DISCUSSION
Should executive pay structures change to address slower growth at retail?
Written by Tom Ryan
With profits, sales and stock prices declining for many retailers last year, executive compensation for the industry took a hit.
A study of major retailers from Korn Ferry found 73 percent paid little to no bonuses to senior executives in 2017 for 2016 performance. Of those surveyed, 35 percent paid no bonus and 38 percent paid only small bonuses to their executives.
Only 15 percent of the retailers paid senior executives their target or above bonus amount in 2017.
The study of 40 major North American retailers also found a descending rate in those receiving bonuses. Compared to the 35 percent receiving no bonuses in 2016, 25 percent went without a bonus in both 2016 and 2015, 11 percent in 2014 and 10 percent in 2013.
“Bonuses are typically tied to the performance of the retailer, and historically about 50 percent of retailers achieve their business plan for profits and pay executives their normal bonuses,” said Craig Rowley, a Korn Ferry senior partner specializing in the retail industry. “The fact that this year only 15 percent of companies met or beat their expected profit plan and paid full bonuses to executives exemplifies the challenges facing the industry.”
Korn Ferry implied that pay gains will be difficult in the years ahead with minimum wage hikes across U.S. cities impacting margins and many retailers failing to offset lower foot traffic with e-commerce gains.
A recent report from Alvarez & Marsal noted that many compensation programs at retail are too focused on same-store sales and operating income growth that support building scale and adding stores. Given the “difficult, but necessary” steps required in the current climate, strategic investment and operational efficiencies become bigger priorities.
As a result, the turnaround consultancy argues that rather than typical broad incentives across the c-level, compensation for pivotal roles such as merchandising, store planning and allocation and digital need to reflect the time frame and tasks of any turnaround. Stated Alvarez & Marsal, “As retailers navigate these conditions, they need to ensure their people strategies and compensation programs are flexible and supportive, not rigid and dated.”