Top retail execs escaping intense scrutiny over their pay - so far

Discount Store News, August 5, 1991 by Arthur Markowitz

Top Retail Execs Escaping Intense Scrutiny Over Their Pay--So Far

Retail industry executives so far seem immune to the growing shareholder and institutional investor anger over the high salaries and compensation paid to business executives of public firms.

This exemption reflects two key factors:

* The low corporate profile of most retailers that has resulted in little interest in the pay of their top officers; * Limited institutional or general shareholder investment in retailers apart from Wal-Mart, Kmart and Sears.

But the lack of interest in retailers' pay may also denote the fact that the industry overall isn't viewed as a high direct compensation business.

David Gitlitz, United Shareholders Association's director of communications and research, said that "it could be that the retail industry has less examples of executives with outrageous compensation than other industries." He said that "outrageous" described a situation "where compensation goes up in much larger amounts than profits or return to shareholders."

Howard Sherman, vp of Institution Shareholder Services, said that "it may be that the average level of ceo pay among retailers isn't as stratospheric as at high profile firms in other industries." But the real issue, he said, is "how they are paid--are they paid based on their performance."

A Council of Institutional Investors spokesman said that "stockholders and ceos both share in good times, but we want ceos to share along with shareholders in rough times."

Sherman also noted that "there are structural reasons why" ceos often are rewarded even for poor performances. "Compensation committees are composed of outside directors, but they are often recruited by the ceo and owe allegiance to the ceo, not to the stockholders."

The indignation over the explosive increase in top executive compensation during the past decade has spilled over to Congress, where companion bills are pending in both the Senate and House to strengthen the hand of shareholders' in determining how companies set executive pay.

The Corporate Pay Responsibility Act, introduced by Sen. Carl Leven (D.-Mich) and Rep. John Bryant (D.-Texas), would address some structural problems noted by shareholder groups by changing Securities and Exchange Commission regulations to:

* Allow shareholders to vote on proposals recommending changes in how companies set executive pay; * Require companies to provide clear and simple disclosure of pay packages; * Permit stockholders holding a minimum of $1 million or 3% of a company's stock to nominate directors and include them in the proxy statement and ballot; * Provide confidential voting of proxies and SEC backing for stockholder access to a company's shareholder list.

The proposed changes would clarify the full impact of what shareholder groups view as a major compensation benefit--executive stock options which, in theory, knit an executive's wealth closer to performance. The better the performance, the higher the price of the stock and the more valuable the options.

Sherman noted that "studies have shown that how much stock a ceo holds in his own company, and the greater the percentage of his wealth in company shares, the better the executive's performance."

This holds true in retailing--even for executives that didn't make DSN's listing of highest paid officers of publicly-held discount retailers. Most executives on the chart have stock options, some as a direct result of their company becoming a publicly held firm.

Samuel Walton, founder and chairman of Wal-Mart, arguably the nation's most successful retailer, is the beneficial owner of the largest amount of company stock, 38.76%, even through he isn't among the five highest paid executives at the company. During the past decade, his highest salary, according to the discounter's proxy statement, has been $350,000.

A similar situation applies to executives at other major merchants. Robert E. Price, co-founder, chairman and ceo of The Price Club, which launched the membership warehouse industry, received only $240,385 in 1990 (after taking a pay reduction for a part of the year), but is among the largest beneficial owners of company stock.

At Costco, an innovative wholesale club, the two co-founders, Jeffrey H. Brotman, chairman, and James D. Sinegal, president and ceo, received cash compensation of $339,217 and $346,318, respectively, but are among the largest owners of company shares.