Life might not be fair, but it is sometimes sweet — and for fashion, retail and beauty’s top executives, that sweetness often comes in their pay packages.
Yes, the C suite requires a bewildering array of talents and entails long days, intense pressure and impossibly conflicting priorities pushed by noisy constituencies — from Wall Street to employees to regulators to vendors. But any complaints would promptly be shouted down by a chorus of, “Cry Me a River.”
Pay at the top is tops. It’s also a little deceiving since the value of stock and option grants that are reported in company filings to the Securities and Exchange Commission aren’t necessarily realized by the executive, given stock price fluctuations and vesting schedules.
A WWD study of publicly traded U.S. companies in fashion, retail and beauty found 58 executives whose total compensation package topped $5 million last year. All together, their pay tallied $845.8 million. (Pay packages can be just as sweet for top executives in Europe and Asia, but are presented under different accounting standards and are therefore difficult to compare directly).
The list of the highest-paid executives — which is overwhelmingly composed of white men — casts a bright light on the continuing lack of diversity in the executive suite. Only 15.5 percent of the highest paid in the industry are women.
At the top of the heap last year was Wal-Mart Store Inc.’s new e-commerce wiz Marc Lore, with compensation of $243.9 million. But that figure gets a big asterisk, since most of that came in the form of Wal-Mart stock awards that Lore picked up as part of the purchase price for Jet.com, which he founded.
Right after Lore comes The Estée Lauder Cos. Inc. chief executive officer Fabrizio Freda (with compensation of $48.4 million), followed by Lore’s boss, Wal-Mart ceo Doug McMillon ($22.4 million), TJX Cos. Inc. ceo Ernie Herrman ($18.5 million), Revlon Inc. ceo Fabian Garcia ($18.5 million), VF Corp. ceo Eric Wiseman ($16.3 million) and the short-lived Ralph Lauren Corp. ceo Stefan Larsson ($16.2 million).
The biggest pay days are almost always padded with huge stock and option awards, which accounted for 72 percent of the group’s total pay last year.
Regardless of exactly what form the pay takes and when it’s doled out, the industry’s top executives make a lot of money, especially for a sector that is struggling to grab the attention of shoppers, get them to spend and then turn those sales into profits.
In the still-on-fire beauty industry, there are many corporate titans bringing in big bucks but also driving dramatic growth given the success beauty brands and the fast growth of retailers such as Ulta.
But in the fashion and retail sphere, most of the executives are wrestling with entrenched corporate structures that need to be updated quickly to contend with the increasing importance of Amazon and e-commerce and figure out how to sell to Millennials.
Through that lens, it seems appropriate that Lore is at the top of the list since his primary mission seems to be to remake Wal-Mart’s digital operations to better compete against his old boss, Amazon’s Jeff Bezos.
Lore’s pack-leading pay included 3.5 million restricted stock units that were granted during the Jet deal. Many have described the acquisition as the largest “acqu-hire” in history, with the retailer shelling out $3.3 billion to get Lore and his team. Absent the stock grants that came with the takeover, Lore’s compensation would have tallied $7.6 million.
So rich, but not quite as eye-popping.
Although the deal for Jet (and Lore) was pricy, many observers say both might well be worth it — if still a roll of the dice.
“They were buying the system and the personnel, but mostly they were buying his vision and his ability to turn that vision into a monetizable result,” said consultant Jonathan Low, partner at Predictiv. “Will it be worth it in the long run? Well, nothing else was working, so if he can actually help Wal-Mart take share from Amazon and maybe do to Amazon what Lyft is starting to do to Uber, that could be with survival to Wal-Mart.”
Lore’s arrival at the top of retail’s pay list signals that the industry is ready again to try some tech flash in the executive suit. Five years ago, the retail/fashion compensation derby was led by Ron Johnson, the Apple retail chief, who was paid $53.3 million (mostly in stock) to lead J.C. Penney Co. Inc. But his experiment there was so disastrous that retailers seem to have shied away from the notion that big tech is ready to produce their saviors.
There also seems to be a bias against big dramatic bets, especially for long-established companies, which can be hard for newcomers to navigate. Take Larsson, the former Old Navy ceo who took the job of ceo of Ralph Lauren Corp. from Ralph Lauren himself and set out to remake operations. But he couldn’t make the job work and left in May, after 18 months.
The highest-paid people in fashion and retail represent a cross section of the executive suite — from younger retail players like Larsson to tech savvy newcomers like Lore to the legends who have built empires and are now trying to revamp them for a new age.
“You have a mix,” said Predictiv’s Low. “You have the founders, the Les Wexners and the Ralph Laurens and then you have all these new people, most of whom came up in related businesses, like Larsson. But are they special? Hard to say. It doesn’t appear that they have figured out the Amazon challenge.”
He said the rise of Amazon wasn’t necessarily their fault, but that it is now their responsibility.
“Bezos came out of nowhere,” Low said. “He was just a smart guy with an MBA who was relatively more forward-thinking and computer literate than many of his colleagues and the question is, ‘Why haven’t more of those people been brought in to fill these positions?’”
One thing that doesn’t seem to be in doubt is that whoever winds up in charge will be paid well, given comparable incomes at the top of the corporate pyramid and tax policies that allow stock grants to be treated as performance-based income.
And when executive compensation is tallied, complaints will be registered.
Kirk Palmer, ceo of executive search firm Kirk Palmer, likened the pay for the “rock stars in American business” to the big paydays for entertainers, like musicians or athletes. (Forbes put Beyoncé Knowles’ pay at $105 million, while Stephen Curry, two-time MVP in the NBA, drew $47.3 million).
“Whoever is at the top of their field in any particular endeavor is always going to be subject to criticism when it comes to compensation,” Palmer said. “There is no doubt that from now until the end of time, people will always be p—ed off about the people who make the most money in the world.”
Palmer also noted that ceo’s work — and hard — for their money.
“They care very deeply about the folks who have entrusted their livelihood and their career and in some cases their families to the leadership of this person,” he said. “If you’re Ralph Lauren and you’re going to have to cut a billion dollars in sales, you’re going to have to cut a lot of expense, you’re going to have to say goodbye to a lot of people.”
And it’s also a job that keeps one churning both night and day.
“Are you ever really off? It’s really tough to be off,” Palmer said. “It is a 24-7 job and you’ve got tons of competing priorities.”
Just where the line is between reasonable pay for a tough job and excessive executive pay will vary from person to person, but there’s no doubting that overall ceo pay has risen, and dramatically.
The most-recent research from the Economic Policy Institute, a nonprofit public policy think tank, put the average compensation of ceos across all industries at $15.2 million in 2014, a 21.7 percent increase over 2010 and, even adjusted for inflation, a 937 percent increase over average ceo compensation in 1978.
New EPI research is due soon, and is expected to show ceo wages currently stand between 250 to 300 times the earnings of a typical worker. That ratio stood at 30-to-1 in 1978 and roughly 123-to-1 in 1995.
“Ceo pay has risen tremendously — far more than the pay of workers, far more than stock prices, far more than the wages of those even in the top 0.1 percent,” EPI president Lawrence Mishel said.
“Apparently they’re very special people,” he added wryly.
That very defense, usually fleshed out with arguments of retention and the market’s ability to bear the cost, Mishel dismisses as “absurd.”
“Of course, it’s a tough job and they should get paid, but it’s far from clear that they need the pay they get to get up in the morning and go to work and that they wouldn’t work for half,” Mishel said.
He compared this idea of ceo’s being somehow “special” enough to deserve such high pay to Garrison Keillor’s popular “Lake Wobegon” stories, described by the long-time public radio host as a town “where all the women are strong, all the men are good-looking and all the children are above average.”
Mishel said companies seem to have this same idea about their ceo’s “so they need to pay them more than everyone else, and as everyone looks around, the pay level just goes up and up. But not everyone can possibly be special.”
He added that the mentality likely extends to private companies that do not have to disclose their executive compensation to investors, saying “private companies have to pay at least what the public companies offer to feel competitive.”
Steven Clifford, a former telecom ceo and the author of the newly released “The CEO Pay Machine,” referred to the notion of market forces being the cause for such high levels of ceo pay as a “canard” that essentially serves as after-the-fact justification.
“There is no market for ceo’s. If there were it would be easy [to justify it],” Clifford said. “To be a successful ceo you have to know one industry and one company extremely well. That understanding is basically worthless outside of that company, so that knowledge and those skills are not portable.”
Although many would disagree on that point, Clifford claimed there is no clear link between ceo pay and their performance or the performance of their company.
“If there were any place to start cutting back on ceo pay, it would be an industry like retail, which is highly troubled and it needs to cut costs,” Clifford said. “These are supposed to be hard-headed business people and if you look at the data, there’s no justification for paying ceo’s like this.”
But board members who are responsible for determining pay packages for ceo’s are in something of a bind, even if they feel executive packages have grown too much. They after all are ultimately responsible for operating budgets in the billions and acutely feel the pressure to perform. And when they are charged with bringing in a new ceo to push the whole enterprise forward, they’re loath to scrimp and not try to bring in the best possible leader, even if they come with a hefty price tag.
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