PAY PACKAGES SURGED 45 PERCENT FOR HEADS OF DISCOUNT CHAINS
Byline: Thomas J. Ryan
NEW YORK — There are at least two ways to make big money running a major discount store.
It can happen because the store is a leader in its field.
It can also happen because the store is trying to avoid disaster and is willing to shell out the big bucks to attract and retain the kind of executive talent that will lead it out of the wilderness.
That seems to be the story in terms of the current compensation figures for nine publicly held discount chains, where the annual pay of chief executive officers surged an average of 45.2 percent $2.47 million last year, from $1.7 million in 1996.
The robust compensation gains reflect annual profit growth that averaged 46.2 percent at those mass chains in 1997, fed by continued strength at Wal-Mart, Target, Ames and ShopKo; improvement at Kmart, and signs of life at the bankrupt Bradlees and Caldor chains.
“Across the discount field, executives are getting rewarded because they’re playing for a major winner like Target or Wal-Mart, or are getting hazardous-duty pay for working on turnarounds at chains such as Bradlees and Caldor,” observed Robert Kenzer, chairman and chief executive officer of Kenzer Corp., an executive search firm that specializes in the mass market.
Robert J. Ulrich, who is ceo of Dayton Hudson Corp. as well as ceo of its Target discount division, was the highest paid of the group, making $6.2 million, up 24 percent from $5 million.
DH’s earnings expanded 62.2 percent in 1997.
Ulrich’s salary remained at $1.03 million, but his annual bonus rose to $3.3 million from $3.2 million; his long-term bonus more than tripled to $1.5 million from $453,234 and his other compensation — contributions to a retirement plan and deferred compensation — came to $440,697 versus $355,023.
In addition, Ulrich, longtime head of the $20 billion Target chain before also taking the reins of DH in 1994, received stock options for one million Dayton Hudson shares. These options become fully exercisable in March 2002 at 39 7/8 each. DH closed at 48 5/16, up 3/8, Tuesday on the New York Stock Exchange.
Other top earners at Target include Kenneth B. Woodrow, president, who took in $2.15 million; Gregg W. Steinhafel, president of merchandising, $1.84 million, and John E. Pellegrene, president of marketing, $1.45 million.
“The retail business is becoming more competitive, so getting good-quality people is requiring a combination of pretty significant salaries, bonuses and stock grants,” observed Bud Wright, consultant at Lemming/LeVan Inc., an Atlanta executive search firm.
Generous compensation deals are justified, in Kenzer’s view, considering the heightened demands on executives in the mass market; the sector has become increasingly driven by sophisticated technology and global economics, requiring managers with new skills. “Discount executives are entitled to be well paid for taking on the kind of risks associated with running their massive enterprises,” Kenzer contended. “They deserve sophisticated pay packages for leading relatively sophisticated businesses.”
Paychecks for most of the nation’s top discount executives were boosted by bonuses and stock grants that were rewards for results that exceeded company plans, according to search executives. Stock grants, which tie an executive’s pay directly to stock appreciation, are held in particular favor by shareholders of publicly held firms, according to Robert E. Kerson, chairman, Levy-Kerson Executive Search.
“If you look at a lot of discounters, they are getting more and more stock options than ever before,” Kerson said. “Cash compensation is not the driving factor; it’s really the long-term stock accumulation of wealth. People are getting locked in today with stock.”
Consider Kmart, where Floyd Hall, chairman, president and ceo, earned $6.1 million in 1997 against $4.4 million, boosted, in part, by a grant of 225,000 shares in restricted stock awards. The awards, which vest in three years, were made when Kmart traded at 12 1/8; its shares closed at 19 15/16, down 1/8, Tuesday on the Big Board.
Hall also received one million shares of Kmart exercisable at 12 1/8, under options that gradually become exercisable over the next three years.
Restricted stock grants also bolstered the pay of Andy Giancamilli, president and general merchandise manager of U.S. Kmart, whose compensation almost quadrupled to $2.2 million from $578,650, and Donald Keeble, executive vice president of store operations, whose pay swelled 56 percent to $1.4 million against $896,530.
Meanwhile, David D. Glass, president and ceo of Wal-Mart Stores Inc., saw his compensation nearly triple to $4.6 million from $1.6 million, mostly because of a grant of 83,333 shares in the company. Those shares, worth about $2 million at the time of the grant, would bring $4.5 million at current prices.
Glass’s stock awards vest in three equal parts: in 2001, in 2005 and upon his retirement at the age of 65. Glass is 62 years old, according to Wal-Mart’s latest proxy statement, dated April 10. The shares in Wal-Mart were granted last year when they were trading at 24 apiece. Wal-Mart closed Tuesday at 56 15/16, up 7/16, on the Big Board.
Restricted stock awards also fattened the compensation packages of other Wal-Mart executives, including Donald G. Soderquist, vice chairman and chief operating officer, whose take nearly tripled to $3.5 million from $1.2 million; Bob L. Martin, executive vice president of Wal-Mart International, who realized a fourfold surge to $2.6 million from $628,719, and H. Lee Scott Jr., executive vice president of Wal-Mart Stores and president of the core Wal-Mart division, who also saw his salary increase more than four times to $2.5 million against $542,819.
At ShopKo, one of the few remaining regional discounters with a strong franchise, chief executive Dale Kramer’s pay was bumped up by a special retention bonus of $401,726, as well as a 44 percent increase in his annual bonus to $720,000 from $500,000. Kramer’s overall compensation increased 23.9 percent to $1.76 million.
The top executive at another thriving regional, Joseph R. Ettore, president and ceo of Ames, took in $1.3 million, off 6 percent from $1.39 million. However, his pay in 1996 was boosted by a $150,000 sign-on bonus for a new contract struck in June of that year.
Stephen Fishman, ceo of Pamida Holdings, realized his first bonus since 1995, as the Midwestern discounter returned to a full-year profit of $5.4 million from a loss of $1.2 million. As a result, Fishman’s pay jumped 43.3 percent to $774.4 million.
And at two struggling regionals, Caldor ceo Warren D. Feldberg and Bradlees ceo Peter Thorner each stand to reap big payouts if they are able to complete turnarounds at the bankrupt Northeastern chains.
Feldberg is to be paid a bonus between 35 and 87.5 percent of his base salary upon confirmation of Caldor’s reorganization plan, expected by yearend.
Bradlees’ top management, including Thorner, will receive an aggregate payment of $2.7 million upon confirmation of the reorganization plan and another $2.7 million on the one-year anniversary of that date. Bradlees’ directors have yet to determine what Thorner will receive.
Bradlees is aiming to emerge from bankruptcy proceedings late this summer.