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60% PAY CUT FOR GAP’S DREXLER

Byline: Jennifer Weitzman

NEW YORK — Gap Inc.’s executive compensation followed its earnings and same-store sales down in 2001, leaving chief executive officer Millard Drexler with a 60 percent decline in his pay.
The San Francisco-based specialty store giant, which operates 3,097 doors under the nameplates Gap, Banana Republic and Old Navy, reported in its proxy statement, filed with the Securities and Exchange Commission on Tuesday, that the base salary of Millard Drexler, president and ceo of Gap Inc., was cut 3.9 percent to $2.2 million in 2001 from $2.3 million in 2000. What’s more, Drexler received no bonus after a bump of $3.3 million in 2000 and $5.7 million in 1999. Neither he nor any other Gap principals received restricted stock awards in 2001.
Excluding deferred compensation totaling $601,634 versus $171,322 in 2000, Drexler’s total compensation in 2001 came to $2.2 million, versus $5.6 million in 2000 and $7.8 million in 1999.
According to the Schedule 14-A, Drexler’s salary was originally set at $2.3 million, unchanged from the prior fiscal year, but in September, Drexler voluntarily reduced his base salary by 10 percent to $2.1 million. John Lillie, vice chairman since January 2001, also “voluntarily elected” to take a 10 percent pay cut, earning $1.1 million in his first full year at Gap.
In setting the ceo’s 2001 salary, the company considered Gap’s performance in 2000, future objectives and challenges and Drexler’s individual performance and contribution. The report said the compensation committee concluded that Drexler had not fully achieved his three strategic priorities for 2000: growing earnings and improving the return on investment, developing employees and strengthening the brands.
Still, the committee felt Drexler has the ability to provide the leadership and vision that he has provided throughout his 18-year tenure, during which, on a compounded annual growth basis, Gap’s net sales increased by 20.5 percent and market value increased by 27.3 percent. The filing also indicated that net earnings had declined 5.5 percent on an compounded annual basis, a figure verified but not explained by the company.
Other corner suite occupants made do without bonuses last year, although their base salaries did improve moderately. Kenneth Pilot, shifted to president of Gap International at the beginning of 2002 after overseeing the brand in the U.S. and overseas, had a 4.3 percent increase in base pay to $648,670 from $622,037.
Dramatizing its fall from grace, 2001 earnings per share fell to a 1-cent loss from a $1 profit in the prior year. Gap’s $8 million net loss included the previously announced tax charge of $131 million and aftertax charges of $73 million. Earnings in 2000 year were $877 million. Sales rose 1 percent to $13.8 billion, compared with $13.7 billion, and decreased 13 percent on a comparable-store basis.
While calling 2001 “our most difficult year ever,” Drexler said in a statement on Feb. 27, when fourth-quarter and full-year results were released “We’re working quickly to improve performance and deliver our customers the style, quality, value and fashion they expect from Gap, Banana Republic and Old Navy.”
Many retail analysts believe the worst is over and that Gap is poised for improvement in merchandise and earnings in time for the crucial back-to-school season. Richard Jaffe at UBS Warburg said in a research note following a meeting with Drexler and other members of Gap’s management that he believed the company is “well positioned for a second-half improvement.” Better results, he noted, would stem from Gap’s focus on key items and classifications that have been the core strengths of the company.

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