I wrote about Supervalu’s (NYSE:SVU) compensation practices here. You may recall from that article that the company had created a new plan for rewarding the top 800 employees in the company based on an improvement in the price of the company’s shares (which have been trading around 26-year lows). Though this plan is clearly flawed, it appears that the board is doing a better job of devising a compensation plan for the most senior of managers: the company’s CEO.
As reported by Sarah Skidmore of the Associated Press,
Supervalu Inc. CEO and President Craig Herkert received a pay package valued at nearly $3 million in the company’s most recent fiscal year, according to an analysis of a recent regulatory document.This is a good (though not perfect) example of how executives should be compensated. When the company is performing well, senior executives are rewarded with fair incentive payments (for the hippies out there, I am referring to fair as relative to other large companies' senior executive compensation packages), and when the company performs poorly, this should also impact executive pay. This is the point of having incentive pay above a flat salary, but many companies fail to grasp this concept, awarding high incentive pay regardless of company performance (often only reducing this portion of pay by a nominal amount, perhaps 25%, despite a much larger swing in corporate performance).
That’s down sharply from the $10.8 million he received in the prior year that was loaded with awards related to his hiring as CEO of the grocery chain.
Supervalu held Herkert and all other executives' salaries steady in 2011. Herkert’s salary remained at $850,000 for the year but he only received a partial payment of $653,846 in the previous year due to his start date with the company.
The company gave him no performance-based bonus, compared with the $398,183 he received in 2010. He also received no stock awards this year, compared with nearly $6.8 million the year before. The value of his options awards was nearly flat at $2 million.
Supervalu lost $1.51 billion, or $7.13 per share, for the full year. That compares with earnings of $393 million, or $1.85 per share, in the previous fiscal year. Excluding one-time items, the company’s earnings fell to $1.39 per share from $2.03 per share.
Obviously this pay structure isn’t perfect – the swing in SVU’s performance between the two comparison years has much less to do with the CEO’s skills than it does with the overall economy and the financial stability of the American consumer. No system is perfect, but I think this is a step in the right direction since it is based not on the company’s share price but rather relevant operating metrics. From the company’s definitive proxy statement:
Now if only they could come up with a better plan for the rest of the top 800 employees.
Read the full AP story here. You can read the full details of the executive compensation policies in the company’s recent Def 14A filing. I am still a big fan of SVU, and you can read my other writings on the company here.
Author Disclosure: Long SVU
Talk to Frank about Supervalu