It's not unusual for retail executives holding stock options to benefit when their company's share price improves. In the case of Macy's, executive compensation is taking on a new twist. For top managers to fully benefit, the share price not only has to improve, it will have to perform well versus 10 other retailers.
According to a filing with the Securities and Exchange Commission on March 24, if in 2011 Macy's share price is in the top third of a list that includes Dillard's, Gap Inc., J.C. Penney, Kohl's, Limited Brands, Nordstrom, Sears Holdings, Target, TJX Companies and Wal-Mart Stores, then participating executives would get 100 percent of their stocks. If the price falls between the top third and half, the execs would receive 75 percent. Falling into the bottom half would mean CEO Terry Lundgren, CFO Karen Hoguet and vice chairs Thomas Cole, Janet Grove and Susan Kronick get nothing.
Burt Flickinger, a consumer industry analyst with SRG Insights, praised Macy's performance in the current environment and told Marketplace the new plan could benefit the company.
"The department store sector has been slowly dying for years, and many of the major chains may be dead within a couple quarters. And Macy's is doing a heroic job to hold on," Mr. Flickinger said.
Tom LaWer, a partner at the compensation consulting firm Compensia, said other companies are considering plans similar to that adopted by Macy's.
"There's a natural inclination on the part of executives to ask for new stock options at a low price. And a natural inclination on the part of the stockholders to say, 'No, you need to suffer the way we're suffering.' So that's breaking down," Mr. LaWer told Marketplace.
Discussion Question: Will Macy's new stock option plan result in a higher level of performance by the company? Do you see any dangers in this plan? What other thoughts do you have on executive compensation in the retailing business?