Focus on: Finance

Seems everyone has felt the economic crisis in his wallet. Unemployment remains high, wages are low, and salaries are frozen. Even C-level executives saw little if any upward mobility in salaries from 2008 to 2009.

Of course, middle managers and hourly workers might argue that living on a seven-figure salary, even in a crisis economy, doesn’t compare with living on a budget in mainstream America. Compounding the pain is the perception that incomes are fixed, with little opportunity to increase personal earnings.

A department store associate, who wished to remain anonymous, recently explained how his company’s approach to compensation has changed: He is not working on commission; he’s working against a quota. If he doesn’t make his sales numbers, his pay gets cut. Reverse psychology perhaps, or just desperate economics?

Therein lies the real difference between store-level and C-level pay scales: The buck stops at the paycheck for most workers, but a CEO’s salary typically represents only a fraction of his earnings potential. This was particularly true in 2009, when stagnant executive salaries were offset by lucrative incentive, stock and benefits packages.

Within the retail industry, department store companies provide an interesting study in CEO compensation, largely because this sector was hit particularly hard by the recession. However, a survey of eight of the leading department store chains revealed those CEOs for the most part held fast to their earnings.

In most instances, the CEO’s total compensation was clearly tied to the company’s performance. Terry Lundgren, CEO and president of Macy’s Inc., received the highest incentive pay, a whopping $7 million, but he also led an impressive turnaround, taking his company from a $4.8 billion loss in 2008 to a $350 million profit in 2009. Overall, his total compensation grew more modestly, from $14.8 million to $16 million, and Macy’s revenues dropped marginally from $24.8 billion to $23.4 billion.

CEO William Dillard orchestrated a similarly impressive turnaround at his namesake company, and in return almost doubled his year-over-year earnings. Dillard’s Department Stores rebounded from a $241 million loss to a net income of $68.5 million, and its top executive’s compensation jumped from $2.5 million to $4.9 million.

For successfully holding the course at Nordstrom Inc., company president Blake Nordstrom was rewarded with the biggest jump in year-to-year compensations, going from $1.8 million in 2008 to $4.3 million in 2009. Company revenues remained nearly constant at $8.2 billion both years, and net income rose from $401 million to $441 million.

Surprisingly, two companies that showed remarkably consistent strength in spite of the recession defied the trend to reward CEOs with higher compensation packages. Of the companies surveyed, Kohl’s recorded the highest net income in both 2008 and 2009, $885 million and $991 million, respectively. However, Kohl’s president and CEO Kevin Mansell saw his total compensation drop from $11.6 million to $9.0 million, albeit his salary increased slightly year-over-year, and he also received a $2.6 million incentive in 2009 versus zero incentive pay the prior year.

A similar situation transpired at J.C. Penney Co., where CEO Myron Ullman saw his total compensation fall from $15.2 million to $8.7 million, while company profits held positive at $572 million in 2008 and $251 million in 2009. However, Ullman’s year-over-year incentive pay more than doubled, from $1.4 million to $3.5 million.

Although his company stayed in the red, Saks Inc. CEO Stephen Sadove reduced the bleeding, taking the upscale department store company from a $158 million loss in 2008 to a $57.9 million loss in 2009. Sadove’s total compensation grew from $5.5 million to $6.6 million, but somewhat surprisingly his incentive pay soared from $298,000 to $3.6 million.

Luxury retailer Neiman Marcus had a billion-dollar drop in revenues, from $4.6 billion to $3.6 billion, and net income plummeted from a profit of $142.8 million in 2008 to a loss of $668 million in 2009. After this disappointing performance, Neiman Marcus CEO Burton Tansky did not receive incentive pay, but his total compensation rose from $3.3 million to $3.8 million.

The biggest disconnect in personal earnings versus company performance appeared at Sears Holdings, where interim CEO Bruce Johnson’s total compensation dropped from $1.9 million in 2008 to $1.5 million in 2009. Company revenues dipped from $46.7 billion to $44 billion, but net income leaped from $53 million to $235 million during that period. Perhaps in this case, the Sears CEO is like the previously mentioned store associate, who was working hard to meet a quota with no added incentive for a job well done.

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