Terry J. Lundgren weathered a 21.6 percent drop in total compensation last year — and saw the cash portion of it drop by nearly half — as Macy’s Inc. fell short of its target for sales and missed the threshold under which a bonus for cash flow would have been triggered.
Lundgren, chairman, president and chief executive officer of Macy’s, was reported to have garnered $13.8 million in total compensation last year, down from $17.7 million in the prior year. While his stock and option awards dipped a fraction, rounding off to $7.7 million for both periods, the cash component fell 47.4 percent to $3.5 million from $6.6 million in 2011.
The ceo’s base salary rose 3.2 percent to $1.6 million, but the cash bonus — nonequity incentive plan compensation — dropped 62.6 percent to $1.9 million from $5.1 million. In an explanation of the payouts in the definitive proxy filed by Macy’s with the Securities and Exchange Commission, the retailer reported that its adjusted operating income of $2.67 billion fell between the target amount and the outstanding level, while sales of $26.86 billion were “between threshold and target.” Macy’s cash flow of $1.51 billion fell below the minimum amount required.
Lundgren thereby qualified for a cash bonus of 19.2 percent more than his base salary. Stock and option awards are based on performance over a three-year period and incorporate return on invested capital, total shareholder return and, with a 50 percent weight, earnings before interest, taxes, depreciation and amortization. Because of vesting schedules and fluctuating stock prices, these awards aren’t necessarily collected by the named executive but, in accordance with SEC rules, are reported at grant date fair value.
The reduction in Lundgren’s total compensation also resulted from a reduction in the principally actuarial metric of “changes in pension value and nonqualified deferred compensation earnings,” which in Lundgren’s case dropped 20.2 percent to $2.5 million.
Macy’s filed its annual report with the SEC Wednesday as well and included a caveat about changes in national health care in its risk factors section. Calling its health care costs for employees “significant,” it noted, “Due to the breadth and complexity of the health care reform legislation, the lack of implementing and interpretive guidance and the phased-in nature of the legislation, the company is not able at this time to fully determine the impact that health care reform will have on the company-sponsored medical plans.”