Activist shareholders, already seeking to replace five board members at Kohl’s Corp., are now accusing the retailer of overpaying executives.

“As stewards of shareholder capital, one of a board’s most important responsibilities is to have a compensation program that sets fair and thoughtful targets to properly align pay with performance. We believe the Kohl’s board has failed in this regard,” the activists said in a letter distributed to shareholders on Monday.

“In our view, the board has created a compensation plan that rewards executives despite years of underperformance, by consistently setting short and long-term targets for bonuses below prior years’ results,” the letter said.

The activists — Macellum Advisors GP LLC, Ancora Holdings Inc., Legion Partners Asset Management LLC and 4010 Capital LLC — said they own 14.7 million shares of Kohl’s, or about 9.3 percent of the company’s outstanding common stock.

The activist group has proposed five new board members — Jonathan Duskin, Margaret L. Jenkins, Jeffrey A. Kantor, Thomas A. Kingsbury and Cynthia S. Murray. Whether these individuals are elected to the board or not will be disclosed at the company’s annual meeting of shareholders scheduled for May 12.

In addition to overhauling Kohl’s board, the activists are pressing for sale-leasebacks of stores to capitalize on the real estate. Kohl’s has publicly stated its opposition to the board changes and sale-leasebacks.

A proxy statement filed with the Securities and Exchange Commission indicates the compensation of Kohl’s chief executive officer Michelle Gass grew to $12.9 million last year, up from $9 million in 2019, though the $9 million was a 27.2 percent drop from 2018. Her salary this past year included a $939,422 bonus and stock awards valued at $8.9 million, although the value of share-based compensation ebbs and flows with the market.

The activists said Gass’ 2020 compensation was “the highest earned by a Kohl’s executive in 15 years, despite the fact that in 2020 Kohl’s net sales declined 20 percent and adjusted net income was a loss of $186 million. For 2020, Kohl’s net loss was $163 million, compared with 2019 earnings of $691 million. Revenues fell 20.1 percent to $16 billion from $20 billion.

“This exorbitant CEO compensation stands in stark contrast to the fate of Kohl’s employees, 85,000 of which were furloughed for several months and who we estimate were paid nearly 10 percent less in the aggregate in 2020 compared to 2019,” the activists said.

The letter said “2020 is not an outlier. Kohl’s management has been richly rewarded for years despite declining operating results.”

Jill Timm, Kohl’s chief financial officer, saw her total compensation slip to $3.2 million (including a $330,00 bonus) last year from $4.4 million in 2019. Chief merchandising officer Doug Howe’s pay rose to $4.7 million (with a $562,500 bonus) from $3.1 million.

The SEC filing by Kohl’s noted that the board’s compensation committee met to set incentive opportunities in March of last year when all of the company’ stores were closed. So the committee set up “a two-part 2020 annual incentive plan with 50 percent based on Kohl’s comparable sales relative to the comparable sales of the performance peer group and 50 percent based on an assessment of management’s ability to lead through the crisis and manage financial liquidity and profitability, as determined by the committee in its discretion,” the filing said.

According to the activists, “From 2011 to 2019, Kohl’s paid its top five executives more than $278 million in total compensation. While this sum is quite staggering on its own, what is most concerning for shareholders is that the company underperformed its industry group by a wide margin over this period.”
For 2019, CEOS at retailers of comparable size to Kohl’s were compensated at levels not that dramatically off from what Gass took in, but they saw significant declines in their compensation. For example, Jeff Gennette at Macy’s Inc. took in $10.3 million, which represented a 19 percent decline from 2018. In the height of the pandemic last year, Macy’s said starting April 1, Gennette would not receive compensation for the duration of the crisis. Macy’s said it would also reduce pay for its management team, with all those director-level and above expected to take a cut in their salaries and “lasting for the duration of the crisis.”
Ralph Lauren last year said he would not take his salary for fiscal year 2021 and would skip his full fiscal-year 2020 bonus. Art Peck, former CEO of Gap Inc., had $8.9 million in compensation for 2019, a 57 percent drop from the year before.
It’s not unusual for major retail CEOs to command large compensation packages because they are typically high-pressure, highly scrutinized jobs requiring enormous time commitments and goals that are tough to meet.
Michelle Gass

Kohl’s ceo Michelle Gass.  Lexie Moreland/WWD

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