A preeminent corporate governance watchdog has given Polo RalphLauren Corp. a “nay” for its handling of the so-called “say on pay”provisions of the Dodd-Frank Act, and Polo has fired back.
Citingthe “high annual bonus payout” over the last four years to RalphLauren, the company’s founder, chairman and chief executive officer,Institutional Shareholder Services has recommended Polo stockholderscast their non-binding advisory votes against the ratification of itsexecutive officers’ compensation at the company’s annual meeting Aug.11.
Lauren earned $29.7 million last year, 7.2 percent above his2010 take of $27.7 million. His base salary was unchanged at $1.25million and the total of his stock and option awards rose 37.4 percentto $8.6 million.
It was his cash bonus — itemized as “nonequityincentive plan compensation” and unchanged at the maximum established bythe compensation committee of Polo’s board at $19.5 million — that drewISS scrutiny.
ISS questioned not only the amount of the bonusbut the utilization of a “single metric,” in this case net income beforetaxes, to determine its size.
“There is also concern as towhether target goals are sufficiently challenging as they are routinelyset below the actual performance level of each prior year,” ISS analystPeter Kimball wrote in his report.
Such was the case in 2011.According to Polo’s proxy, the target figure for net income before taxesfor the fiscal year ended April 2 was about $586.8 million, while theactual number for fiscal 2010 was $689.3 million. In fiscal 2011, Polocame in 40.7 percent above the target, at $825.4 million, opening thedoor for maximum bonus payouts, but a lesser 19.7 percent above the 2010result.
In its proxy, filed with the Securities and ExchangeCommission on June 23, Polo noted that its performance came “despite theanticipated and actual increase in negative foreign exchange impact andsignificant strategic investments.”
On Tuesday, the companyfiled a supplement to the proxy with the SEC, noting that it was“contacting certain institutional investors” regarding the ISSrecommendation and laying out eight “talking points” in defense of thecompany’s compensation “philosophy, policies and practices” to be sharedwith them.
In addition to the achievement of its financial goals“in spite of extraordinarily weak and highly uncertain global economicconditions” and “substantial investment in the company’s strategicgrowth initiatives that are meant to support long-term shareholder valuecreation,” it points to shareholder returns of 46.1 percent over ayear, 29 percent over three years and 15.8 percent over five years.
TheSEC document lauds Lauren’s multifaceted role within the company thatbears his name, pointing out that he is “the ceo of a complex globalorganization” whose “aesthetic vision and direction are unique andintegral components of the company’s success.
“The company andits compensation committee do not believe that any other ceo at thecompany’s peers...has a long-standing, consistent level of highachievement and a broad range of responsibilities comparable to that ofMr. Lauren.” ISS recommended a vote in favor of the company’sproposal to shorten its corporate name to “Ralph Lauren Corp.” at theannual meeting.
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