Seriously, what ... the ... stupid?!
What I need everyone to do right now is take everything they've learned about CEO compensation up until this moment in time, because we're going to throw it right out of the window and examine Rite Aid
First, it should be noted that CEO pay and performance do not always line up perfectly -- or even appear to be from the same planet. Gregg Engles, CEO of Dean Foods
However, the pay raise that Standley and some of his coworkers recently were awarded may be the dumbest yet (or at least rival that of having Chesapeake's board buy $12.1 million worth of antique maps from McClendon).
In a recent filing (page 59 for those curious) with the Securities and Exchange Commission, Rite Aid noted that Standley received a salary and stock-compensation pay boost of roughly 292% in fiscal 2011 to nearly $11 million from $2.8 million in the previous year. Not to be left out, Rite Aid's chief financial officer, Frank Vitrano, garnered an 87% boost in compensation to nearly $5.2 million. The reason Rite Aid's board of directors granted the raise was that the company had met pre-set EBITDA goals from the previous year.
The Rite Aid board of directors divvied out millions of dollars in extra pay to its CEO and CFO not because Rite Aid was profitable (because it isn't), not because it increased cash flow, reduced expenses, regained market share, paid down debt, or increased its workforce; it gave them a raise because the company simply hit its EBITDA target.
Don't get me wrong. EBITDA growth is necessary to grow a business. But so are bottom-line profits. Rite Aid hasn't turned an annual profit since 2006, before its purchase of Eckerd. Worse yet, the company has $6.2 billion in net debt sitting on its balance sheet with very minimal cash flow (just $16 million in fiscal 2011). The icing on the cake is that Rite Aid has been losing customers hand-over-fist to Walgreen
But wait; it gets even better.
Not only did management get a big, fat raise for basically sitting on its laurels, but the board of directors also elected Standley to be its new chairman! This is the first time the CEO and chairman roles have been combined since Mary Sammons was CEO. As a reminder, Sammons was the same CEO who spearheaded the buyout of Eckerd -- a buyout that has seemingly crippled the company under a mountain of debt. Yeah, I'm sure combining those two positions will work out fantastically.
One of my favorite comedians, Ron White, is known for the tagline "You can't fix stupid!" I wholeheartedly agree, but I wish the Rite Aid board could at least be a little less obvious about it.
Questions? Comments? Free drinks? Send them my way!
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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