Penney blows $170M on executive blunders

The retailer spent a king's ransom to hire former CEO Ron Johnson and his top 3 lieutenants. The results weren't pretty.

By Aimee Picchi May 6, 2013 1:56PM

File photo of Ron Johnson, former CEO of J.C. Penney, in New York on March 1, 2013 (© Andrew Burton/Newscom/Reuters)Here's a case that proves money doesn't always solve a problem. 

In 2011, J.C. Penney (JCP) strongly believed former Apple (AAPL) executive Ron Johnson could revive the retailer. Just how strongly is measured by the astounding $170 million it spent partly to hire Johnson and his top three executives, according to Bloomberg

Of course, hindsight is always 20/20, but the expense would be remarkable even if Johnson had merely had a mediocre tenure. Given that his leadership has been roundly reviled and cited for unraveling the retailer, that sum appears even more jaw-droppingly foolish. 

The $170 million was spent on cash payments and restricted stock offerings to the four executives and outgoing chief executive Myron Ullman, who was brought back after Penney ousted Johnson, Bloomberg notes, citing public filings.

Johnson's first paycheck was a staggering $53.3 million in 2011 salary, bonus, stock awards and other compensation. That was given to him when Penney's board was flush with excitement about recruiting Johnson, confident that he could revive the brand with the same sort of pizzazz he brought to Apple's retail stores. 

By the end of 2012, however, it was clear that Johnson's strategies -- such as a no-sale-price policy that customers hated -- weren't working. His pay for last year was marked down to just $1.5 million in salary and $344,000 for his personal use of the corporate jet.

The retailer's free-flowing approach to recruitment is demonstrated by the case of marketing chief Michael Francis, who earlier had helped create the fashionable yet low-cost style of Target (TGT). The retailer lured him with $12 million in cash and $32 million in restricted stock. 

But Francis ended up being a pricey bomb. He oversaw the design of a new logo, which has been criticized for straying too far from the company's historic brand image, and signed talk-show host Ellen DeGeneres as Penney's spokeswoman. 

After sales fell, Francis was fired in June, but he didn't leave empty-handed. His termination agreement gave him $4.3 million, meaning the retailer spent $16 million in cash on hiring and ousting Francis over the course of a year. 

Other executives who earned tidy sums from their brief tenures at Penney include chief operating officer Michael Kramer and chief talent officer Daniel Walker. 

Kramer received $4 million in cash and $29 million in stock to join Penney from clothing maker Kellwood, Bloomberg notes. When he left the company on April 17, he was handed an additional $2.1 million. 

Walker was given an $8 million signing bonus and restricted stock valued at $12 million. The former Apple executive resigned voluntarily, so he didn't receive additional payments, nor could he keep his restricted stock when he left, according to Bloomberg.

Penney's expensive executive transitions didn't start just this year, however. Ullman, who's now trying to right the store, got $29 million when he left in 2011. 

As executive-pay expert Steven Hall told Bloomberg, "This is a story of how just tossing money at management doesn’t guarantee success."

Follow Aimee Picchi on Twitter at @aimeepicchi.

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May 6, 2013 2:51PM
Crazy idea, How about making them earn the money and then ........... pay them?
May 6, 2013 2:38PM
May 6, 2013 2:32PM
It's amazing to me that with the hundreds of senior managers at Penny's that the Board couldn't promote from within where the person has years of experience in the corporate culture.  It's almost always bad to go outside the company and it lowers morale.  Look at what happened to Wickes some years ago when they went outside of the company and installed some of these same types of guys as subsidiary presidents, they ran the subsidiaries into the ground.  One subsidiary was a 100 year-old money-making cataloger and it only took the guy they put in about 2 years to put it into bankruptcy.  These Boards of Directors need to stop putting their buddies in these positions and do what is right for the business. 
May 6, 2013 2:45PM
All examples of rediculous executive pay.
May 6, 2013 3:03PM

I am still dumbfounded at people getting a bonus for damaging a company.

What is the incentive for getting a company back on solid ground when you still get a bonus for bankrupting it??

And how does that affect the people in the stores?  Their the ones meeting the public everyday, their the ones that loose their jobs while these greedy SOB get their big salaries and bonus' for hurting the company.


I just got my walmart stock options.

CEO there gets 20+M while the people that we see in the stores every day can only get minimum wage and part times

May 6, 2013 2:55PM

This company deserves what it got. The problem with US company's is that they are run by Wall Street / Bankers. They tell the company's who to hire maybe not in all cases by name but by having to pick from a group of names of people who serve on one another's board.


And, yes no person is worth what our (US CEO's) receive as compensation. There really is no reason for a company to go outside of the company to pick a CEO unless of course "Wall Street" is giving the message to do so.


I do not know  a US company / CEO that has grown their business other than perhaps Apple which was driven by it's creator (Steve Jobs) vs. some BS outsider. Everyone of the US company's only know one thing, cut labor cost / compensation. No one knows how to grow their business because they are all monkeys who do the easy thing, reduce cost.

May 6, 2013 3:05PM
I have spent many years in the business world. Not on this level, but long enough to see this sort of thinking by people high up hiring or recommending someone just on unwarranted reputation only. There gets to be an atmosphere and attitude that this person cannot fail. That the person is almost godlike at success and could never possibly make a bad decision. It is almost cult like...and of course it is often stupid.  To go for this guy who had no background at all in the business atmoshpere that JCP operates in and to be sold that he will know all the answers is unbelievable....
May 6, 2013 3:12PM

ceos make too much money to understand how budgeting means to us normal people we all could of told hiim the change in penneys was not going to work but no one asked  I worked in retail for 15 years and definitely know how people shop so why didnt the ceo because hes too busy making millions and sitting behind a desk 

May 6, 2013 2:36PM
Hopefully boardrooms will take a hard look at this case and structure their future contracts with better performance incentives in mind. It also is a stark indicator of which companies have either misguided and/or short term goals as priority. Let your buying (stock & product) dollars dictate the success or failure of these companies! It does not have to be this way!
May 6, 2013 3:17PM

....the problem with the board is that they have no personal funds in the game......


It's not their money on the line - only their inflated egos on the line, so typcially they are not that worried about the outcome. As long as they get paid to be on the board and enjoy the 5 star percs. they is good for them.


In this case....their decision to hire these failures should reflect on them, with the entire board fired and replaced. A 100+ year retailer is likely to go bankrupt due to their incompetencies.

May 6, 2013 2:48PM

This is the problem with so many in the world $$ There is NO ONE worth the money some make! the way it looks right now JCP is on its way out anyway

May 6, 2013 3:28PM
This seems the rule and not the exception; even at the top, you can't fix stupid:

Occidental Petroleum chairman Ray Irani was also recently fired from his executive position, and stands to receive over $50 million for being ousted. It defies all logic that when given walking papers ($50M of them with George Washington's face on one side), one is suddenly worth that kind of money to go away - and who pays or is penalized? Stock holders and customers =(

May 6, 2013 3:40PM
ahhh, so the poor guy is out of a job. Did I just say poor guy? Nobody ever fired me then paid me for much for us little people.

Its real easy to steal, when you have the keys to the store.  I like to look at it this way, assume a 5% profit margin (generous assumption), so say they blew ten million on this looser, it takes approximately 200 million in sales just to break even in this turd.  Employee owned companies are the only future for this country.

May 6, 2013 3:37PM

This guy's pay package was based on his track record at Apple.  The problem is that the Apple store concept can make anyone look like a retail genius.  The stores are small square footage.  The product is high-priced, high-margin product which people will make a point of buying in an Apple store.  The sales dollars per square foot metric were off the chart and, in no way, correlate to department store retail. 


JCP paid for reputation and not talent.  His big plan was to replicate the Apple store concept inside a JCP with all the stores within a store.  If he were to do something intelligent, like give St. John's Bay its own store and make the product more competitive with brands like 5.11 Tactical, he might have had a chance.  Instead, he turned the company upside down to chase the sales dollars per square foot metric and failed completely.


As far as compensation for management is concerned, a performance component is essential.  But you still need to go out there and pay for real talent.  If you want to see your odds of success go up dramatically, pay for talented people and give them performance incentives in addition to their base salary.  If you want to see your odds of failure go up dramatically, hire your management for the same salary as some dope selling pressure cookers in Wal-Mart.  Or pay through the nose for someone whose reputation exceeds his talent, thinking you can plug him in anywhere and he'll work his magic.

May 6, 2013 3:30PM

instead of paying that ceo  that kinda money  they should have discounted there items and that will drive people back to there store.  compete with your competion jcpennys  may the best company win.  compete with  walmart  kohls  target   or be gone jcpennys

May 6, 2013 2:43PM
WHEN do we start going after these Board Directors for over-stating their skill sets? I agree, there are always competent people within the organization but for some reason they aren't "right". The Right is retained (recruiter) to put the puppet in so the business can be assimilated into their collective (failure). ALL business platforms in America are failures kept alive by Bernanke's endless QE. Penney's is gone. hey have garbage goods, no credibility and we don't have the economy to wait out a metamorphous. Worse yet... Goldman Sachs gives them $1.75 BILLION (same terms as like- Cypress or the PIIGS) so they can take control of another importer. GIVE US A BREAK.  
May 6, 2013 3:35PM

What were they thinking?  If you want to be a walmart then go to walmart.  JC Penneys had a loyal following that didn't like the new store.  Reminds me of the diseaster of Bill Knapps restaurants when the left their loyal following to chase young parents with kids that really didn't want to go there anyway.

May 6, 2013 3:04PM

I should be so unemployed and "out of work" with the type of incentives that this corporate welfare monger receives.  Puhlease 'dud-erific you are truly a dud if you believe that anyone should express any empathetic overtones to this overly paid corporate pig.

May 6, 2013 4:05PM
avatar this is why me and my other 300 coworkers lost their jobs when JCP decided to close our center and fire all of us. Had to scrape the money together to pay for this disaster....
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