In Schedule 14A recently filed with the SEC, the Leadership Development and Compensation Committee of the Home Depot board of directors furnished the information below on executive compensation.

Base Salaries: We provide competitive base salaries that allow us to attract and retain a high performing leadership team.

Annual Bonus: All executive officers participate in our Company’s Management Incentive Plan (“MIP”). The MIP is designed to motivate and reward executives by aligning pay with annual performance. The MIP is a cash-based bonus plan that rewards executives for the achievement of financial and nonfinancial performance objectives that are established at the beginning of each fiscal year.

Long-Term Incentives: To better align the interests of management with long-term stockholder interests, we provide long-term incentives to executive officers. We deliver long-term incentives typically in the form of stock options, a performance shares/cash plan, shares of restricted stock, and deferred shares or deferred stock units. The long-term incentives are designed to reward executives for increasing long-term stockholder value and to retain them at the Company.

Stock Options: We provide annual nonqualified stock option grants as part of our long-term incentive compensation under the Omnibus Plan.

Performance Shares/Units: Executive officers are eligible to participate in the Company’s Long-Term Incentive Plan (“LTIP”). For performance periods beginning before Fiscal 2007, the program rewards management for stockholder returns over a three-year period. Performance is relative to a peer group, offsetting stock appreciation as a result of bear and bull market periods.

Restricted Stock: In Fiscal 2002, we began to grant restricted stock to executive officers to (i) serve as a retention mechanism; (ii) align management and stockholder interests by delivering ownership; and (iii) in some instances offset the less than competitive supplemental executive retirement benefits offered to our executives.

Deferred Shares or Deferred Stock Units: From time to time the Company uses deferred shares or deferred stock units to provide equity compensation to an executive officer that permits such officer to defer receipt of and taxation on such compensation until a future date elected by such officer.

Instructions

In this chapter, five design choice categories for management compensation were described (long versus short horizon; fixed versus variable bonus; stock- versus accounting-based evaluation; local versus companywide orientation; and cooperative versus competitive schemes). For each of Home Depot’s executive compensation categories listed above, identify the design choices made by Home Depot’s board of directors in constructing that component of the company’s management compensation plan.