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.
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.
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
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.
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
....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 receive....life 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.
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
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 =(
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.
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.
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
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.
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.
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A basic income policy can actually ensure a decent standard of living for everyone.
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