CEOs Are Overpaid? Tell That to a Lululemon Shareholder

By now, you've probably heard that lululemon athletica (NASDAQ: LULU  ) CEO Christine Day will be leaving the company, as she announced in last week's earnings report. Despite the recent debacle over see-through yoga pants, the decision to leave was hers, as she called it "personal" on the call and added that "plans have been laid for the next five years and a vision set for the next 10."

Despite Day's optimism about her company's future, shareholders didn't take the news too well. The stock fell 17.5%, and that was with an earnings beat and a guidance lift, meaning shares would presumably have gone up without Day's announcement. The news sliced more than $2 billion off the company's market value; clearly, investors view their CEO as precious.

And while the event has brewed plenty a commentary and concern about where the company is headed and who will take the reins, Day's departure also offers a reminder about the value and importance of a CEO.

Her record during her five years at the helm is nearly impeccable by any conventional standard. The retailer's share price rose nearly 500% during her tenure, compared with her predecessor, Robert Meers, who saw shares fall during his one year leading the retailer as a publicly traded company. Other results under Day were equally impressive. Trailing-12-month revenue grew by 333% over the past five years on superb same-store sales, an aggressive store expansion plan, and a new e-commerce platform. Earnings per share were up 516% as more of those sales flowed to the bottom line. Other traditional metrics were also strong, such as return on assets and return on equity, which hovered around 30% and 35%, respectively. And let's not forget that Lululemon has been so successful that it's spawned its own legion of imitators, including traditional apparel heavyweights such as Gap, Nordstrom, and Nike.

And what did Lululemon pay Day for this market-crushing value creation? According to proxy statements, her total compensation topped out at $4.28 million in 20120. Seems like a bargain for someone whose leadership the market values at more than $2 billion.

Not all CEOs are created equal
According to polls, most Americans think CEOs are overpaid, but Lululemon's share price drop following Day's exit is a reminder that often, the talent and direction occupying the executive chair is a bargain for these companies. The problem with CEO compensation is that terrible leaders are often paid as much as the great ones. Take J.C. Penney (NYSE: JCP  ) , for example, which is coming off one of the worst years in the history of retail. In 2011, the company paid more than $150 million, including stock awards, to beckon Ron Johnson and three of his henchmen into the executive suite. All four are now gone, and that awards package is proof that the board of directors may deserve just as much blame as Johnson and his team does for last year's debacle.

CEO compensation is difficult to get right, as a number of factors outside the chief's control affect performance and share price. In Christine Day's case, shareholders will get an even clearer sense of her value after her successor is named and they have time to assess the new leader's performance.

Who will be Lululemon's next CEO? No one knows for sure, but some have rumored that founder Chip Wilson will return to the executive chair. Or it could be an outside hire. Find out who's on Lululemon's bench, where the company stands following Day's resignation, and everything else you ever wanted to about the yoga sensation in our new premium research report. Just click right here to get started today. 


Read/Post Comments (1) | Recommend This Article (1)

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 June 19, 2013, at 8:06 PM, plange01 wrote:

    lulu names even a decent new ceo and this stock will jump $15 a share on the news...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2499291, ~/Articles/ArticleHandler.aspx, 11/27/2014 8:47:23 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement