Ward tempts execs with bonus plan

Discount Store News, Nov 3, 1997

CHICAGO -- Montgomery Ward & Co., now operating

under Chapter 11, plans to dish out big

bonuses--in the millions of dollars--to executives

should they successfully submit a plan of

reorganization in a speedy manner.

Ward filed a petition for reorganization under

Chapter 11 on July 7, and has been embroiled

in controversy, particularly regarding its

employees, ever since.

On Oct. 10, the company filed a motion in

U.S. bankruptcy court requesting approval to

pay out approximately $8 million in cash and

incentives to 14 key executives should a plan

of reorganization be confirmed by April 1999.

The emergence incentive plan is contingent

upon speedy approval of the POR and is

based on a pay-out program of 125% of base

salaries. Should the plan be approved

between April 2 and Oct. 1, 1999, incentives

go down to 100% of base salaries or approximately

$6.4 million. For POR approval any

time after Oct. 2, 1999, executives will

receive bonuses of 50% of base salaries.

Judy Gustafson, a company spokeswoman,

said, "We believe the proposed compensation

packages are at appropriate levels for the substantial

levels of expertise provided by Ward's

management team."

In addition, Ward asked the court for permission

to pay out approximately $8 million in previously

agreed upon salaries and incentives.

Gustafson said nine out of the 14 executives

joined the company in the last year; eight of

them before the bankruptcy filing.

"We are asking the court to recognize the prepetition

contracts that were in place." Contracts

that are competitive with other positions in the

industry, she added.

Ward's battle to keep key players has been a

public one. Earlier this year, the company filed

a motion in bankruptcy court against Sears

requesting a restraining order

to stop alleged predatory

recruitment practices.

In an e-mail from the vice

president of Sears' North

to a conversation with Robert

Mettler, president of Sears

merchandising, which outlined

an action plan regarding

Ward's stores and employees in

the region.

It urged staff to be "predatory

about people ... be very predatory

in the field--another place we

can hurt them." Picking off key

employees, particularly in the

planning and placement areas

would "hasten [Ward's] weakening

state," said the message.

Ward sought a permanent

restraining order against Sears

in bankruptcy court and on

Aug. 13, an injunction was

granted based on a ruling. The

judge granted a temporary

restraining order barring Sears

from approaching, contacting

or soliciting any of Ward's

management-level employees for

purposes of employment.

The two ultimately settled

out of court, with Sears agreeing

to pay Ward's legal fees up

to $100,000 and refrain from

contacting Ward employees.

As Montgomery Ward continues

its struggle to regroup

and emerge from Chapter 11,

the company announced on

Oct. 11 that it will close 48

underperforming stores nationally.

The closings will cut 3,800

jobs and bring the total number

of department stores to 294.

Ward's turnaround strategy

focuses on its core businesses

and entails the exit of "noncore

stores" including Electric

Avenue & More and Lechmere

stores, which it acquired in

1994. Ward did, however,

refuse an offer from HFS Inc.

to buy its money-making

Signature Group, which is not

part of the company's

bankruptcy filing. The unit is a

direct marketer of insurance

plans, membership programs

and services, and has annual

revenues of $830 million.

Dismantling the money-losing

parts of the business is the

right start, said Kurt Barnard

of Barnard's Retail Consulting

Group, but "Montgomery Ward

has an extremely tough row to

how." A successful turnaround

is "a very big question mark."

The company intends to

emphasize its full-line

Montgomery Ward stores and

strengthen operations through

ensuring adequate stock on

advertised items, upgrading

stores and revamping information

systems.

The company's outline of

strategic initiatives calls for

leveraging Ward's strengths,

identified to be in four primary

categories. According to the

company, Ward is the secondlargest

retailer of appliances

in the United States; No. 4 in

furniture, No. 1 in mattresses

and in the top five in fine jewelry

sales volume per store.

Ward also hopes to build on its

credit card base, which reaches

more than 16 million households,

through card-holder incentives

and price driven messages.

Ward's primary customer-driven

enhancement is an

image update. It launched a

new advertising campaign in

August of this year in the hopes

of upgrading its image and

focusing on trend-right products

in both home and apparel.

In an effort to distance itself

from an already established lowprice/discount

reputation, the

company offered up an image-driven

campaign for the first

time in more than a decade.

The tag line "Shop Smart,

Live Well" played nationally in

TV spots on Aug. 28 and represents

an ad budget nearly double

that of past years.