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As Vendor Pay Ranks Reshuffle, Tommy Ends Up in Top Spot

Tommy Hilfiger was again the most highly compensated apparel executive of an American public company in 2003, replacing Levi’s Phil Marineau.

NEW YORK — Some rose, others fell — and some disappeared.

That was the story of the list of the 20 most highly compensated fashion executives at U.S. publicly listed vendor companies for 2003. In a tough year for vendors — as retail was hit by the struggling economy and the war in Iraq — many executives who figured highly in the 2002 list didn’t even make the top 20 last year. Meanwhile, the return of luxury fueled the rise of at least two leading industry executives, Reed Krakoff and Lew Frankfort of Coach.

It was Krakoff’s first time on the list, while Frankfort returned after a one-year absence.

Tommy Hilfiger, honorary chairman of Tommy Hilfiger Corp., recaptured the title of most highly compensated vendor executive at a U.S. publicly listed company after being supplanted by Philip Marineau in 2002. Ralph Lauren moved into the second slot, with $9 million in total compensation, compared with fourth position in 2002.

Meanwhile, Reed Krakoff, president and executive creative director of Coach Inc., joined the small fraternity of top 20 earners by taking home $5.2 million in salary and bonuses last year, qualifying for the number-four slot. For the third year in a row, no women made the cut.

As usual, bonuses tied to a company’s performance played a large role in determining the winners of the big payout sweepstakes. The average 2003 total compensation for the executives on the list was $4.2 million, while the median was $2.8 million.

Hilfiger’s $18.3 million salary in 2003 — he took no bonus — was enough to grab the number-one spot on the list. Still, his compensation dipped 10.8 percent from 2002 due to lower U.S. sales in fiscal 2003.

Joel Horowitz, executive chairman and former president and chief executive officer of Hilfiger, also saw his remuneration reduced by lower corporate earnings as the firm posted a loss before taxes and items of $69.4 million. Horowitz’s $8.3 million salary and bonus was 22.5 percent less than the $10.7 million he received in 2002.

Conspicuously missing from the list is Levi Strauss & Co. president and ceo Philip Marineau, who ranked number one last year with a 2002 compensation package worth $24.9 million. Marineau’s windfall was criticized by some industry observers, especially in light of the fact that his salary and bonus was just $4,862 less than the company’s 2002 earnings.

Without the hefty incentive bonus, Marineau took a 95 percent hit in the wallet in 2003 due to Levi’s unprofitable fiscal year, in which the company reported a $349 million net loss. His combined salary and bonus came to $1.3 million last year, well below Coach’s Lew Frankfort, whose total of $1.9 million put him in the 20th spot. But Coach is one of the fastest-growing accessories brands around, while Levi’s continues to struggle in turning around its core jeans brand. Earlier this year, Levi’s put its Dockers division on the selling block in order to focus on its jeanswear business.

Among the new names appearing on the list, the most dramatic addition is Krakoff, whose $4.3 million bonus augmented a $845,833 base salary.

Krakoff is largely credited with reshaping Coach and spurring the brand’s impressive sales and stock performance. But it is the combination of Krakoff and Frankfort, which can be likened to the complementary talents and chemistry between Tom Ford and Domenico De Sole, former Gucci creative director and ceo, respectively, that is entirely responsible for Coach’s fast rise.

Hal Reiter, ceo of Herbert Mines Associates, an executive search firm for the fashion and retail industries, said the fashion industry doesn’t have any difficulty in competing with packaged goods or any other business in terms of compensating executives.

“Both the retail and wholesale side of the apparel business are in the top quartile of American industries in terms of base salary,” said Reiter. “I’m familiar with guys running multimillion-dollar divisions of major packaged-goods firms who make significantly less in base salary and bonuses.”

What’s more, Reiter said, the total compensation of executives, such as Krakoff and others on the top 20 list, is justified because bonuses are usually related to a company’s stock performance or earnings.

“I think they’re all worth what they’re taking home,” he added.

Curiously, Coach, a darling of Wall Street, has a market capitalization of $7.6 billion, while its sales in 2003 totaled $953.2 million. “It’s an extremely large value for a company with those sales,” Reiter said. “It’s wildly high. Lew [Frankfort] admits it. That doesn’t mean the company is actually any better or worse than other businesses.”

Wall Street analysts have said they see no signs of the company’s momentum slowing down. Coach seems to agree and is banking on Krakoff to continue to extend product categories and develop new ones. The company entered into a new five-year employment agreement with Krakoff in June 2003 that guarantees him a base salary of $1 million in future years and bonuses ranging from $750,000 to $2.8 million through 2008.

Meanwhile, the rise of some on the list knocked others off. Sidney Kimmel, chairman of Jones Apparel Group, who was 11th in 2002 with a salary and bonus of $3 million, fell off, as did John Idol, former ceo of Kasper ASL Ltd., who joined Michael Kors (USA) as chairman and ceo in November after Kasper was bought by Jones. Others who didn’t make the top 20 in 2003 included Hal Upbin, ceo of Kellwood Co.; Eugene Warsaw, ceo of Hampshire Group, and the two top executives at Phillips-Van Heusen — Bruce Klatsky and Mark Weber.

In many cases, said Reiter, large hikes in compensation indicate that an executive exercised stock options, which were not included in the figures on this list. But compensation committees are not offering more options in exchange for lower salaries, as was the trend during the dot-com era. A strike price for a firm’s stock is usually set the day a new employee begins a job “so that everybody’s rowing in the same boat,” Reiter said.

For the list of the Top 20 Highest Vendors, see “TheWWD List.”

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