PAYLESS SHOESOURCE INC /DE/
DEFERRED COMPENSATION PLAN OF REGISTRANT
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<FILENAME>c61720ex10-12.txt
<DESCRIPTION>DEFERRED COMPENSATION PLAN OF REGISTRANT
<TEXT>

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                                                                   Exhibit 10.12
                            PAYLESS SHOESOURCE, INC.
                           DEFERRED COMPENSATION PLAN
                            (Amended July 20, 2000)

SECTION 1.        PURPOSE.

         The purpose of this Plan is to provide an additional incentive to the
key employees of Payless ShoeSource, Inc. to achieve superior performance.

SECTION 2.        DEFINITIONS.

         (a)      Board means the Board of Directors of Payless, as hereinafter
defined.

         (2) Committee means the Committee appointed to administer the Plan, as
hereinafter defined, as provided in Section 8 hereof.

         (c)      Common Stock means the Common Stock of Payless, as hereinafter
defined.

         (d)      Corporation means Payless, as hereinafter defined, or any
subsidiary of Payless which is an employer of an Executive, as hereinafter
defined, who is a Participant, as hereinafter defined, in the Plan, as
hereinafter defined.

         (e)      Executive means any individual employed by the Corporation in
an executive capacity who receives regular stated compensation in respect of
such employer-employee relationship other than a pension, retainer or fee under
a contract.

         (f)      Fiscal Year means the fiscal year of the Corporation as
established from time to time.

         (g)      Payless means Payless ShoeSource, Inc., a Delaware
corporation.

         (h) Participant means an Executive who has been designated by the
Committee as eligible, and who has elected to participate in the Plan, as
hereinafter defined.

         (i)      Plan means the Deferred Compensation Plan of the Corporation,
as described herein.

         (j)      Stock Unit means an accounting equivalent of one share of
Common Stock.

         (k)      Stock Unit Account means an account on the records of the
Corporation in respect of Stock Units which have been and/or may be allocated to
a Participant in the manner hereinafter set forth.


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SECTION 3.        METHODS OF PAYMENT.

         (a)      Except as hereinafter provided, prior to the commencement of
the calendar year that includes the first day of a Fiscal Year, each Participant
shall be afforded the opportunity of making an election to have any one or more
of the following alternative methods of payment applied to all or a part of any
portion (which such portion shall not exceed one-half, unless specifically
provided for to the contrary in the participant's written contract of
employment) of any compensation of which such Participant shall be the recipient
in respect of his performance during such Fiscal Year:

                  (i)      Alternative (i): Payment of any such compensation
that is paid in the form of a bonus on the first day of April next following the
close of such Fiscal Year or on such subsequent date as the amount thereof is
ascertainable.

                  (ii)     Alternative (ii): Payment thereof at a deferred date
or dates either in a lump sum or in annual installments, as may be determined by
the Committee, such payment when made to include interest, as hereinafter
provided, from the first day of April next following the Fiscal Year in respect
of which the compensation was payable to the date of payment.

                  (iii)    Alternative (iii): Payment thereof at a deferred date
or dates either in a lump sum or in annual installments, as may be determined by
the Committee, and either in cash or in Common Stock or in both cash and Common
Stock, as may be determined by the Committee, in respect of Stock Units to be
allocated to the Participant as hereinafter provided.

If any Participant shall fail to make an election with respect to any year, he
shall be deemed to have elected not to defer any portion of his compensation for
such year. Notwithstanding the requirements imposed by this paragraph (a) with
respect to the time by which an election must be made, an employee who is
designated by the Committee as a Participant for the first time may, within 60
days of such designation, make any election otherwise permitted under this
paragraph (a) with respect to the Participant's compensation in respect of
employment subsequent to the date on which the election is made.

         (b)      In connection with all determinations to be made by the
Committee as respects Alternative (ii) and, except for the determination of
whether payment thereunder is to be made in cash or in Common Stock or in both
cash and Common Stock (which determination shall be in the absolute discretion
to the Committee), Alternative (iii), the Participant shall be given an
opportunity at the time he makes his election of indicating his preferences,
which preferences shall be taken into account by the Committee in making its
determinations. Except as provided in Section 12 and Section 13 in no event
shall payments under Alternative (ii) or (iii) commence prior to the earliest of
the Participant's retirement, termination of employment or death (or prior to
the occurrence of a severe financial hardship, as provided below).



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The Committee shall make its determination with respect to the payment schedule
(i.e., a lump sum payment or payments in annual installments) under Alternative
(ii) or (iii) prior to the commencement of the calendar year that includes the
first day of the Fiscal Year for which such alternative is elected. Except in
the event of a severe financial hardship, as provided below, the Committee's
determination with respect to a payment schedule shall become irrevocable as of
the first day of the calendar year that includes the first day of the Fiscal
Year for which the determination is made. However, upon the written request of
the Participant (or if applicable, the beneficiary or distributee) the payment
schedule may be revised by the Committee, in its absolute discretion, in the
event that the Participant (or if applicable, the beneficiary or distributee)
incurs a severe financial hardship. Such severe financial hardship must have
been caused by an accident, illness or other event which was beyond the control
of the Participant (or, if applicable, the beneficiary or distributee); and the
Committee shall revise the payment schedule that it had previously established
only to the extent that the Committee considers necessary to eliminate the
severe financial hardship. Notwithstanding the requirements imposed by this
paragraph (b) regarding the date by which the Committee must make a
determination with respect to the payment schedule under Alternative (ii) or
(iii) and the date as of which such determination shall become irrevocable
(except in the event of a severe financial hardship), when a Participant makes
an election pursuant to the last sentence of paragraph (a) of this Section 3,
the Committee shall make its determination with respect to the payment schedule
at any time prior to the date as of which the Participant's election becomes
effective, and its determination shall become irrevocable (except in the event
of a severe financial hardship) as of such effective date.

         (c)      In the case of a Participant who elects to have all or any
part of his compensation for a particular Fiscal Year paid under Alternative
(iii), Stock Units shall be allocated to such Participant by crediting the same
to his Stock Unit Account, and the number of Stock Units to be so credited for
such Fiscal Year shall be the sum of the following:

                  (i)      the quotient, disregarding fractions, resulting from
dividing the dollar amount of such portion of the Participant's compensation as
is to be so applied to Alternative (iii) by the average closing price of the
Common Stock on the New York Stock Exchange during the month of February ending
in the Fiscal Year next following the Fiscal Year in respect of which such
compensation was payable; plus

                  (ii)     the quotient, disregarding fractions, resulting from
dividing the aggregate dollar amount of cash dividends which would have been
paid to the Participant during such Fiscal Year had the Stock Units standing in
his Stock Unit Account from time to time during such Fiscal Year been shares of
Common Stock by the average dosing price of the Common Stock on the New York
Stock Exchange during the month of February ending in the year next following
such Fiscal Year; plus


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                  (iii)    the number of shares of Common Stock, disregarding
fractions, which would have been received by the Participant as stock dividends
during such Fiscal Year had the Stock Units standing in his Stock Unit Account
at the date or dates of payment of such stock dividend(s) been shares of Common
Stock.

Any allocation of Stock Units to a Participant's Stock Unit Account required to
be made pursuant to this paragraph (c) shall be made as of the first day of
April next following the Fiscal Year in respect of which such compensation was
payable or such dividends were paid, as the case may be. The aggregate value of
the fraction or fractions remaining after making the applicable calculations
referred to in subparagraphs (c)(i), (c)(ii) and (c)(iii) of this Section 3
(based upon the average closing price of Common Stock on the New York Stock
Exchange during the month of February next preceding such month of April), shall
not be converted into Stock Units but shall be allocated and added to the amount
elected by the Participant to be paid to him under Alternative (ii) above, or,
if the Participant shall have made no such election under Alternative (ii), then
such remaining amount shall be paid to the Participant as if he had made an
election under Alternative (i) above to be so paid.

         (d)      Notwithstanding the provisions of Section 3(c) to the
contrary, in the event of a recapitalization of Payless pursuant to which the
outstanding shares of Common Stock shall be changed into a greater or smaller
number of shares (including, without limitation, a stock split or a stock
dividend of 25% or more of the number of outstanding shares of Common Stock),
the number of Stock Units credited to a Participant's Stock Unit Account shall
be appropriately adjusted as of the effective date of such recapitalization.

         (e)      Interest to be paid under Alternative (ii) shall be credited
annually as of April 1 of each year and shall be at a rate shall be equal to the
average yield on long-term United States Government Bonds (as determined by the
Board of Governors of the Federal Reserve Board and published in the Federal
Reserve Bulletin) for the calendar year prior to said April 1, compounded
annually, provided, however, that if the method of calculation of such average
yield shall be changed, or if the determination and/or the publication thereof
be discontinued, then the Committee shall substitute therefor such alternative
method of determining such interest rate as it, in its discretion, shall deem
appropriate.

SECTION 4.        LIMITATION OF STOCK UNITS.

         In no event shall the aggregate number of Stock Units allocated under
this Plan in respect of compensation for any Fiscal Year exceed a number equal
to 1/2 of 1% of the total number of shares of Common Stock outstanding at the
close of such Fiscal Year.



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SECTION 5.        DISTRIBUTION FROM THE STOCK UNIT ACCOUNT.

         (a)      Distribution from a Participant's Stock Unit Account shall be
made in accordance with the determinations made by the Committee, as provided in
this Plan. Stock Units shall be adjusted from time to time in accordance with
this Plan until all distributions to which a Participant is entitled hereunder
shall have been made.

         (b)      If the Committee determines that distribution to a Participant
is to be made in annual installments, the Committee may determine from time to
time whether each particular installment shall be distributed in cash or in
Common Stock or in both cash and Common Stock.

         (c)      If the Committee determines that a distribution to a
Participant is to be made in a lump sum in Common Stock, the number of shares of
Common Stock to be so distributed to such Participant shall equal the number of
Stock Units then in his Stock Unit Account. For the purpose of determining the
number of shares of Common Stock to be distributed on a particular annual
installment distribution date, the Committee shall make its calculations as if
that annual installment and all subsequent annual installments were in fact to
be made in shares of Common Stock, as follows: the number of shares of Common
Stock which would be then so distributable, except in the case of the last
distribution, shall be equal to the product, disregarding fractions, of the
total number of Stock Units then credited to the Participant's Stock Unit
Account, multiplied by a fraction, the numerator of which shall be one and the
denominator of which shall be the number of remaining installments; and in the
case of the last distribution, shall be the number of shares of Common Stock
equal to the Stock Units then remaining in the Participant's Stock Unit Account.
The Participant's Stock Unit Account shall be decreased by one Stock Unit for
each share of Common Stock distributed to a Participant.

         (d)      If the Committee determines that a particular distribution to
a Participant is to be made in cash, a computation shall first be made of the
number of shares of Common Stock which would then be distributable pursuant to
paragraph (c) of this Section 5 if such distribution were to be made in shares
of Common Stock. The number of shares thus determined shall then be converted
into cash in respect of each such distribution by valuing such shares at the
average dosing price of the Common Stock on the New York Stock Exchange during
the month of February next preceding the date of such distribution, and the
resulting amount of cash shall be distributed to the Participant. The
Participant's Stock Unit Account shall then be decreased by one Stock Unit for
each share of Common Stock which would have been distributed to the Participant
had such cash distribution been made in shares of Common Stock.

         (e)      If the Committee determines that a distribution is to be made
in part in Common Stock and in part in cash, paragraphs (c) and (d) of this
Section 5 shall be applied separately to


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the respective parts of such distribution and to the respective parts of the
Stock Unit Account with respect to which the distribution is to be made.

SECTION 6.        DEATH OF PARTICIPANT.

         In the event of the death of a Participant prior to complete
distribution under Alternatives (ii) and/or (iii) hereof, all cash and/or Stock
Units then remaining undistributed, or which shall thereafter become
distributable to him pursuant to such Alternatives, shall be distributed to such
beneficiary as the Participant shall have designated in writing to the
Corporation, or, in the absence of such designation, to his personal
representative. Such distribution shall be made at such date or dates either in
a lump sum or in annual installments, as may be determined by the Committee
prior to the beginning of the calendar year that includes the first day of the
Fiscal Year for which such alternative is elected (or, where applicable, the
date specified by the last sentence of Section 3(b)); provided, however, that in
the event of a severe financial hardship, the Committee may subsequently revise
its determination in accordance with the applicable provisions of Section 3(b).

SECTION 7.        PARTICIPANT'S RIGHT UNSECURED; INVESTMENTS.

         The right of a Participant to receive any distribution hereunder shall
be an unsecured claim against the general assets of the Corporation. Nothing in
this Agreement shall require the Corporation to invest any amount, the payment
of which has been deferred under Alternative (ii) or (iii), in Common Stock or
in any other medium.

SECTION 8.        ADMINISTRATION OF THE PLAN COMMITTEE.

         (a)      The Plan shall be administered by a Committee of not less than
two nor more than five persons designated by the Board (which may, but need not,
be the compensation committee of the Board), all of whom shall be directors of
the Corporation and shall serve at the pleasure of the Board. In no event shall
any member of the Committee be a Participant. The Committee shall act by vote or
written consent of a majority of its members (except in the case of a two person
Committee in which case any vote or written consent must be unanimous). The Plan
may be amended, modified or terminated by the Board, except that no change may
be made without the approval of the Common Shareowners of Payless (i) the
maximum number of shares or Stock Units deliverable or allocable in respect of
any Fiscal Year under the plan or (ii) in the provisions of subparagraphs (c)(i)
and (c)(ii) of Section 3 of this Plan relating to the method of determining the
number of Stock Units allocable to a Participant.

         (b)      The Committee shall prescribe such forms as it considers
appropriate for the administration of the Plan. The forms shall set forth such
terms and conditions not inconsistent with the terms of the Plan as the
Committee may determine and shall designate:


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                  (i)      the alternative or alternatives elected by the
Participant pursuant to Section 3(a);

                  (ii)     the Committee's determination of the time or times
when payment of such compensation will be made to the Participant pursuant to
Section 3(b)(in the absence of a severe financial hardship);

                  (iii)    the beneficiary (if any) designated by the
Participant pursuant to Section 6; and

                  (iv)     the Committee's determination of the time or times
when payment of such compensation will be made after the Participant's death
pursuant to Section 6 (in the absence of a severe financial hardship).

SECTION 9.        SUCCESSORS.

         The provisions of the Plan with respect to each Participant shall bind
the legatees, heirs, executors, administrators or other successors in interest
of such Participant.

SECTION 10.       ALIENATION.

         (a)      Subject to the provisions of Section 6 and paragraph (b) of
this Section 10, no amount, the payment of which as been deferred under
Alternative (ii) or (iii), shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, levy or charge, and
any attempt to so anticipate, alienate, sell, transfer, assign, pledge,
encumber, levy or charge the same shall be void; nor shall any such amount be in
any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the person entitled to such benefit.

         (b)      Nothing in this Section 10 shall prohibit the personal
representative of a Participant from designating that any amount be distributed
in accordance with the terms of the Participant's will or pursuant to the laws
of descent and distribution.

SECTION 11.       WITHHOLDING.

         There shall be deducted from all amounts paid under this Plan any taxes
required to be withheld by any federal, state or local government. The
Participants and their beneficiaries, distributees and personal representatives
will bear any and all federal, foreign, state, local or other income or other
taxes imposed on amounts paid under this Plan as to which no amounts are
withheld, irrespective of whether withholding is required.


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SECTION 12.       DISCRETIONARY PAYMENT.

         (a)      Notwithstanding any other provision in any other Section of
the Plan to be contrary, the Committee may, in its sole and absolute discretion,
direct an immediate payment of cash and/or distribution of Stock with respect to
amounts (except those referred to in the next proviso) previously deferred under
this Plan if the Committee determines that such action is in the best interests
of Payless, the Participants and their beneficiaries.

         (b)      In the event that the Committee shall so direct an immediate
payment, distribution and/or release in accordance with Section 12(a), then

                  (i)      the amounts of cash and the numbers of shares of
Stock to be so paid and/or distributed shall be determined by the Committee so
as to reflect fairly and equitably appropriate interest and dividends since the
preceding April 1 and so as to reflect fairly and equitably such other facts and
circumstances as the Committee deems appropriate, including, without limitation,
recent price of the Stock;

                  (ii)     amounts which were otherwise deferred or to be
deferred with respect to the Fiscal Year or long-term period in which such
payment or distribution occurs shall be paid when otherwise payable (such
amounts which would otherwise have been payable prior to the date of such
payment or distribution shall be paid as soon as practicable thereafter);

                  (iii)    in the event that cash is not paid or made available
to a Participant when otherwise due or that shares of Stock are not distributed
or otherwise made available to a Participant when otherwise due, then such
Participant may file a claim for such payment or distribution and, if such
Participant is successful, then the Corporation shall reimburse such Participant
for reasonable attorneys' fees actually paid by the Participant in enforcing
such Participant's rights to such payment or distribution; and

                  (iv)     in the event that cash is not paid or made available
to a Participant when otherwise due, then interest will accrue with respect to
such unpaid amount from the date it was otherwise due until the date it is
actually paid at a rate equal to two percentage points over the prime rate as in
effect from time to time, as determined in good faith the Committee based on the
prime rate charged from time to time by major banks in the City of New York.

SECTION 13.       CHANGE IN CONTROL.

         Notwithstanding any other provision in any other Section of this Plan
to the contrary, (i) the value of all amounts deferred by a Participant which
have not yet been credited to the Participant's accounts under this Plan and (u)
the value of all of a Participant's accounts under this Plan shall be paid to
such Participant in each case in a lump sum cash payment on the occurrence of a
Change in Control of the Corporation or as soon thereafter as practicable, but
in no event later than five days after the Change in Control of the Corporation.
The


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amounts of cash credited to each Participant's accounts prior to determining the
amount of cash to be paid from these accounts shall be determined by the
Committee (which, for this purpose, shall be comprised of members of the Board
prior to the Change in Control of the Corporation) so as to reflect fairly and
equitably appropriate interest and dividends since the preceding April 1 and so
as to reflect fairly and equitably such other facts and circumstances as the
Committee deems appropriate, including, without limitation, recent price of the
stock. For purposes of payments under this Section 13, the value of Stock Unit
shall be computed as the greater of (a) the closing price of shares of Common
Stock as reported on the New York Stock Exchange on or nearest the date on which
the Change in Control is deemed to occur (or, if not listed on such exchange, on
a nationally recognized exchange or quotation system on which trading volume in
the Common Stock is highest) or (b) the highest per share price for shares of
Common Stock actually paid in connection with any Change in Control.

       For the purposes of this Plan, a "Change in Control" shall be deemed to
have occurred if:

       (a) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (a "Person") acquires beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this Section 13, none of the following shall constitute a
Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any affiliated
company or (iv) any acquisition by any corporation pursuant to a transaction
that complies with Sections 13(c)(A), 13(c)(B) and 13(c)(C) or (v) any
acquisition by the Company which, by reducing the number of shares of
Outstanding Company Common Stock or Outstanding Company Voting Securities,
increases the proportionate number of shares of Outstanding Company Common Stock
or Outstanding Company Voting Securities beneficially owned by any Person to 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities; provided, however, that, if such Person shall thereafter become the
beneficial owner of any additional shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities and beneficially owns 20% or more of
either the Outstanding Company Common Sock or the Outstanding Company Voting
Securities, then such additional acquisition shall constitute a Change of
Control; or

       (b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be

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considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board;

       (c) a reorganization, merger, consolidation or sale or other disposition
of all or substantially all of the assets of the Company (a "Business
Combination") is consummated, in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities that
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%,
respectively, of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination, (including, without limitation, a
corporation that, as a result of such transaction, owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business Combination;
or

       (d) the stockholders of the Company approve of a complete liquidation or
dissolution of the Company.

SECTION 14. TERMINATION AND ALTERNATE PLANS.

       (a) In the event that the Company adopts an alternate non-qualified
deferred compensation plan, then all obligations (except for such portion
invested at Participants' direction in the Participants' Stock Unit Accounts)
due Participants under this Plan as of the effective date of such alternate plan
shall be transferred to such alternate plan and shall become obligations under
such alternate plan pursuant to the terms of this Section 14;

       (b) In the event of termination of this Plan, and the prior adoption of
an alternate non-qualified deferred compensation plan, all obligations remaining
under this Plan

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prior to termination shall become obligations of such alternate plan in the
manner determined by the Committee and Participants shall not be permitted to
elect to defer the receipt of his or her compensation on or after the date of
termination of this Plan and have such amount be considered an obligation under
this Plan.



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