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Retail Trends

Bullish on Pay

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Total compensation for the top executives of the nation’s largest retail companies continued to grow in 2010 — significantly so, in some instances. Nevertheless, if a throng of CEOs met for dinner at some posh restaurant, it’s a safe bet that they wouldn’t expect the retail head honcho to pick up the tab.

Median pay for the top executive at 50 publicly traded retail companies was $7.6 million in 2010, according to a study conducted for STORES by Equilar, a compensation consulting firm based in Redwood City, Calif. That represented a 3 percent decline from 2009, but average total compensation for those same CEOs rose 10 percent to $9.3 million.

The CEOs included in the Equilar survey lead STORES Top 100 companies that had filed proxy statements by May 3, and who have been in their position at least two years. The list is meant to provide an industry snapshot rather than a panoramic view, particularly since a sizable portion of retail companies are privately held.

Taking into account the study’s relatively small sample size, it would be imprudent to draw broad conclusions about industry compensation trends. Still, it’s interesting to note that in an Equilar survey of CEO compensation at 200 major corporations across a broad range of industries, median pay increased 12 percent (to $9.6 million) between 2009 and 2010.

“Clearly, the retail segment doesn’t align with other businesses this year, but we saw the median pay rebound by 43 percent last year among retail CEOs when other segments endured flat to slight gains in compensation,” says Aaron Boyd, research manager for Equilar. “Looking back, you might say retail led the charge.”

Boyd points out that 20 of the CEOs on STORES’ list realized double-digit increases in pay; three enjoyed triple-digit gains. “We see similarities between retail and other industries in that those CEOs who made it through the tough times are being rewarded, especially in cash bonuses and stock awards.”

Through April, the retail sector has posted 10 consecutive months of sales gains. While the recovery has been slow-moving and the economic outlook remains fragile for reasons ranging from high unemployment to consumers’ shrinking disposable income, many retail CEOs reacted quickly when the recession hit, paring inventories and perfecting the art of doing more with less in the quest to achieve better margins.

The highest-paid retail CEO on this year’s list is Target Corp.’s Gregg Steinhafel, whose total compensation of $23.5 million included $11.2 million in equity awards. Steinhafel, a former merchandising trainee, has managed to overcome numerous challenges and remain resolutely focused on merchandising. He has led a sharp turnaround in same-store sales, engineered an ambitious remodeling program, launched Target’s 5% REDcard Rewards and is overseeing rollout of the new platform.

Also among the highest-paid retail CEOs is Howard Schultz, chairman, president and CEO of Starbucks. Schultz returned to the CEO position in 2008 after watching the company he helped build lose money and stray from its core values. The decision has paid off handsomely for both sides. In fiscal 2010 Starbucks roared back with rising revenue and profits that nearly doubled those of 2009. Schultz’s rewards came principally in the forms of non-equity compensation, stock and options totaling just over $20 million.

Sears Holdings Corp. interim president and CEO W. Bruce Johnson realized the highest change in pay among the chief executives on this list, more than tripling his compensation from the prior year. The bulk of Johnson’s compensation came in the form of stock awards valued at $4.3 million.

Looking ahead, there are two factors that could impact CEO compensation in coming years. The first is tied to new rules that are part of the Dodd-Frank financial regulations. Part of the change calls for nearly all public companies to provide shareholders with a say on executive pay. Companies are under no obligation to observe shareholders’ advice, however, and analysts are waiting to see just how emboldened shareholders will be in the quest to rein in compensation that they consider to be excessive — or worse, undeserved.

In an April proxy statement filing, Wal-Mart announced that its compensation committee would replace a crucial metric for assessing executives’ performance. Instead of tying decision-making to same-store sales, Wal-Mart will use total sales companywide — or at its major Wal-Mart and Sam’s Club units. The company has said the change is “intended to align our performance share goals more closely with our evolving business strategy, which emphasizes productive growth, leverage and returns.”

The big question in retail financial circles: Will other retailers follow Wal-Mart’s lead?