the Chairman is an affiliated director or a member of Company management, the independent directors shall and otherwise may, from time to time, select an independent director to act as the Lead Independent Director of the Board, with responsibility for coordinating the activities of the other independent directors and for performing the duties specified in these guidelines, including but not limited to (i) presiding at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, (ii) serving as liaison between the Chairman and the independent directors, (iii) approving information sent to the Board, (iv) approving meeting agendas for the Board, and (v) approving meeting schedules to assure that there is sufficient time for discussion, and such other duties as are assigned from time to time by the Board.

Board Role in Risk Oversight

The Company faces a variety of risks, including strategic, operational, financial and compliance risks. The Board believes an effective risk management system will (1) timely identify the material risks that the Company faces, (2) communicate necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant committee, (3) implement appropriate and responsive risk management strategies consistent with the Company’s risk profile, and (4) integrate risk management into Company decision-making.

Management performs an annual risk assessment to identify and prioritize the major risks to the Company and to develop mitigation strategies or ensure that mitigation strategies are in place to address identified risks, and periodically reports to the Board on their status. The Board reaches conclusions regarding the adequacy of the Company’s risk management processes based upon the briefings provided by management and advisors as well as upon periodic reports the Board receives from the Audit Committee regarding the Audit Committee’s assessment of financial statement reporting risk and from the Compensation Committee regarding the Compensation Committee’s assessment of the risk, if any, arising from the Company’s compensation policies and practices. In addition to the formal compliance program, the Board encourages management to promote a corporate culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations. The Board also continually works, with the input of the Company’s executive officers, to assess and analyze the most likely areas of future risk for the Company.

Consideration of Board Nominees

The Nominating and Corporate Governance Committee acts on behalf of the Board to recruit, consider the qualifications of and recommend to the Board nominees for election as directors by the stockholders and candidates to be elected by the Board to fill vacancies on the Board. Our Corporate Governance Guidelines provide that the Nominating and Corporate Governance Committee will consider candidates recommended by stockholders and will have a policy that there will be no differences in the manner in which it evaluates nominees recommended by stockholders and nominees recommended by the Nominating and Corporate Governance Committee or Company management. Stockholders wishing to suggest director candidates should submit their suggestions in writing to the attention of the Secretary of the Company, providing the candidate’s name and qualifications for service as a Board member, a document signed by the candidate indicating the candidate’s willingness to serve, if elected, and evidence of the stockholder’s ownership of Company stock. A stockholder wishing to formally nominate a candidate must do so by following the procedures described in our Bylaws which are available from the Secretary of the Company.

Communications to the Board of Directors

Stockholders and other interested parties may communicate directly with the Company’s independent directors by sending an e-mail to childrensplaceboard@childrensplace.com or by writing to Board of Directors, c/o Secretary, The Children’s Place Retail Stores, Inc., 500 Plaza Drive, Secaucus, New Jersey 07094. Stockholders and other interested parties may also communicate with committee chairs by writing to them at the above mailing address, in care of the Secretary. The sender should specify in each communication the applicable addressee or addressees to be contacted. We will initially review communications before forwarding them to the addressee. Our Secretary generally will not forward to the directors a stockholder communication that relates to an improper or irrelevant topic, that requests information about the Company that is generally available (which will instead be forwarded to our Investor Relations Department) or that is unrelated to the stockholder’s ownership of our stock.

Concerns about accounting, internal controls over financial reporting, auditing matters or possible violations of the Company’s Code of Business Conduct should be reported pursuant to the procedures outlined in our Code of Business Conduct, which is available on our website, http://www.childrensplace.com, under the “Corporate Governance” tab in the section entitled “Investor Relations.”

Director Attendance at Annual Meetings

It is the Company’s policy that all members of the Board should attend the Company’s annual meeting of stockholders, unless extraordinary circumstances prevent a director’s attendance. All continuing Directors of the Company attended the 2012 annual meeting of stockholders.

Committees of the Board of Directors

The Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. The committee charters are available on our website, http://www.childrensplace.com, under the “Corporate Governance” tab in the section entitled “Investor Relations.” The members of these committees and a summary of the responsibilities of these committees are set forth below.

Committee Membership (* indicates Chair)

Audit Committee

The Audit Committee, which is a separately designated standing audit committee established in accordance with Section 3(a)(58) of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, monitors the preparation and integrity of our financial statements, our other financial reports and our overall disclosure practices; the soundness of our system of internal financial controls and our compliance with good accounting practices; and the appointment, qualifications, independence and performance of our independent registered public accounting firm. Additionally, the Audit Committee has oversight responsibility for the performance of our internal audit function and compliance with related legal and regulatory requirements. The Board has determined that all members of the Audit Committee are “independent,” as required by the Exchange Act and the listing standards of The NASDAQ Stock Market and meet the “financial sophistication” requirement within the meaning of The NASDAQ Stock Market rules, and has also determined that Messrs. Lipschitz and Reiss qualify as “audit committee financial experts” as defined in Item 407(d)(5) of Regulation S-K.

The Audit Committee met ten times during fiscal 2012. The Audit Committee also met separately on four occasions in executive session with the Company’s independent registered public accounting firm, head of Internal Audit and other members of management.

Compensation Committee

The Compensation Committee has been charged with the responsibilities of our Board relating to compensation of our executive officers. The Compensation Committee reviews and recommends to the Board our CEO’s compensation, and with the input from senior management, reviews and approves the compensation of our executive officers. The Compensation Committee establishes our management compensation policies and reviews and recommends to the Board the terms of the Company’s incentive compensation plans and programs. The Compensation Committee oversees the implementation of these plans and programs, including the granting of equity awards, to ensure alignment with the Company’s strategy and performance and determines all aspects of the compensation of our executive officers. In addition, the Compensation Committee makes recommendations to the Board regarding the compensation of Directors. For more information on the role played by the Compensation Committee in setting the compensation of our executives, see the Compensation Committee’s written charter, a copy of which is available on the Company’s website, http://www.childrensplace.com under the “Corporate Governance” tab in the section entitled “Investor Relations,” and “Executive Compensation - Compensation Discussion and Analysis” below. The Compensation Committee met four times during fiscal 2012.

All members of the Compensation Committee are independent Directors. In arriving at this conclusion, the Board considered, among other factors, the fact that the Company does not pay any compensatory consideration to Compensation Committee members other than fees in their capacities as Directors and Committee members and that members are not affiliated with the Company or members of its management in any way other than membership on the Compensation Committee.

The Compensation Committee retains the services of outside compensation consultants to provide it with objective, third party recommendations and advice on the appropriateness of the Company’s compensation of the CEO, other executive officers and Directors. The Compensation Committee has retained Towers Watson to advise it with respect to such matters, the design and implementation of executive compensation plans and programs, and such other matters as the Compensation Committee may direct. At the Compensation Committee’s request, Towers Watson also provides the Compensation Committee with benchmarking data concerning the compensation paid to officers and directors by companies in the Company’s Peer Group and the retail industry. Towers Watson works directly with the Compensation Committee and its Chair, and meets with the Committee in executive session. Towers Watson does not provide any other services to the Company. The Compensation Committee has determined that Towers Watson does not have any conflict of interest in its dealings with the Committee (or the Company). The Committee made this determination, in part, by reviewing and considering the six factors set out by the SEC in its rules covering independence, conflicts of interest and compensation advisors.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee is or has been an officer of the Company, none was an employee of the Company during fiscal 2012, and none had any relationship with the Company or any of its subsidiaries during fiscal 2012 that would be required to be disclosed as a transaction with a related person. None of the executive officers of the Company has served on the board of directors or compensation committee of another company at any time during which an executive officer of such other company served on the Company’s Board or the Compensation Committee.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee recommends nominees for the Board and develops and implements formal Board self-evaluation procedures. It also makes recommendations to the Board regarding Board and committee structure and corporate governance. In the event of an uncontested election, the Nominating and Corporate Governance Committee also must assess the appropriateness of accepting the resignation of a nominee of the Board for election as a director who is in office as a director and does not receive a majority of the votes cast by the stockholders in respect of his or her election. The Nominating and Corporate Committee met four times during fiscal 2012. All members of the Nominating and Corporate Governance Committee are independent directors.

Audit Committee Report

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board. The Audit Committee has authority to appoint, discharge and replace our independent registered public accounting firm, and is directly responsible for the oversight of the scope of its audit work and the determination of its compensation.

As stated in the Audit Committee’s written charter, a copy of which is available on the Company’s website, http://www.childrensplace.com, under the “Corporate Governance” tab in the section entitled “Investor Relations,” the Audit Committee’s responsibility is one of oversight. It is the responsibility of our management to establish and maintain a system of internal control over financial reporting and to prepare financial statements of the Company and its subsidiaries in accordance with generally accepted accounting principles and to prepare other financial reports and disclosures. Our independent registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements and to issue a report thereon. The Audit Committee does not provide any expert or other special assurance as to our financial statements or any expert or professional certification as to the work of our independent registered public accounting firm.

In fulfilling its oversight responsibilities, the Audit Committee has, among other things, reviewed and discussed with management our audited consolidated financial statements for fiscal 2012, met and held discussions with management and with our independent registered public accounting firm and the head of our internal audit function (both with and without management present) regarding the fair and complete presentation of our financial results and discussed the significant accounting policies applied in our financial statements as well as alternative treatments. The Audit Committee also reviewed and discussed with management, the head of our internal audit function and our independent registered public accounting firm the reports required by Section 404 of the Sarbanes Oxley Act of 2002, namely, management’s annual assessment of our internal control over financial reporting and our independent registered public accounting firm’s attestation report thereon. The Audit Committee has discussed with our independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as adopted by the Public Company Accounting Board, or PCAOB. In addition, the Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm such firm’s independence.

Based on the review and discussions referred to above, the Audit Committee recommended to our Board that our audited consolidated financial statements for fiscal 2012 be included in our Annual Report on Form 10-K for such fiscal year for filing with the SEC.

The foregoing Audit Committee report has been submitted by the members of the Audit Committee: Louis Lipschitz (Chair), Jamie Iannone and Kenneth Reiss.

EXECUTIVE OFFICERS

Set forth below are the names, ages and titles of our executive officers as of April 2, 2013:

The biography of Ms. Elfers is set forth above under the heading “Governance of the Company – Board Nominees.”

Michael Scarpa joined the Company in November 2012. Mr. Scarpa has more than 30 years of financial and operational management experience. Most recently, he was Chief Operating Officer and Chief Financial Officer of The Talbots, Inc. with responsibility for finance, treasury, planning and allocation, supply chain, information technology and corporate strategy. Previously, Mr. Scarpa spent 25 years with Liz Claiborne, Inc. where he held positions of increasing responsibility, culminating in his appointment as Chief Operating Officer. He began his career in financial positions with Maidenform, Inc. and Krementz and Company. Mr. Scarpa earned his BS and MBA degrees from Rutgers University, and is a CPA.

Natalie Levy joined the Company in April 2010. Ms. Levy began her career with R.H. Macy and Company and also held a series of merchandising positions with Mervyn’s and Caldor. She joined Lord & Taylor in 1999 where she spent seven years and last held the position of Senior Vice President/GMM for Proprietary Brands with responsibility for all apparel, shoes, handbags, accessories and gifts. Ms. Levy is a graduate of Simmons College with a degree in Retail Management.

Bradley Cost joined the Company in December 2010. Prior to joining us, Mr. Cost had been a partner with Bachelder Law LLP since September 2006, where he specialized in corporate governance, securities and senior executive compensation matters. Prior to that, Mr. Cost was a partner in private practice in New York City for over 20 years representing numerous public and private companies in securities, mergers & acquisitions and corporate matters. He earned his undergraduate degree from Georgetown University, and law and graduate business degrees from Northwestern University.

Kevin Low joined the Company in September 2011. Mr. Low has more than 20 years of retail field operations experience. Prior to joining us, Mr. Low spent 15 years with GAP, Inc. culminating in his appointment as Vice President of U.S. stores where he was responsible for in-store operations for seven U.S. regions. During his tenure at GAP, Inc., Mr. Low held positions of increasing responsibility as a manager of stores, District Manager, Regional Manager and Zone Vice President.

Lawrence McClure joined the Company in March 2010. Prior to joining us, Mr. McClure served as Senior Vice President of Human Resources at Liz Claiborne Inc. for over eight years where he helped establish a global human resources presence within a diverse set of brands. Prior to that, he held senior human resources leadership roles with The Dexter Corporation, Aetna, and United Technologies. Mr. McClure has a BA and MA from Trinity College.

Gregory Poole joined the Company in September 2012. Mr. Poole has more than 25 years of global sourcing and supply chain leadership experience. Most recently, he spent four years with The Talbots, Inc. where he served as Executive Vice President, Chief Supply Chain Officer, and was responsible for product development, global sourcing, global logistics, distribution, quality assurances, social compliance and technical design, and prior to that, Ann Taylor Stores, where he served as Senior Vice President, Chief Procurement Officer. Mr. Poole spent over 12 years with Gap Inc., where he held several senior level sourcing positions, culminating in his role as Senior Vice President, Sourcing & Vendor Development. Prior to Gap Inc., Mr. Poole served in sourcing and manufacturing roles of increasing responsibility for Esprit de Corp., The North Face, Inc., American Marketing Works, Inc., and Body Glove, Inc. He has a degree in Engineering from the Auckland Technical Institute.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION & ANALYSIS

This Compensation Discussion and Analysis provides important information on our executive compensation programs. Our executive compensation programs are administered by the Compensation Committee of the Board of Directors, which is comprised of independent, non-employee directors of the Company. The Committee is advised on executive compensation matters by Towers Watson, the Committee’s independent, nationally recognized, human resource consulting firm.

EXECUTIVE SUMMARY

FISCAL 2012 – YEAR IN REVIEW

Improved our Financial and Operational Results

Furthered the Long-Term Creation of Stockholder Value

Our total stockholder returns (TSR) compared to the TSRs of our Peer Group for the 1, 3 and 5 year periods ended February 1, 2013 showed that we ranked in the following percentiles:

The chart below shows our closing stock prices on February 1, 2008, 2011 and 2013. The increase in our stock price over the 5-year period (2008–2013) was approximately 150%.

The Company also returned over $270 million to stockholders through our stock repurchase program over the last three fiscal years.

EXECUTIVE Compensation Philosophy

The basic tenets and intent of our executive compensation philosophy state that to prosper in the fast-moving, highly competitive specialty apparel retail industry, it is essential that we:

The continuing difficult general economic conditions and the challenging conditions faced in our industry, including ever-changing consumer tastes and preferences, fluctuating costs of raw materials and energy, severe weather events and weather patterns which adversely affect sales and margins, and the highly promotional activities of competitors, all demand that we strictly adhere to this philosophy.

To better understand in what context and why our Board and Compensation Committee made certain executive compensation decisions, we believe that it is necessary to consider more than one year in isolation. SEC proxy disclosure rules, which require that certain proxy disclosures cover single, one year periods, make it difficult to evaluate multi-year compensation programs such as ours absent further discussion. The following discussion expands the time horizon so that our stockholders might get a better understanding of the context and rationale behind the executive compensation decisions made.

STRATEGIC AND OPERATIONAL TURNAROUND

Context

In January 2010, Jane Elfers became our President and Chief Executive Officer.

The following timeline outlines certain significant events for the Company leading up to our Board’s and Compensation Committee’s decision to employ Ms. Elfers. At that time, given the operational and directional condition of our Company, and the state of our senior management, our Board had determined that a strategic and operational turnaround was necessary.

In identifying a permanent CEO, the Board believed that we needed a best-in-class leader who could:

After an extensive search, the Board determined that Ms. Elfers was the right person to lead the Company given her strong leadership experience, including in a large retail and apparel-related turnaround situation at Lord & Taylor, her deep merchandising skills, and her long-standing retail and apparel industry background.

Rationale

Recognizing that our Company’s turnaround would likely take a number of years to accomplish, our Board and Compensation Committee made executive compensation decisions concerning our CEO based on the following principles:

CEO Compensation Opportunity

(2010 - 2014)

* Performance-based compensation opportunity consists of performance-based annual cash bonus (approximately 12%) and performance-based equity awards (approximately 43%)

CEO Compensation Opportunity

(2013 and 2014)

* Performance-based compensation opportunity consists of performance-based annual cash bonus (approximately 18%) and performance-based equity awards (approximately 67%)

In early fiscal 2011, our Board and Compensation Committee took stock of the significant achievements and ground work laid during fiscal 2010 in Ms. Elfers’ first year as our CEO. As a result, with the advice of its independent compensation consultant at the time, Hay Group, they determined to amend Ms. Elfers’ employment agreement in March 2011 to:

Consistent with public company practice and tax considerations surrounding Section 162(m) of the Internal Revenue Code, the Company has consistently made compensation decisions in the March/April timeframe. At the time fiscal 2012 compensation decisions were made in April 2012, Ms. Elfers’ compensation was already structured and set in her amended employment agreement, with one exception. The lone exception was the decision to award a long-term grant of time-based equity to maintain Ms. Elfers’ realized compensation and remaining compensation opportunity over a 5-year time period at a level determined to be appropriate given the difficulty and extent of the turnaround. In doing so, the Board and Compensation Committee considered the significant accomplishments of our CEO:

STOCKHOLDER OUTREACH

We received a 98% favorable “say-on-pay” vote from our stockholders at our Annual Meeting of Stockholders held in May 2011. Our proxy statement for the 2011 Annual Meeting contained a detailed disclosure of the terms of Ms. Elfers’ employment agreement, including the March 2011 amendments mentioned above. Our Board and Compensation Committee considered this nearly unanimous vote as a resounding endorsement of their actions, the CEO’s performance and the Company’s results. On that basis, the Board and the Compensation Committee made fiscal 2012 executive compensation decisions on a basis entirely consistent with those made in fiscal 2011, and at the normally scheduled time in April 2012, ahead of the “say-on-pay” vote to be held later in the year in June 2012.

This 98% favorable vote in 2011 dropped to approximately 57% at the 2012 Annual Meeting of Stockholders. In response, the Compensation Committee directed the Company to engage in a stockholder outreach, during which members of our senior management held face-to-face meetings and telephone conversations with a number of our top institutional stockholders holding approximately 40% of our outstanding shares.

The purpose of this outreach was two-fold: (i) to provide the Company’s stockholders with a channel to discuss our executive compensation programs and (ii) to gain a better understanding of our stockholders’ perspectives and philosophies on executive compensation so that we could take those factors into consideration when making executive compensation decisions and determining possible changes to our executive compensation programs.

A number of topics were discussed during our stockholder outreach effort, including the following:

Actions Stemming From our Stockholder Outreach

Following our stockholder outreach, and in consultation with Towers Watson and management, our Board and Compensation Committee:

Lengthened the Performance Period for Our LTI Program. Our stockholders expressed a preference for a multi-year performance period for our long-term incentive program. Accordingly, beginning with fiscal 2013, our newly designed long-term incentive program provides for (i) a 3-year performance period, (ii) limited (not to exceed 25% of the award) 1-year opportunities which, if earned, are “banked,” pending vesting at the end of the 3-year period, provided the participant remains employed with the Company, (iii) adjusted operating income targets for fiscal years 1, 2 and 3 and a cumulative 3-year target, and (iv) vesting (delivery) of all earned shares following the third fiscal year of the program. This new program will also be applicable to performance-based stock awards to our CEO following the fiscal 2013 and 2014 awards called for by her amended employment agreement. The newly designed program will maintain the 50% threshold and 200% maximum award opportunities utilized in prior years.

Reaffirmed Operating Income as the Performance Metric for Our Incentive Programs. Our Board, Compensation Committee and management reaffirmed their strong belief that operating income is the appropriate performance metric for our performance-based incentive programs because:

Reinstated Bonus Program Caps. The Compensation Committee modified the fiscal 2012 performance-based annual bonus program to reinstate caps on the amount of bonus which could be paid under the program, and to eliminate sales multipliers. Caps are also in place for, and no multipliers apply to, our 2013 bonus program.

Reaffirmed Transparency. As part of our stockholder outreach, we discussed with our stockholders our desire to provide transparency into our Board’s and Compensation Committee’s decision making process. The discussion in this Compensation Discussion and Analysis underscores our commitment to that transparency.

Realized Compensation as the Compensation Yardstick

As stated earlier, our Board and Compensation Committee believe that compensation should be measured and evaluated on a basis that reflects actual performance and actual compensation received. The table below illustrates the 5-year time horizon and the focus on realized compensation that the Board and Compensation Committee employed.

CEO COMPENSATION

(Realized Compensation on a Yearly Basis) ⁽¹⁾

⁽¹⁾         Table shows compensation actually received (realized) in 2010, 2011 and 2012, and compensation to be received (realized) in 2013. Our CEO’s remaining compensation opportunity for 2014 is shown in the Table (i) assuming that our operating income targets are met for fiscal 2013, resulting in a bonus paid at target in April 2014 and PSRUs for fiscal 2013 vesting at target in February 2014 and (ii) assuming that the operating income targets are not met for fiscal 2013.

⁽²⁾         The $1,100,000 salary is provided for in Ms. Elfers’ amended employment agreement, the $1,227,600 bonus was earned for fiscal 2012 (at 93% of target) and was paid in April 2013, and the $5,689,550 of TRSUs vested in January, March and April 2013. PRSUs earned in fiscal 2012 at 93% of target do not vest until February 2014.

⁽³⁾         Guaranteed bonus for fiscal 2010 provided for in Ms. Elfers’ initial employment agreement, paid in April 2011.

⁽⁴⁾         2012 bonus earned at 93% of target, paid in April 2013.

⁽⁵⁾         2013 bonus assumed earned at target, to be paid in April 2014.

⁽⁶⁾         Valued at the closing stock price on the applicable vesting dates in January, March and April of the applicable year.

⁽⁷⁾         Assumes a $55 stock price to value the 82,706 TRSU shares which will vest in January and March 2014.

⁽⁸⁾         Assumes a $55 stock price to value the 194,402 PRSU shares which will vest in 2014 (consists of 93,167 PRSU shares earned for fiscal 2012 at 93% of target and assumes 101,235 PRSU shares are earned at target for fiscal 2013).

⁽⁹⁾         Assumes a $55 stock price to value the 93,167 PRSU shares which will vest in 2014 (consists of PRSUs earned for fiscal 2012 at 93% of target).

As a point of comparison, the following table sets forth (i) our CEO’s realized compensation (i.e., excluding forfeited performance-based equity awards and unearned performance-based annual incentive bonus) in the last three years, (ii) the total direct compensation (TDC) at the 25^th, median and 75^th percentiles for the CEOs in our Peer Group of companies, as reported in those companies’ Summary Compensation Tables for 2010 and 2011 (as of the date of this Proxy Statement, 2012 data was not yet available), and (iii) our CEO’s TDC for the last three fiscal years as reported in the Summary Compensation Table set forth later in this Proxy Statement.

As shown in the table above, our CEO’s realized compensation is significantly lower (approximately 69% in both 2011 and 2012) than the amount reported in our Summary Compensation Table, including because realized compensation reflects the forfeiture of performance-based equity awards as a result of the Company not achieving the adjusted operating income target required to earn them. We believe this disparity between realized and reported compensation demonstrates the rigorous pay-for-performance element of our CEO’s compensation program. This table also shows how our CEO’s compensation from a realized and a reported perspective compares to Peer Group compensation as reported in their Summary Compensation Tables.

BEST PRACTICES

We ensure that our executive compensation programs reflect best practices and remain tightly aligned with the interests of our stockholders, including as a result of:

A final noteworthy event occurred in fiscal 2012. The leadership and composition of our Compensation Committee changed. Joseph Gromek was appointed as Chair of the Compensation Committee in May 2012. Mr. Gromek brings with him years of experience as the former chief executive officer of The Warnaco Group and as the current chairman of the compensation committees of two other public companies, Wolverine World Wide, Inc. and Tumi Holdings, Inc. Susan Patricia Griffith was appointed as a member of our Board and Compensation Committee in October 2012. Ms. Griffith has an extensive background in executive compensation, benefit and related programs given her years of experience as the senior human resources executive at The Progressive Corporation, a NYSE listed insurance company included in the S&P 500. Norman Matthews, our Chairman of the Board, will continue as a member of our Compensation Committee. Mr. Matthews brings with him over four decades of service as a senior executive of publicly traded companies and over 20 years of experience as a public company board member.

*         *         *         *

PEER GROUP

The Company uses comparative executive compensation data from a group of other leading specialty retail companies in our size range and which share with us similar competitive characteristics as a point of reference in designing our compensation programs and in setting compensation levels. This group of companies is referred to in this Compensation Discussion and Analysis as our “Peer Group.” We do not use this data as a single determinative factor, but rather as an external check to verify that our executive compensation programs are reasonable and competitive in light of compensation practices at similarly situated companies.

The Compensation Committee strongly believes that to be a useful benchmarking tool, our peer group must be comprised of companies with whom we (i) share similar size characteristics in terms of revenues and market capitalization, (ii) compete for executive talent and (iii) share an industry commonality and, therefore, are affected by similar competitive pressures, consumer tastes and preferences, raw material costs, sourcing and production dynamics, effects of severe weather and other weather patterns on sales and margins, and other common factors.

In fiscal 2012, the Compensation Committee, with the assistance of Towers Watson, reviewed our then existing 16-company Peer Group and made the following changes:

Following this process, the Compensation Committee approved the following companies as our Peer Group:

COMPENSATION OBJECTIVES

We operate in the fast-paced and highly-competitive specialty apparel retail industry. To be successful, we must attract and retain key management talent who thrive in this environment. We set high goals and expect superior performance from these individuals. Our executive compensation structure is designed to support this culture. As such, our executive compensation and benefit programs are designed to:

ELEMENTS OF COMPENSATION PROGRAM

Our executive compensation program consists of the following elements:

Base Salary

Base salaries are designed to provide a reasonable, competitive level of fixed compensation. The base salaries of our NEOs were, on average, at approximately the median of our Peer Group. We believe that setting salaries in the median range (or above) mitigates the incentive that might otherwise exist for an executive to support short-term focused or higher-risk business strategies if fixed compensation were set below the median.

Performance Targets

At the beginning of fiscal 2012, the Compensation Committee set specific adjusted operating income goals (threshold, target and maximum) for purposes of the annual incentive opportunity (cash bonus) and long-term performance-based incentive awards (equity) for executives, including the NEOs, and other members of management. In order to set realistic, achievable goals designed to encourage incremental growth, these goals were set based on the actual operating income achieved in fiscal 2011. This approach to goal setting was viewed favorably by our stockholders during our stockholder outreach effort.

Our Compensation Committee, in consultation with members of management and Towers Watson, and taking into account the feedback it received from our stockholder outreach effort, has reaffirmed that operating income is the most appropriate financial measure for the Company’s performance-based incentive programs. See the discussion above under the caption “Stockholder Outreach” for the reasons for this reaffirmation. The specific adjusted operating income goals set annually by the Compensation Committee are compared to the operating income set forth in the Company’s annual audited consolidated statements of operations for the applicable fiscal years in the performance period, adjusted to exclude any effect of a change in accounting principles and any one-time or unusual items eliminated by the Company and disclosed by the Company on a quarterly basis in its earnings press releases, which are also filed with the SEC as an exhibit to Current Reports on Form 8-K.

Set forth below are the adjusted operating income targets which were applicable to performance-based incentive awards, both annual and long-term, in fiscal 2012: 

Annual Incentives—Cash Bonuses

Cash bonuses are designed to reward performance over a one-year period against a pre-established financial performance measure set by the Compensation Committee. Achievement of the financial performance measure is determined by the Compensation Committee based on audited financial results available early in the following year in accordance with a set formula based on actual achievement against the pre-established target.

Our executives, including the NEOs, are each assigned a bonus award opportunity, which is expressed as a percentage of base salary. For fiscal 2012, the formula-driven award payouts ranged from zero, if performance fell below Threshold, 100% of Target if the adjusted operating income performance Target was met, to a Maximum of 200% of Target.

As a result of the Company’s actual adjusted operating income for fiscal 2012 of approximately $114 million, the NEOs (other than Mr. Poole) received an incentive cash bonus for fiscal 2012 at 93% of their respective target bonus award opportunities. For fiscal 2012, Mr. Poole was paid a signing bonus of $200,000 and a guaranteed annual bonus at target of $330,000, all as called for by the terms of his sign-on arrangements with the Company entered into in September 2012.

The table below summarizes the annual incentive program in fiscal 2012 for our continuing NEOs:

⁽¹⁾        Mr. Scarpa joined the Company on November 26, 2012 and will participate in the annual incentive program starting with fiscal 2013.

Long-Term Incentives – Equity Awards

The Company’s long-term incentive compensation is designed to focus our eligible executives on long-term performance, reward their contribution to our long-term growth, and align their interests with those of our stockholders. Long-term equity grants are a significant component of total compensation for our executives, including the NEOs.

During fiscal 2012, we granted time and performance-based awards under our 2011 Plan. We use two types of long-term incentives, each paid in the form of shares of Common Stock: time vested restricted stock units (“TRSUs”) (which vest ratably over three years if the recipient remains employed) and performance-based restricted stock units (“PRSUs”) (which also include a deferred pay-out component such that, if earned, performance shares will be paid out on later dates). We typically award these equity awards once a year in the first quarter of our fiscal year, although these equity awards are also awarded as part of new employment sign-on awards. At February 2, 2013 (the end of our 2012 fiscal year), there were 1,687,510 shares available for grant under our 2011 Plan.

As discussed above, the Compensation Committee approved a newly designed long-term incentive program which employs a three-year performance period. Beginning with fiscal 2013, the newly designed program provides for (i) a 3-year performance period, (ii) limited 1-year opportunities which, if earned, are “banked,” pending vesting at the end of the 3-year period, provided the participant remains employed with the Company, (iii) adjusted operating income targets for fiscal years 1, 2 and 3 and a cumulative 3-year target, and (iv) vesting (delivery) of all earned shares following the third fiscal year of the program. The new LTI program will also be applicable to performance-based stock awards to our CEO following the fiscal 2013 and 2014 awards called for by her amended employment agreement.

Time-Vested Stock Awards

In general, time-vested stock awards (TRSUs) are subject to annual vesting in three equal installments beginning on the first anniversary of the date of the award. The three-year vesting period underscores the long-term focus of this award program and is designed to retain and motivate the NEOs and other Company executives.

During fiscal 2012, TRSU awards were made to Messrs. Scarpa and Poole in connection with their initial employment by the Company and to each of Ms. Levy and Messrs. McClure and Taylor as part of our annual long-term incentive award grants to eligible employees. In addition, in fiscal 2012, Ms. Elfers received TRSU awards under her amended employment agreement and as part of our annual long-term incentive award grants (see “CEO Compensation” below).

See the “Grants of Plan-Based Awards” table below for the number of TRSU awards granted to NEOs in fiscal 2012. See the “Option Exercises and Stock Vested” table below for the number of shares of time-vested stock that vested to Ms. Elfers, Ms. Levy, Mr. McClure and Mr. Taylor during fiscal 2012 arising out of prior fiscal year grants.

Performance-Based Stock Awards

Performance-based awards (PRSUs) are used to motivate decision-making designed to achieve key business objectives. Performance-based awards ensure that payouts are tied directly to a pre-established performance measure (adjusted operating income) which is critical to the achievement of stockholder value. As mentioned earlier, the operating income measure was selected to create a strong focus on our overall profit goal and the underlying drivers of revenues and cost control. Given that the payouts under the performance-based stock awards are dependent on the achievement of an operational goal that is directly influenced by the performance of management, these awards are intended to ensure that volatility in stock price does not create an incentive for an executive to support short-term focused or higher-risk business strategies at the expense of stable, long-term growth.

For fiscal 2012, the NEOs (other than Mr. Scarpa, given that he joined the Company late in the fiscal year) were granted PRSU awards having a one-year performance cycle and, if earned based on achieving a performance target, a cliff vesting in April 2015 (in the case of our CEO, in February 2014), provided that the applicable NEO is employed at that time. Mr. Poole received his PRSU award in connection with his initial employment by the Company, Ms. Levy and Messrs. McClure and Taylor received their PRSU awards as part of our annual long-term incentive award grants to eligible employees, and Ms. Elfers received her PRSU award under her amended employment agreement (see “CEO Compensation” below).

As a result of the Company’s adjusted operating income for fiscal 2012 of approximately $114 million, the NEOs earned PRSUs at 93% of their respective target opportunities, which shares will vest and be delivered to the NEOs in April 2015 (February 2014 in the case of the CEO), provided such persons are employed at the time.

See the discussion above under the heading “Long-Term Incentives – Equity Awards” for information concerning our newly adopted long-term incentive program utilizing a three-year performance period.

Benefits and Perquisites

In addition to the three primary components of compensation discussed above, the Company provides its executives, including the NEOs, and other members of management, with the same employee benefits other employees receive, including matching contributions to our 401(k) plan, health insurance coverage and life insurance coverage. In addition, they receive an opportunity to participate in our deferred compensation plan, an opportunity to purchase group long-term disability coverage and supplemental disability coverage, and certain perquisites. These perquisites are modest and, for fiscal 2012, represented less than 1% each of our NEOs’ total compensation at target (excluding one-time relocation costs). In the case of Ms. Elfers, under her amended employment agreement, these perquisites consisted primarily of the use of a Company car and driver, as well as financial planning and tax preparation services, payment or reimbursement for the premium cost of supplemental life insurance, and payment or reimbursement for the premium cost of supplemental long-term disability insurance. For more information on perquisites provided to the NEOs in fiscal 2012, see the “Summary Compensation Table” below. Any personal income taxes due as a result of these perquisites are the responsibility of the NEOs – we do not provide tax gross-ups to our executives, including the NEOs (other than in connection with certain relocation expenses).

The compensation and benefits payable to the NEOs in the event of termination or a change in control are described below under “Potential Payments Upon Termination or Change in Control”. The Company’s discretionary severance guidelines are designed to offer our employees fair and adequate replacement income based upon market practice. In general, the NEOs participate under the same severance guidelines that are applied to other employees. In addition, the Compensation Committee has approved change in control severance agreements with certain of our executive officers (other than our CEO, who is entitled to change in control severance benefits under her amended employment agreement). These agreements are intended to achieve our objective of attracting and retaining strong talent by offering competitive compensation and protections and motivating executives to concentrate on building stockholder value. The potential payments and benefits under these various programs did not influence the decisions discussed in this Compensation Discussion and Analysis regarding the setting of salary, annual bonus and long-term incentives for the NEOs since these programs serve very different purposes.

Stock Ownership Guidelines

The Board believes it is important that our directors and our CEO have, and are recognized both internally and externally as having, long-term financial interests that are aligned with those of the Company’s stockholders. Accordingly, the Company has stock ownership guidelines applicable to our non-employee directors and our CEO.

The guideline for our CEO provides that she is to own a number of shares of Common Stock having a value equal to three times her annual base salary, that she has five years from the adoption of the guideline (December 2011) to comply with the ownership requirement, and that ownership is defined to be shares owned, performance shares earned, but not delivered, and unvested time-vested stock awards. Failure to meet or, in unique circumstances, to show sustained progress toward meeting this stock ownership guideline may be a factor considered by the Compensation Committee in determining future long-term incentive equity grants and/or appropriate levels of incentive compensation.

The guideline for our non-employee directors is three times the amount of the annual cash retainer paid to these directors, calculated as of the later of the date the guideline was adopted (February 2011) and the date the director is elected to the Board. These directors are required to achieve the ownership guideline within three years of joining the Board, or, in the case of directors serving at the time the guideline was adopted, within three years of the date of adoption of the guideline.

Policies and Provisions Concerning Equity Grants, Recovery of Incentive Compensation and Hedging.

Equity Grant Policy. We make equity awards pursuant to our Policy Regarding Awards of Equity-Vested Incentives to Executive Officers and Other Employees (the “Equity Grant Policy”), which was adopted by our Board in 2007. The Equity Grant Policy applies to all awards of equity compensation to employees and sets forth procedures with respect to the granting, reporting, documenting and timing of awards. The Equity Grant Policy is intended to help ensure that all equity awards are made in accordance with applicable laws, are properly accounted for and disclosed, and are otherwise handled in accordance with the Board’s intentions and good business practices. Subject to oversight by the Board, the Compensation Committee is charged with supervising the application by management of the Equity Grant Policy.

Under the Equity Grant Policy, all awards must be approved by the Compensation Committee, which must approve the recipient, the number of shares involved in the award (or a formula for determining the number of shares) and all other material terms before the award is given effect, except that, as permitted by the Equity Grant Policy, the Compensation Committee has delegated the granting of equity awards to associates other than senior officers or members of the Board to a committee of three senior executive officers who, during fiscal 2012, consisted of our CEO, Senior Vice President, Human Resources and Senior Vice President, General Counsel.

Recovery (“Clawback”) of Incentive Compensation. Our 2011 Plan provides that an equity award agreement adopted by the Compensation Committee may provide for the recovery (“clawback”) of long-term incentive compensation awards under the 2011 Plan in certain circumstances. The Compensation Committee has adopted an equity award agreement under the 2011 Plan which provides that, in the event of a restatement of our financial statements due to a material noncompliance with financial reporting requirements, awardees are required to promptly return to us any compensation received by them under the award agreements which is in excess of what they would have been received if the compensation had been calculated using the restated results. In addition, our management incentive bonus plan adopted by the Compensation Committee in February 2013 also provides for the clawback of bonuses in certain circumstances, including a restatement of our financial statements.

Under Section 304 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), if the Company is required to prepare an accounting restatement due to a material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, our Chief Executive Officer and Chief Financial Officer must reimburse us for any bonus or other incentive based or equity-based compensation received by them during the 12-month period following the first public issuance or filing with the SEC (whichever first occurs) of the document embodying that restatement, and any profits realized by them from the sale of the Company’s securities during that 12-month period. In the event of any future restatement, we will rely on an evaluation by the Board, after receiving advice of counsel, as to whether the circumstances giving rise to any restatement of the Company’s financial statements warrant our seeking to recover any compensation from executives.

Under Section 954 of Dodd-Frank, the SEC is to direct national securities exchanges to prohibit the listing of any security of an issuer if that issuer fails to develop and implement a policy providing that, in the event that the issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the securities laws, the issuer will recover from any current or former executive officer of the issuer who received incentive based compensation during the three-year period preceding the date on which the issuer is required to prepare an accounting statement, based on erroneous data, in excess of what would have been paid to the executive officer under the accounting restatement. SEC rule making, and the related issuance of listing rules by national securities exchanges, is required before Section 954 of Dodd-Frank will become operable.

Anti-Hedging and Anti-Pledging Policy. Section 955 of Dodd-Frank directs the SEC to adopt rules concerning proxy statement disclosure of whether employees and directors of public companies are permitted to purchase financial instruments to hedge or offset any decrease in market value of shares granted by the public company as compensation or otherwise held by such person. SEC rule making is required before Section 955 of Dodd-Frank will become operable.

The Company has a policy prohibiting directors, officers and employees from engaging in hedging and other derivative transactions involving our common stock, as well as prohibiting the pledging of Company stock as collateral (which policy will be reviewed following future SEC rule making in connection with Section 955 of Dodd-Frank).

Change in Control Arrangements.

For a discussion of our change in control arrangements, see “CEO Employment Agreement” and “Change in Control Agreements” below.         

Tax and Accounting Considerations

Section 162(m) of the Code limits the tax deductibility of certain compensation paid to NEOs. This provision disallows the deductibility of certain compensation to our NEOs in excess of $1 million per year unless it is considered performance-based compensation under the Code. We generally endeavor to pay compensation to the NEOs that is tax deductible to the Company under Section 162(m) of the Code; however, we may forgo any or all of the tax deduction if we believe it to be in our best long-term interests and that of our stockholders. The Company believes that all performance-based long-term incentives and annual incentives granted to NEOs qualify as performance-based compensation under Section 162(m) of the Code, but that time-vested long-term incentives granted to them do not.         

Other provisions of the Code can also affect compensation decisions. Section 409A of the Code, which governs the form and timing of payment of deferred compensation, imposes sanctions, including a 20% penalty and an interest penalty, on the recipient of deferred compensation that does not comply with Section 409A. The Compensation Committee takes into account the potential implications of Section 409A in determining the form and timing of compensation awarded to executives and strives to structure any nonqualified deferred compensation plans or arrangements to be exempt from or to comply with the requirements of Section 409A.

Section 280G of the Code disallows a company’s tax deduction for payments received by certain individuals in connection with a change in control to the extent that the payments exceed an amount approximately three times their average annual compensation and Section 4999 of the Code imposes a 20% excise tax on those payments. The Compensation Committee takes into account the potential implications of Sections 280G and 4999 in determining potential payments to be made to executives in connection with a change in control. Nevertheless, to the extent that certain payments upon a change in control are classified as excess parachute payments, such payments may not be deductible pursuant to Section 280G and may be subject to the excise tax under Section 4999.

No “golden parachute” tax gross-ups. The Company does not provide tax gross-ups for any “golden parachute” excise tax payable under Section 4999 of the Code. Rather, upon a termination of employment in connection with a change in control that gives rise to the payment of severance, the NEOs and other executives party to the Company’s change in control severance agreements (and Ms. Elfers pursuant to her amended employment agreement) will receive the greater of (i) the largest portion of the payment that is not subject to a “golden parachute” excise tax under Section 4999 of the Code or (ii) the full amount of the payment if the net-after-excise tax amount retained by the executive would exceed the amount in clause (i). See “CEO Employment Agreement” and “Change in Control Agreements” below.

CEO Compensation

The Company and Jane Elfers, our CEO, entered into a three-year employment agreement in December 2009. In March 2011, the Company and Ms. Elfers entered into an amended and restated employment agreement (the “amended employment agreement”) for an extended term expiring on April 15, 2015, with automatic one-year renewals unless either party gives the other 90 days written notice prior to the expiration of a term. In connection with the amended employment agreement, the Compensation Committee worked with Hay Group, our independent compensation consultant at the time, to analyze the compensation arrangements for Ms. Elfers, including as compared to CEOs in our Peer Group at the time.

The amended employment agreement was approved by the Board following its receipt of a recommendation for approval from the Compensation Committee. In making its recommendation of approval to the Board, the Compensation Committee took into account the financial and operational results achieved by Ms. Elfers and her management team, the significant progress the Company had made during Ms. Elfers’ tenure on our key strategic growth initiatives, as well as the depth of experience and talent of the senior management team that Ms. Elfers had assembled since joining the Company in January 2010. The Compensation Committee (and the Board) determined that it was important and in the best interests of our customers, employees and stockholders to provide both for continuity in strong and effective leadership and for appropriate performance-based and other incentives to motivate and retain that leadership.

Set forth below under the heading “CEO Employment Agreement” is a discussion of certain of the terms contained in the amended employment agreement. These terms include an extension of the term of Ms. Elfers’ employment with us to address the Compensation Committee’s (and the Board’s) continuity objective. These terms also include the grant and agreement to grant to Ms. Elfers time-vested stock awards to address the retention objective, and performance-based stock awards to address the motivation objective.

In keeping with the Compensation Committee’s emphasis on the long-term, long-term equity incentives, at target, comprised approximately 85% of Ms. Elfers’ annual compensation, at target, in fiscal 2012. The remaining approximately 15% is comprised of base salary, cash bonus, at target, benefits and perquisites. Also, in keeping with our pay-for-performance philosophy, Ms. Elfers’ performance-based stock awards, at target, comprise two-thirds (2/3) of all stock awards (performance-based and time-vested) required to be granted to Ms. Elfers over the term of the amended employment agreement pursuant to its terms. The base salary and annual cash bonus provided for in the amended employment agreement were, at the time the amended employment agreement was entered into, at the median of that paid to CEOs in our Peer Group at the time.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis and, based on such review and discussion, recommended to our Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for fiscal 2012 and this Proxy Statement.

The foregoing Compensation Committee report has been submitted by the members of the Compensation Committee: Joseph Gromek (Chair), Susan Patricia Griffith and Norman Matthews.

Summary Compensation Table

The following table shows the compensation of the Company’s President and Chief Executive Officer (our principal executive officer), our principal financial officers, and the three other most highly compensated executive officers (NEOs) for fiscal 2012 and, to the extent any of these officers was an NEO in the prior years, for fiscal 2010 and fiscal 2011.

Notes to the Summary Compensation Table

⁽¹⁾         Includes amounts deferred under our Deferred Compensation Plan and 401(k) Plan.

⁽²⁾         The amounts shown relate to TRSUs and PRSUs. The stock award grant date fair value for both time-vested and performance-based stock awards is determined in accordance with “Compensation – Stock Compensation” topic of the Financial Accounting Standards Board’s Accounting Standards Codification, in the case of performance-based stock awards, based on the number of shares probable of vesting multiplied by the fair market value of our Common Stock on the grant date. For fiscal 2012, at the maximum possible vesting values, the performance-based stock awards set forth in this column, computed on the basis of the closing sales price of our Common Stock on the grant date, were $9,999,968, $1,144,320, $762,880, and $90,592 for Ms. Elfers, Ms. Levy, Mr. McClure and Mr. Taylor, respectively. For fiscal 2011, at the maximum possible vesting values, the performance-based stock awards set forth in this column, computed on the basis of the average of the high and low selling price of our Common Stock on the grant date, were $9,999,978, $1,264,680, $758,808, and $168,624 for Ms. Elfers, Ms. Levy, Mr. McClure and Mr. Taylor, respectively. For fiscal 2010, at the maximum possible vesting value, the performance-based stock award set forth in this column, computed on the basis of the average of the high and low selling price of our Common Stock on the grant date, was $473,050 for Ms. Levy and $340,350 for Mr. McClure. For more information, see Note 3 – Stock-Based Compensation in the accompanying Notes to Consolidated Financial Statements filed in our Annual Report on Form 10-K for our 2012 fiscal year.

⁽³⁾         The amounts shown are incentives earned in accordance with the management incentive plan approved by the Compensation Committee at the beginning of each respective fiscal year. Amounts shown are for services performed during the fiscal year and paid during the subsequent fiscal year.

⁽⁴⁾         The amount shown includes $60,839 for a driver, $35,280 for driver reimbursements, $24,333 for a leased vehicle, $1,650 for tax preparation services, $7,319 for life insurance premiums and $7,126 for executive long term disability premiums.

⁽⁵⁾         The amount shown includes $57,429 for a driver, $16,346 for driver reimbursements, $26,199 for a leased vehicle, $1,067 for legal fees, $1,650 for tax preparation services, $9,251 for life insurance premiums, $6,417 in other reimbursements and $7,126 for executive long term disability premiums.

⁽⁶⁾         The amount shown includes $93,776 for a driver, $12,380 for driver reimbursements, $29,928 for a leased vehicle, $22,094 for legal fees, $3,500 for tax preparation services, $1,284 for life insurance premiums and $5,938 for executive long term disability premiums.

⁽⁷⁾         Mr. Scarpa commenced serving as our Executive Vice President, Chief Financial Officer on December 3, 2012.

⁽⁸⁾         The amount shown is for life insurance premiums.

⁽⁹⁾         Ms. Levy commenced serving as our Senior Vice President, Merchandising on June 1, 2010 and was promoted to Executive Vice President, Merchandising and Design on November 8, 2010.

⁽¹⁰⁾        The amount shown includes $41,898 for relocation expenses, $16,745 for relocation tax gross-ups, $3,722 for matching contributions under the Company’s 401(k) plan, $1,022 for life insurance premiums and $6,419 for executive long term disability premiums.

⁽¹¹⁾        The amount shown includes $118,975 for relocation expenses, $99,007 for relocation tax gross-ups, $1,004 for life insurance premiums and $6,419 for executive long term disability premiums.

⁽¹²⁾        The amount shown is $553 for life insurance premiums and $3,914 for executive long term disability premiums.

⁽¹³⁾        Mr. Poole commenced serving as our Senior Vice President, Global Sourcing on September 24, 2012.

⁽¹⁴⁾        The amount shown includes $22,795 for relocation expenses, $10,422 for relocation tax gross-ups, $421 for life insurance premiums and $837 for executive long term disability premiums.

⁽¹⁵⁾        Mr. McClure commenced serving as our Senior Vice President, Human Resources on March 8, 2010.

⁽¹⁶⁾        The amount shown includes $6,275 for matching contributions under the Company’s 401(k) plan, $3,071 for life insurance premiums and $5,509 for executive long term disability premiums.

⁽¹⁷⁾        The amount shown includes $4,610 for matching contributions under the Company’s 401(k) plan, $2,812 for life insurance premiums and $5,509 for executive long term disability premiums.

⁽¹⁸⁾        The amount shown is $2,262 for life insurance premiums and $4,474 for executive long term disability premiums.

⁽¹⁹⁾        Mr. Baginski served as Chief Financial Officer of the Company from April 25, 2012 to November 26, 2012.

⁽²⁰⁾        The amount shown includes $131,619 for relocation expenses, $38,781 for relocation tax gross-ups, $543 for life insurance premiums and $2,831 for executive long term disability premiums.

⁽²¹⁾        Mr. Taylor served as Interim Principal Financial Officer from February 10, 2011 to April 25, 2012 and again from November 26, 2012 to December 3, 2012.

⁽²²⁾        The amount shown includes $6,096 for matching contributions under the Company’s 401(k) plan, $454 for life insurance premiums and $3,216 for executive long term disability premiums.

⁽²³⁾        The amount shown includes $6,197 for matching contributions under the Company’s 401(k) plan, $310 for life insurance premiums and $3,216 for executive long term disability premiums.

Grants of Plan-Based Awards

The following table shows information about the non-equity incentive awards, equity incentive awards and other stock awards that are reflected in the Summary Compensation Table for fiscal 2012 and that were granted to the NEOs who received such awards during fiscal 2012.

Notes to the Grants of Plan-Based Awards Table

⁽¹⁾          Amounts reflect bonuses available to be earned in accordance with our annual bonus plan approved by the Compensation Committee at the beginning of fiscal 2012.

⁽²⁾          Reflects the aggregate grant date fair value of the awards, computed in accordance with “Compensation – Stock Compensation” topic of the Financial Accounting Standards Board’s Accounting Standards Codification based on the fair value of our Common Stock on the date of grant. The estimated fair value of the performance-based awards is based upon the probable outcome of the performance conditions on the date that each award was communicated to each of our NEOs for the performance period and the fair market value of our Common Stock on that date.

⁽³⁾          Awarded pursuant to the terms of PRSUs granted under the Company’s 2011 Plan. The amounts shown reflect the number of shares of Common Stock able to be earned by Ms. Elfers based upon the achievement of the performance target for fiscal 2012. Earned PRSUs will vest on February 1, 2014, provided Ms. Elfers is employed by the Company on that date.

⁽⁴⁾          Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. These TRSUs vest 25%, 25% and 50% on the first, second and third anniversaries of the award date, provided Ms. Elfers is employed by the Company on the respective vesting dates.

⁽⁵⁾          Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on the first, second and third anniversaries of the award date, provided Ms. Elfers is employed on the respective vesting dates.

⁽⁶⁾          Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on the first, second and third anniversaries of the award date, provided Mr. Scarpa is employed on the respective vesting dates.

⁽⁷⁾         Awarded pursuant to the terms of PRSUs granted under the Company’s 2011 Plan. The amounts shown reflect the number of shares of Common Stock able to be earned by Ms. Levy based upon the achievement of the performance target for fiscal 2012. Earned performance shares will vest on the third anniversary of the award date, provided Ms. Levy is employed by the Company on that date.

⁽⁸⁾          Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on each of the first, second and third anniversaries of the award date provided Ms. Levy is employed by the Company on the respective vesting dates.

⁽⁹⁾         Awarded pursuant to the terms of a TRSU granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on each of the first, second and third anniversaries of the award date provided Mr. Poole is employed by the Company on the respective vesting dates.

⁽¹⁰⁾       Awarded pursuant to the terms of PRSUs granted under the Company’s 2011 Plan. The amounts shown reflect the number of shares of Common Stock able to be earned by Mr. McClure based upon the achievement of the performance target for fiscal 2012. Earned performance shares will vest on the third anniversary of the award date, provided Mr. McClure is employed by the Company on that date.

⁽¹¹⁾      Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on each of the first, second and third anniversaries of the award date, provided Mr. McClure is employed by the Company on the respective vesting dates.

⁽¹²⁾        Awarded pursuant to the terms of PRSUs granted under the Company’s 2011 Plan. The amounts shown reflect the number of shares of Common Stock able to be earned by Mr. Baginski based upon the achievement of the performance target for fiscal 2012. Earned performance shares will vest on the third anniversary of the award date, provided Mr. Baginski is employed by the Company on that date. Mr. Baginski ceased employment with the Company on November 26, 2012 and this award terminated.

⁽¹³⁾        Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on each of the first, second and third anniversaries of the award date, provided Mr. Baginski is employed by the Company on the respective vesting dates. Mr. Baginski ceased employment with the Company on November 26, 2012 and this award terminated.

⁽¹⁴⁾        Awarded pursuant to the terms of PRSUs granted under the Company’s 2011 Plan. The amounts shown reflect the number of shares of Common Stock able to be earned by Mr. Taylor based upon the achievement of the performance target for fiscal 2012. Earned performance shares will vest on the third anniversary of the award date, provided Mr. Taylor is employed by the Company on that date.

⁽¹⁵⁾        Awarded pursuant to the terms of TRSUs granted under the Company’s 2011 Plan. Of the TRSUs awarded, one-third vest on each of the first, second and third anniversaries of the award date, provided Mr. Taylor is employed by the Company on the respective vesting dates.

Outstanding Equity Awards at Fiscal Year-End

The following table contains information about equity awards held by the NEOs as of February 2, 2013 (the end of our 2012 fiscal year).