Apparel vendors felt the sting of a slower economy very directly in 2008 — right in their wallets.
Lower profits dragged down the compensation of top industry executives by a total of 25.6 percent last year, and a few even elected to forgo some bonus money as they made tough decisions that often translated into smaller head counts.
Ralph Lauren, chairman and chief executive officer of Polo Ralph Lauren Corp., topped the list of highest paid vendors for the fifth year in a row despite a 40.6 percent decline in total compensation, to $20.3 million. Roger Farah, the company’s president and chief operating officer, ranked second as his compensation fell 10.3 percent to $14.1 million. Jackwyn Nemerov, Polo’s executive vice president, ranked 12th.
Overall compensation for the top 10 vendor executives fell to $91.8 million from $123.3 million, according to regulatory filings with the Securities and Exchange Commission. The double-digit percentage decline was greater than the 9.4 percent decline in the top 10 retail paychecks, to $130.4 million from $144 million. However, the top 10 vendors had an increase of $34.6 million, or 39 percent, in 2007, while the top retailers, already feeling the effects of a slowdown in consumer spending, saw compensation decline 27.4 percent. Until 2008, vendor pay hadn’t declined for two years, dipping a fraction to $47.1 million in 2005 from $47.3 million in 2004.
However, with earnings remaining under severe pressure this year and companies’ boards sensitive to public perceptions of overpaid executives, the prospects for growth in overall compensation are iffy at best. Recent moves by activist investors — and even on Wednesday by the House Financial Services Committee — to give shareholders “say on pay” are likely to further inhibit any elevation of executive pay packages.
At least two apparel executives made statements with their compensation. Jones Apparel Group Inc. president and ceo Wesley Card opted to forgo an $810,000 cash incentive award “in recognition of current business conditions and the impact on associates of the company,” Jones’ proxy statement said. Kenneth Cole, founder, chairman and chief creative officer of Kenneth Cole Productions Inc., elected to defer $974,919 of his 2008 base salary of $1 million. The money was instead put into a deferred compensation plan, according to a spokesperson.
Terming such moves both “symbolic” and “appropriate,” Jaimee Marshall, senior vice president at executive search firm Kirk Palmer & Associates, said, “I think that in forfeiting a bonus, you send a message to your employees and the market that you are committed to the business.
“In a public environment where executive compensation is available for all to see, it can be especially demotivating to the employee pool — which knows it will not get bonuses and in some cases have their salaries cut back, to see their leaders with multimillion-dollar bonus packages, even if they are contractually earned,” Marshall said.
Card missed the top 10 highest paid executives last year, coming in 11th, despite a 36.4 percent increase in total compensation to $5.5 million. His $1.6 million base salary was higher than any of the executives in the top 10. As for his decision to forgo the cash incentive award, Terre Simpson, president of executive search firm Simpson Associates, said, “This is a generous move which is exceptional and speaks so well of him.”
Jones has plans to shut 240 of its stores and has laid out a series of layoffs and cost reductions in the past year. On Wednesday, it reported that the cost-cutting measures helped second-quarter profits grow 23.5 percent to $13.1 million, far surpassing analysts’ estimates, despite a 3.1 percent decline in revenues, to $803.9 million.
Kenneth Cole slid to 14th on the list of industry earners last year from sixth in 2007 as his total pay fell to $4.3 million from $7.7 million. Discussing Cole’s deferred compensation, Simpson said the designer distinguished himself as “a key executive that is really promoting the morale of this company, which has been hard to find during the recession. This shows tremendous integrity….He wants to preserve the spirit of the people in his company.”
A key element of the drops in executive compensation last year were lower stock and option awards, which are “primarily a function of the decline in the stock market,” said Les Berglass, chairman and ceo of executive search firm Berglass + Associates. He noted vendors have worked under enormous pressure “dealing with department stores that are marking down apparel and other goods. The markdowns are extraordinarily costly, and it comes out of the bottom line.” Because of vesting schedules and fluctuating stock prices, stock and option awards weren’t necessarily realized by the executives.
For example, Lauren’s salary increased to $1.25 million from $1 million in the prior year under terms of his new employment contract, effective March 30, 2008. But his stock awards, exclusive of options, fell to $610,000 from $16.2 million in 2007 when the company accelerated expense recognition based on the end of his previous contract. His other compensation fell to $400,817 in 2008 from $452,643, with the majority of last year’s amount attributable to $271,543 in reimbursement for personal travel.
Despite economic turmoil, some vendor executives managed to earn bonuses as they met targets defined by their companies.
New to the list was Neil Cole, president and ceo of Iconix Brand Group Inc. and brother of Kenneth Cole. He saw his pay package increase to nearly $9 million from $1.3 million in 2008 as he earned a $1 million bonus and received a $400,000 raise in base pay to $1 million.
Also cracking the top 10 for the first time was True Religion Apparel Inc. chairman and ceo Jeffrey Lubell, who earned a 75 percent raise in compensation to $7.7 million. The ceo received higher pay in every reported category.
Companies are “working closely with their executive teams to create achievable business plans so that they can reward their teams with modest bonuses when appropriate,” said Karen Harvey, ceo of executive search firm Karen Harvey Consulting Group. “When packages are already established, it’s very difficult to make these adjustments on base salary. It’s much more appropriate to address bonuses.”
In addition to Kenneth Cole, and Mackey McDonald and Peter Boneparth, former ceo’s of VF Corp. and Jones, respectively, the only occupant of the top 10 in 2007 to miss the 2008 cut was Phillips-Van Heusen Corp. ceo Emanuel Chirico, who came in 13th with $4.9 million in total pay, down from seventh with $6.7 million in 2007.