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Best Buy Shareholders Should Be Outraged

By Alyce Lomax - Updated Apr 7, 2017 at 1:37PM

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There's good reason to believe shareholder value's going to keep heading down the tubes.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$105.07 (1.11%) $1.15
HP Inc. Stock Quote
HP Inc.
HPQ
$38.40 (2.02%) $0.76
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$111.62 (0.18%) $0.20
Apple Inc. Stock Quote
Apple Inc.
AAPL
$160.90 (-1.75%) $-2.87
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,377.35 (-1.75%) $-60.01

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