Best Buy Shareholders Should Be Outraged

Best Buy's (NYSE: BBY  ) lousy competitive standing and consistently falling stock price aren't the only reasons the retailer's investors should be outraged. The compensation package for the company's recently announced new CEO indicates that dwindling shareholder value will continue.

Pre-emptive pay
The Wall Street Journal reported that newly appointed CEO Hubert Joly has been enticed to come aboard Best Buy with a compensation package worth $32 million over a three-year time frame.

This pay package belies how poorly the company is doing financially. It's doubtful it's as much about saving Best Buy as it is about saving Joly the money he would have made at his previous gig at Carlson. Joly's annual base salary is $1.175 million, but he's guaranteed a long-term cash award of at least $8.75 million for the 2014 fiscal year that starts next March.

In an even stranger twist on the types of goodies included in traditional compensation packages, should the French citizen end up unable to obtain a work visa and it causes the arrangement to be void, Joly is guaranteed more than $6.25 million for his trouble.

Should all go according to plan and Joly takes the helm, his pay package includes $20 million in signing awards, with only $3.25 million tied to actual performance.

Joly may have some expertise at turning around troubled companies, but he has no retail experience. Will the kind of vision interim CEO Mike Mikan described as necessary in May really be forthcoming?

Meanwhile, Best Buy should already be in hot water with its shareholders. When former CEO Brian Dunn resigned amid scandal about his conduct, he received a $4 million severance package. Even Dunn's predecessor, Brad Anderson, questioned Dunn's receipt of the package under the circumstances.

Such outcomes sound an awful lot like the board moves at Hewlett-Packard (NYSE: HPQ  ) , which rewarded former CEO Mark Hurd handsomely on his departure despite scandal. Hurd's severance package was much larger than Dunn's, but the bottom line is the same: Both individuals could have been denied their goodbye packages because of their conduct.

More shareholders had better wonder exactly where the return on investment is for such uses of millions in corporate funds.

A race to the bottom
Best Buy has very real competitive problems, not least of which is Amazon.com (Nasdaq: AMZN  ) , which is frequently blamed for the bricks-and-mortar retailer's faltering sales. However, promising to dole out millions in CEO pay before a turnaround is even completed suggests priorities at the top of Best Buy may be just a tad skewed.

In a final irony, Joly's appointment shows Best Buy's rejection of founder Richard Schulze's attempts to take the company private. When I think of successful turnarounds, I think of founder-led turnarounds like the ones that transpired at Starbucks (Nasdaq: SBUX  ) and Apple (Nasdaq: AAPL  ) . Founders like Howard Schultz and Steve Jobs have a lot more soulful, personal reasons to save their companies than how much money they were guaranteed to get.

Best Buy doesn't seem to be reversing course right now, but is in fact speeding to the bottom. Shareholders should be outraged.

Are you far more attracted to Best Buy rival Amazon? Check out our premium report on Amazon.com, which examines the risks and opportunities facing the e-commerce giant. Click here to find out more. You'll find a similar report on Apple here.

Alyce Lomax owns shares of Starbucks. The Motley Fool owns shares of Amazon.com, Apple, Starbucks, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple, Starbucks, and Amazon.com, as well as creating a bull call spread position in Apple and writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On August 23, 2012, at 1:32 PM, Darwood11 wrote:

    $32 million for what? Rolling the dice on the shareholders?

    I agree, this is ridiculous.

    Wouldn't each of us love a pay package that guarantees us 15X the average lifetime earnings of the typical American, paid out in 3 years and with the stipulation that it doesn't matter if we succeed or not?

    In Mr. Joly's defense I add that during his tenure sales at Carlson Wagonlit Travel increased by 3X. Of course, that was until his departure in 2007, which is coincidentally the beginning of the "Great Recession." I remain skeptical that Mr. Joly will be able to duplicate that performance. After all, this isn't 2003 and the "ebullient economy."

  • Report this Comment On August 23, 2012, at 2:11 PM, dfordtheman wrote:

    Sounds like the start of Ciruit City all over again. The employees and shareholders discarded, the CEO and BOD leaves with a ton of money. (ex-employee of both companies)

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