That CEO Makes How Much?

Did anyone at Abercrombie & Fitch (NYSE: ANF  ) bother to consult a stock chart before deciding on CEO Mike Jeffries' compensation?

Jeffries lands at No. 10 on the list of 2008's highest-compensated CEOs, according to The Corporate Library. His lofty reward for a year marked by disastrous results at his company only emphasizes CEO pay's continuing disconnect from anything resembling reality.

Where's the performance?
Jeffries raked in $72 million in 2008, according to The Corporate Library's list. It calculated "total realized compensation," which includes vested shares of restricted stock and stock options that were exercised. In Abercrombie's proxy statement, Jeffries' compensation -- excluding these items -- is listed as $15.9 million.

Abercrombie & Fitch's business has been in the doldrums for quite some time now; its shares fell 70% in 2008. Sales growth has slowed dramatically since the fiscal year ended January 2006, actually decreasing in the latest completed fiscal year. Meanwhile, earnings per share have fallen steadily since the year ended February 2008. If Jeffries' pay is commensurate with his performance, I'm just not seeing it.

Retail reality disconnects
Many retail CEOs are still living large despite their companies' lackluster 2008 performance -- even by the simpler, less hair-raising standards of the compensation calculations available in 2008 proxy statements.

Consider Gap (NYSE: GPS  ) CEO Glenn Murphy's $9.3 million in total compensation, according to the most recent proxy statement. That's a 49% increase from last year. You may also have forgotten that RadioShack (NYSE: RSH  ) -- pardon me, "The Shack" -- even existed. Nonetheless, CEO Julian Day's total compensation rose 11% to $9.8 million.

Starbucks (Nasdaq: SBUX  ) missed a chance to shine recently, as it cut workers and only made slight cosmetic changes to executive pay. Talbots' (NYSE: TLB  ) made a sad and poor move when CEO Trudy Sullivan received a $1.2 million payout to offset reductions to her retirement plan, all while her company cut positions, reduced benefits to remaining rank-and-file workers, and remained mired in a long-term slump.

On the other hand, it's easy to argue that significant pay increases for CEOs at Aeropostale (NYSE: ARO  ) and The Buckle (NYSE: BKE  ) are warranted, since both companies were retail outliers in the last year. But pay hikes that actually make sense seem to be the exception, not the rule.

The one place CEOs and unions overlap
Say on pay should be available at more companies, so that shareholders can at least voice displeasure about clear discrepancies between pay and performance. I recently suggested that CEOs and boards need to voluntarily do the right thing when it comes to pay. If they don't, shareholder pressure certainly would help encourage less outrageous behavior.

But wait, aren't outrageous CEO salaries just another product of the free market? Maybe so, but I also believe in holding folks accountable by realistic measures. We need to start emphasizing merit and rewarding performance, instead of indulging the too-often nonsensical pillaging that masquerades as a reasonable status quo.

CEOs who earn millions to preside over corporate train wrecks seem eerily similar to the worst examples of unionization. No matter what you actually do, you get the same pay as long as you show up -- and you can hang around as long as you want. I may have insulted many of the UAW faithful in the spring when I envisioned running a household like a union, and giving a kid an allowance no matter how much or little they do around the house. Still, I think that analogy applies equally well to outrageous CEO pay disconnects. It simply isn't good business sense.

Sadly, it seems clear that some have suffered more than others from the ravages of a troubled 2008. Company leaders shouldn't be doing just as well financially, if not even better, while shareholders and employees take monumental financial punches to the gut. The guys at the top deserve an equal share of the sacrifice, especially if they expect an outsized slice of the rewards.

Starbucks is a Motley Fool Stock Advisor recommendation and a Motley Fool Inside Value selection. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 02, 2009, at 2:00 PM, tadams101 wrote:

    I would agree that some CEOs and CFOs get too much money, but as long as I do not own stock in that company, I have no say in their compensation. Compensation is the concern only of stockholders. Too many of us are wanting to limit other's incomes, because of envy. Every one is entitled to make as much money as he can. Thank you.

  • Report this Comment On September 02, 2009, at 2:41 PM, TMFLomax wrote:

    tadams101, thanks for the feedback. I agree that this is a shareholder issue, and not one for regulators, for example. However, I think shareholders need to be aware of these issues, also in a larger sense (one of the common justifications for large levels of pay are "peer groups" which help inflate compensation levels too; so the more shareholders are oblivious to these issues, the more egregious it can get overall).

    I think one of the big problems that is pervasive these days is a sense of entitlement without a sense of responsibility for merit or performance.

  • Report this Comment On September 02, 2009, at 4:30 PM, mikecart1 wrote:

    Another reason why I downgraded ANF earlier this year. Now it is clear from the CEO to their tight fitting sissy clothes that the company is a mess.

    Red thumb this stock all the way down if you ask me.

    Go long on Aeropostale, Gap, and other low cost-wide selection-brand name apparel that is just as good as overrated ANF.

  • Report this Comment On September 02, 2009, at 4:32 PM, mikecart1 wrote:

    Also not to brag, but I am lol, go to Google and type in:

    'mikecart1 ANF', without the " ' "

    The first link is where I reign supreme as the one that called ANF's downtrend before it happened. I am proud of representing TMF on the front page that day! :)

  • Report this Comment On September 02, 2009, at 5:49 PM, TMFLomax wrote:

    mikecart1, we agree on ANF (and I too have it red thumbed in CAPS). It is one of my least favorite stock ideas and this kind of thing is just one more reason why.

  • Report this Comment On September 03, 2009, at 10:42 AM, TDRH wrote:

    Hard to justify - would like to see a board quantify the value per hour for these individuals when their customer level employees make $7-$8 per hour.

  • Report this Comment On September 03, 2009, at 1:20 PM, BMFPitt wrote:

    tadams101 - You may not have been aware of this, but TMF is a website for shareholders.

  • Report this Comment On September 03, 2009, at 3:43 PM, Mally11 wrote:

    I think Motley Fool needs to check out his info before he comments. Particularly in the case of Talbots CEO. That money was a bargaining tool to get Ms Sullivan to come to the company and she was gracious enough to only accept 60 percent. I'm not sure the "Fool" would forgo 40% of money owed him. I, for one am tired of seeing Talbots slammed in this column. Struggling companies are under enough pressure. Find another victim Fool

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