Hefty stock and option awards boosted the pay packages of major retail executives last year, with total compensation of the top 10 reaching more than $198.7 million in 2006.
With fewer qualified candidates vying for top executive positions, companies have been forced to raise compensation in order to remain competitive, said Elaine Hughes, president of executive search firm E.A. Hughes & Co.
According to an analysis by WWD, stock and option awards totaling over $124.8 million made up the bulk of retail compensation packages last year.
For the first time, stock and option awards are required to be reported in dollar amounts as part of the filing changes mandated by the Securities and Exchange Commission.
The SEC now requires companies to file pay packages in a “plain language” format. That means firms have to provide additional data that was previously excluded from filings, as well as a fleshed-out description of the compensation packages. The purpose is to enhance the transparency of executive compensation by providing details on how firms determine salaries, explaining any perks and outlining the goals set for executives.
The SEC, however, is not requiring companies to recalculate prior years’ pay packages in the new format. As a result, the 2006 compensation packages are not comparable with 2005.
The SEC hopes the new rules will change how companies decide executive compensation, making packages more performance-based with less guaranteed pay.
“There was already a spotlight on the issue,” said Russ Miller, managing director of Executive Compensation Advisors, a Korn/Ferry company. “The SEC and shareholders want to make sure executive compensation is in line with business practices and performance.
Robert J. Ulrich, chairman and chief executive of Target Corp., topped the charts as the highest paid retail executive, with a total pay package of $36.4 million. This included a base salary of $1.7 million and a $3 million bonus.
Target’s full-year earnings in 2006 grew 15.8 percent to $2.79 billion, or $3.21 a diluted share, from $2.41 billion, or $2.71, in 2005.
Two Saks Inc. executives, Stephen I. Sadove, chief executive officer, and R. Brad Martin, chairman of the board, made the top 10, with total compensations of $14.1 million and $12.9 million, respectively. The retailer saw a 140 percent surge in full-year earnings, from $22.3 million, or 16 cents a diluted share, to $53.7 million, or 40 cents.
Martin left the company on May 4, and Sadove replaced him as chairman.
Macy’s chairman, president and ceo Terry Lundgren earned a compensation package of $15.65 million, which included a base salary of $1.4 million. He was not awarded a bonus.
“Federated [Department Stores Inc., now Macy’s Inc.] used to be a fair market player, but they have had to increase salary levels in order to attract top executives and remain competitive,” Hughes said.
“Other” compensation — which includes nonequity incentive plan compensation, change in pension value and non-qualified deferred compensation earnings, and perks such as the use of a plane or membership to private clubs — totaled over $59.2 million for the 10 highest-paid retail executives.
With the average compensation package at $19.9 million, it seems as though salaries have increased drastically from previous years. But Miller said this is not the case.
“In general, we have not seen dramatic changes in the amount being paid. It’s more of the methodology that’s changing,” he said.
But even with the new “plain language” format, shareholders are still seeing a discrepancy in the filings.
“It is oxymoronic to call this ‘plain language,'” said Kirk Palmer, founder of Kirk Palmer & Assoc., a New York-based executive search firm.
Stock and option awards for some of the executives may include options awarded in prior years, which are only now coming to term.
“It is difficult to compare what is now exposed to what was once shielded,” said Terre Simpson, president of executive search firm Simpson Associates.
While there is a chance increased disclosure could eventually dampen compensation packages, it is not likely.
“The board wants to do the right thing by shareholders, but disclosing more information will not stop them from doing what they have to do to attract or keep key players who will bring success to the company,” Palmer said.