J.C. Penney Co. Inc.’s lucrative send off to former chairman and chief executive officer Myron E. “Mike” Ullman 3rd has Institutional Shareholder Services advising that investors say no to the company’s pay practices.

This story first appeared in the May 2, 2012 issue of WWD. Subscribe Today.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act investors will get to weigh in on Penney’s executive compensation with a nonbinding vote at its May 18 annual meeting. The vote is commonly referred to as “say-on-pay.”

Ullman received total compensation of $34.6 million last year as he handed the baton to the current ceo Ron Johnson. That pay package included stock awards valued at $11.4 million, a $10.1 million “transition services payment” and $4.8 million for the fair value of outstanding options.

“The large exit package provided to the outgoing ceo appears excessive given that many long-term shareholders have not benefited from their investment in the company,” said ISS, which advisors major investors. “A $100 investment prior to 2007 is worth approximately $58 today, while the former ceo, whose tenure coincides with this five-year period, received a large lump-sum cash and equity payment and the vesting of unvested performance shares at target.”

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ISS also said Johnson’s pay — he received total compensation of $53.3 million last year — was “not ideally aligned” with the company’s peer group. Helping to mitigate this was a $50 million investment the ceo made in warrants, which would have a little value if the stock doesn’t perform better.

Penney’s said in a Securities and Exchange Commission filing Tuesday said the agreement with Ullman “enabled an incredibly smooth ceo transition. The transition period with Mr. Ullman allowed Mr. Johnson to build a new leadership team and develop a vision and strategy within his first 90 days as ceo.”

The retailer also noted that Johnson’s decision to invest $50 million in seven-and-a-half-year warrants underlined his confidence in the company’s long-term potential. Johnson has assembled a team of top retail talent, including Michael Francis as president and Michael Kramer as chief operating officer, who received long-term equity inducements with six-year vesting schedules.

“The board of directors strongly believes in a pay-for-performance culture at J.C. Penney, and long-term equity awards are a key component of this compensation philosophy,” the retailer said.

Shares of the company slipped 1.1 percent to $35.67 Tuesday.

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