There’s no better time to be a retail executive.
As companies employ a variety of tactics to squeeze out more profits from every sale, performance-based bonuses are getting fatter and fatter. And as demand for top-level executives outruns supply, retailers are seeing more lucrative pay packages that are garnished with long-term incentives.
As a result, of the retailers tracked by WWD, average yearly bonuses rose 6.4 percent in 2005 from 2004 while the average, total annual compensation leapt 16.7 percent. The top three paid executives were Robert Ulrich, chairman and chief executive officer of Target Corp., Paul Marciano, co-chairman and ceo of Guess and H. Lee Scott, president and ceo of Wal-Mart Stores Inc.
Ulrich, who occupied the top spot for apparel retailers in 2004, maintained the number-one slot with total annual compensation rising 25.7 percent to $8.3 million. Marciano’s annual pay climbed to $5.7 million in 2005 from $1.7 million in the prior year, while Scott’s pay fell 4.4 percent to $5.4 million. J.C. Penney Co. Inc.’s chairman and ceo Myron E. “Mike” Ullman 3rd saw the largest jump in his annual compensation, climbing to $4.8 million from $665,859. Results do not include options and other long-term compensation.
Driven by a strong financial performance, American Eagle Outfitter Inc.’s top three executives all made it into the top 20 spots. American Eagle’s ceo James V. O’Donnell increased his salary 32.6 percent to a total of $3.9 million, earning him the number-eight spot, up two from last year. Vice chairman Roger Markfield’s total compensation increased 33.3 percent to $3.8 million, putting him in the number-nine spot, while Susan McGalla, president and chief merchandising officer, saw her salary and bonus increase 124 percent to $3 million from $1.3 million. She appeared on the list for the first time this year at number 14.
The average yearly bonus of all of the retail executives tracked by WWD rose to $587,109 in 2005 from $551,713 in 2004, while the average total annual compensation increased to $1.4 million from $1.2 million.
Elaine Hughes, president of E.A. Hughes, said base salaries are not the biggest draw for executives as current compensation levels are maintained by the compression of the industry through consolidation. A trend toward verticalization in the industry, however, is driving companies to offer premiums to get and retain top executives. The retention involves offering sweeter long-term incentive plans, as well as perks like a percentage of ownership in companies, sources said.
Related Articles
You May Also Like
“With executives, the laws of supply and demand apply. Right now, the demand is exceeding the supply at the senior level. Companies and their boards want to make sure that they develop performance packages [for their executives] that are going to retain good people,” said Jaimee Marshall, executive vice president at the executive search firm of Kirk Palmer & Associates Inc.
“The key trends for salaries today are not so much that they are being elevated, but it is what the incentives associated with that salary package are, either an equity position if that can be offered, stock, or a long-term buyout plan. That is what has seriously changed the environment in our business today,” Hughes said.
In light of that, Marshall pointed out, it is important to keep in mind how companies attract new executives. Sometimes a package can be “front-loaded” to attract fresh talent, although the trend overall for the industry is toward the long-term incentive programs, she said.
Amid the growing controversy over company stock options and robust executive compensations, apparel retailers are managing to remain out of the spotlight.
As of Aug. 18, 87 companies, including Apple Computer Inc., Home Depot Inc. and Barnes & Noble Inc., have disclosed that they are the subject of investigation for past stock-option grants. No apparel companies appeared on the list.
According to a recent study conducted by Erik Lie, an associate professor of finance at the Tippie College of Business at the University of Iowa, 29.2 percent of companies used backdated options, and 13.6 percent of options given to top executives between 1996 and 2005 were backdated or otherwise manipulated.
The study found that the trend of granting options when the company’s shares were trading at lower prices to receive the greatest value was more common in technology firms or companies with volatile stock prices.
While Lie said he has not yet examined apparel retailers separately, analysts believe it is unlikely companies in the sector will come under scrutiny in the near future.
The tech sector relies more heavily on options for compensation, while in the retail world, companies can fund top executives in cash and equity, said Liz Pierce, senior vice president and lead retail analyst at Sanders Morris Harris.
To view a complete listing of the top retail executive compensation packages click here.