A preeminent corporate governance watchdog has given Polo Ralph Lauren Corp. a “nay” for its handling of the so-called “say on pay” provisions of the Dodd-Frank Act, and Polo has fired back.
This story first appeared in the July 27, 2011 issue of WWD. Subscribe Today.
Citing the “high annual bonus payout” over the last four years to Ralph Lauren, the company’s founder, chairman and chief executive officer, Institutional Shareholder Services has recommended Polo stockholders cast their non-binding advisory votes against the ratification of its executive officers’ compensation at the company’s annual meeting Aug. 11.
Lauren earned $29.7 million last year, 7.2 percent above his 2010 take of $27.7 million. His base salary was unchanged at $1.25 million and the total of his stock and option awards rose 37.4 percent to $8.6 million.
It was his cash bonus — itemized as “nonequity incentive plan compensation” and unchanged at the maximum established by the compensation committee of Polo’s board at $19.5 million — that drew ISS scrutiny.
ISS questioned not only the amount of the bonus but the utilization of a “single metric,” in this case net income before taxes, to determine its size.
“There is also concern as to whether target goals are sufficiently challenging as they are routinely set below the actual performance level of each prior year,” ISS analyst Peter Kimball wrote in his report.
Such was the case in 2011. According to Polo’s proxy, the target figure for net income before taxes for the fiscal year ended April 2 was about $586.8 million, while the actual number for fiscal 2010 was $689.3 million. In fiscal 2011, Polo came in 40.7 percent above the target, at $825.4 million, opening the door for maximum bonus payouts, but a lesser 19.7 percent above the 2010 result.
In its proxy, filed with the Securities and Exchange Commission on June 23, Polo noted that its performance came “despite the anticipated and actual increase in negative foreign exchange impact and significant strategic investments.”
On Tuesday, the company filed a supplement to the proxy with the SEC, noting that it was “contacting certain institutional investors” regarding the ISS recommendation and laying out eight “talking points” in defense of the company’s compensation “philosophy, policies and practices” to be shared with them.
In addition to the achievement of its financial goals “in spite of extraordinarily weak and highly uncertain global economic conditions” and “substantial investment in the company’s strategic growth initiatives that are meant to support long-term shareholder value creation,” it points to shareholder returns of 46.1 percent over a year, 29 percent over three years and 15.8 percent over five years.
The SEC document lauds Lauren’s multifaceted role within the company that bears his name, pointing out that he is “the ceo of a complex global organization” whose “aesthetic vision and direction are unique and integral components of the company’s success.
“The company and its compensation committee do not believe that any other ceo at the company’s peers…has a long-standing, consistent level of high achievement and a broad range of responsibilities comparable to that of Mr. Lauren.”
ISS recommended a vote in favor of the company’s proposal to shorten its corporate name to “Ralph Lauren Corp.” at the annual meeting.