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High-priced execs cost J.C. Penney a pretty penny
J. C. Penney spent $170 million to install failed CEO Ron Johnson’s executive team.
Ron Johnson’s tenure at J.C. Penney will long be associated with a 25 percent sales plunge. Lost amid the criticism since his departure last month is the $170 million it cost to install Johnson and his top three executives.
The sum covers cash payments and restricted stock offerings to the four executives and departing Chief Executive Myron Ullman — and doesn’t include salary or incentive pay, according to public filings. Now after less than a year and a half, former Chief Executive Johnson and his trio are gone, and some are being been paid on the way out too. Upon his April 17 exit, chief operating officer Michael Kramer pocketed $2.1 million.
“This is a story of how just tossing money at management doesn’t guarantee success,” said Steven Hall, managing director and founder of his eponymous executive-compensation consulting firm.
Joey Thomas, a spokesman for Penneys, declined to comment.
Johnson recruited executives from across the retail industry, including Target, Apple and Abercrombie & Fitch, to revamp the department-store chain. It spent a total of $236 million, including the recruitment of the top four executives, on what it calls management-transition costs.
The recruitment of marketing chief Michael Francis is emblematic of what Penneys was willing to spend to attract talent. Francis helped cultivate the “cheap chic” brand of discounter Target, where he worked with Johnson in the 1990s. To lure him from Target, Penneys gave Francis $12 million in cash and $32 million in restricted stock in November 2011.
Francis was named president and given the responsibility to lead the overhaul of the company’s marketing. The chain unveiled a new logo, television talk-show host Ellen DeGeneres and themed monthly catalogs. Even as J.C. Penney poured money into brand advertising, sales fell. Francis was fired, and Johnson took over his responsibilities.
Thanks to a termination agreement, Francis received $4.3 million on his way out. So in about eight months, Penneys spent $16 million in cash on hiring and firing Francis, who in December was named chief global brand officer for DreamWorks Animation SKG. Because he left before the restricted stock vested, he kept about 100,000 of the 1 million shares he was granted, the filings show. Meanwhile, the company cut its workforce by more than 40,000 people during Johnson’s tenure.
Kramer and chief talent officer Daniel Walker, who formed the rest of Johnson’s trio, left the company in April after Johnson resigned. In November 2011, Walker received a signing bonus of $8 million and restricted stock valued at $12 million to join the company from a human-resources firm he founded after time at Apple and Gap. Kramer earned $4 million in cash and $29 million in stock.
Penneys then paid Kramer, who came from apparel-maker Kellwood after stints at Apple and Abercrombie, a lump sum of cash upon his exit and said his stock would vest in accordance with the terms. That means all of it would be his by the end of 2017, according to filings.
The company said in a filing that Walker voluntarily resigned. That means he did not keep his restricted stock or receive any additional payments when he left the company, said Daphne Avila, a Penneys spokeswoman.
Johnson’s hiring cost the most. He received $52.7 million in restricted stock in November 2011 to make up for what he had to leave at Apple while Ullman earned $29 million when he left. The board then swapped Ullman for Johnson and gave him a salary of $1 million a year. Johnson, who stepped down, didn’t sign a termination agreement, Avila said.
He’ll receive unpaid salary and vacation as well as the money in a company retirement account, according to the company’s proxy filed April 2. His restricted stock fully vested in 2012. Avila declined to say whether Johnson will get additional severance.
“If it works, it’s a drop in the bucket,” Hall said of Penneys’ recruitment spending. “If it doesn’t, everyone feels stupid.”