Struggling retailers lay off workers and pay millions in executive bonuses

Discussion
J.C.Penney CEO Jill Soltau with college-bound graduates, Aug. 2019 - Photo: J.C.Penney
Jul 17, 2020
George Anderson

J.C. Penney, Macy’s and Neiman Marcus are three retailers that have at least one thing in common, besides the fact that they have all had to take drastic steps to deal with the hits their businesses have taken as a result of the coronavirus pandemic. All three have paid or are trying  to pay millions in bonuses to their executives after making big cuts to their businesses presented as absolutely essential to keep them going.

A $4.5 million bonus due to Penney CEO Jill Soltau has drawn scrutiny in light of that chain’s Chapter 11 bankruptcy filing and plans to close 152 stores, which will put thousands out of work. The bonus due Ms. Soltau, Bloomberg reports, was part of her contractual agreement signed when she joined the company in 2018 and was not part of a recently devised “pay-to-stay” offer prohibited under U.S. bankruptcy law.

Penney also announced on Wednesday that it is further reducing its corporate, field management and international workforce by 1,000 jobs.

“These decisions are always extremely difficult, and I would like to thank these associates for their hard work and dedication,” said Ms. Soltau in a statement. “We are committed to supporting them during this period of transition.”

Macy’s, according to CNBC, paid out $9 million in stock bonuses to CEO Jeff Gennette and five other executives days after cutting 3,900 corporate jobs. These cuts were on top of the chain’s plans, announced in February, to permanently close 125 stores over a period of three years. Macy’s, which has avoided bankruptcy, furloughed the vast majority of its workforce earlier this year when the pandemic forced it to close stores to customers. An unspecified number of furloughed workers returned to their jobs in the first week of July.

The U.S. Justice Department is contesting $10 million in bonuses that the bankrupt Neiman Marcus Group is looking to pay CEO Geoffroy van Raemdonck and seven other top executives at the retailer. Henry Hobbs, the government’s lawyer monitoring the case, contends that Neiman Marcus needs to demonstrate that the executives have materially helped to improve its earnings. According to a Wall Street Journal report, the company paid the eight executives more than $3 million in bonuses before it filed for Chapter 11 in May.

DISCUSSION QUESTIONS: How does the payout of large financial bonuses to top executives at struggling and bankrupt retailers affect the morale and performance of employees within those organizations? Do you think corporate America, specifically the retail industry, needs to rethink how employees from the frontline to the c-suite are compensated for their work?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"It's tone deaf and is not going to help morale in any manner, shape or form. Better the C-suite occupants should go and work WITH the front line workers for a day or two."
"These acts really cause people to ask, where is the oversight from the boards?"
"Not to throw shade, but well-run companies don’t do this."

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34 Comments on "Struggling retailers lay off workers and pay millions in executive bonuses"


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Mark Ryski
BrainTrust

These are terrible optics for the front line workers who are literally risking their health and welfare to earn a living. That said, this is not an issue specific to retailing – this is how the corporate world works. The executives at the top always get paid well, regardless of what’s occurring in the business. As long as compensation/payout decisions are made by the people at the top, this will always be the case. What needs to change are bankruptcy laws that allow for this kind activity while employee pensions are cast aside. It’s sad and disgraceful.

storewanderer
Guest
2 months 11 days ago

A number of companies in the past have paid “retention bonuses” right before they put the company into bankruptcy. I find that ironic too. It is almost like the management empties out the safe for good and then goes and files bankruptcy.

Xavier Lederer
BrainTrust

In this case one might question the need for a retention bonus: competition for talents in the retail top executive arena is at an all-time low, and this move makes you wonder whether these executives will have the internal support to steer their teams out of bankruptcy.

Suresh Chaganti
BrainTrust

Not good optics, but it is an unavoidable situation. The executives typically have contracts with guaranteed payouts, even if much of the expected compensation is tied to performance. I would guess these are minimums they have negotiated or that the board has approved. In the overall scheme of things these payouts to executives would not make a material difference but, as I said, bad optics nevertheless.

Rachelle King
BrainTrust

Maybe some boards should look at implementing new contracts to withhold payments during times like this. Otherwise, the contractually-obligated party line is a loop-hole to compensate executives, at this point, for doing nothing more than taking on a job title.

Mark Ryski
BrainTrust

Great point Rachelle. In fact, there should be Board liability attached to this. If this became a corporate governance issue that was also connected to Director and Officer (D&O) insurance, that might actually get some attention.

Paula Rosenblum
BrainTrust

See, this is the dictionary definition of “tone deaf.” It’s one thing to give someone a “stay” bonus in more normal times when a company goes into chapter 11 — I can wrap my head around that — but NOW? Seriously?

It’s tone deaf and is not going to help morale in any manner, shape or form. Better the C-suite occupants should go and work WITH the front line workers for a day or two.

It’s not a good time to anger the people. It’s just not.

Jeff Sward
BrainTrust

I was once president of a licensed business, a division of a larger corporation. We lost the license. We paid the STAFF retention bonuses so we could transition the business to the new license holder as professionally as possible. 100 percent of the staff stayed until their planned exit date.

Stephen Rector
BrainTrust

When companies have furloughed, laid off and asked their staffs to take pay cuts – and then the leadership gets huge payouts – it just looks bad. While I know these bonuses are contractually baked in for those in the C-suite, but I can guarantee this is not going to boost morale at these companies.

Tony Orlando
BrainTrust

This action is simply beyond stupid. Rewarding top executives when the company is near bankrupt is simply wrong, period. The shareholders need to make sure this never happens, or risk losing all of their front line workers — who see the greed and wonder why they are losing their own livelihood. There are some very fine executives running companies who make sure their employees are respected and, if the company does well, the annual bonuses will be spread among all the workers.

Zel Bianco
BrainTrust

It’s one of the most tone deaf moves they could be making at this time. It follows the completely horrendous situation that small neighborhood businesses are in. Many of them are destroyed, which will lead to many more problems with families who have built their dream and put all they had into these businesses. The reality is that the government funds that were supposed to bail them out ended up going to major chains, lobbyists and private equity!
Workers at Macy’s, J.C. Penney and Neiman Marcus should move to a retailer that is fair to their workers.

Ian Percy
BrainTrust

Thanking employees for their “hard work and dedication” while giving them virtually nothing while their “leaders” continue to sit at the banquet table is the financial equivalent of politicians offering nothing but “thoughts and prayers” to folks who are suffering and dying.

Sure there are “contracts” and executives can legally insist they be honored no matter the circumstances. Or they could honor their hard working and dedicated employees by sharing at least some of the bounty. To whom much is given, much is required.

Cathy Hotka
BrainTrust

Not to throw shade, but well-run companies don’t do this.

Bob Phibbs
BrainTrust

Exactly Cathy!

Ricardo Belmar
BrainTrust

Your company is flailing and/or dying, you’re laying off thousands of frontline workers, eliminating thousands of corporate jobs, so what’s your brilliant action to turn around the business? Pay your top executives millions in bonuses? Talk about tone-deaf optics – it’s just bad and there’s no way to rationalize it. These acts really cause people to ask, where is the oversight from the boards? Sure these payouts are almost certainly coming from contractually bound terms arrived at when those execs were hired, but a little bit of common sense goes a long way. At a minimum, if you’re filing Chapter 11, come up with a way to defer those bonuses until after the turnaround. Then optically, it would look like rewarding good leadership. Paying them out now is the opposite of good oversight and decision making. It’s no wonder many of these retailers are talked about as having poor leadership when it comes to customer-facing aspects of their business when these are the sort of decisions being made in the boardroom.

Richard J. George, Ph.D.
BrainTrust

As noted, it’s not an issue related solely to retail. However it sends a clear message to “essential” workers that they may not be so essential. If the rule of thumb for determining a bonus is to ask, did these executives materially help to improve the earnings of their respective companies, in this case the answer appears to be “no” across the board.

This is an ethical rather than a legal issue. While these payments may not violate any laws, it does not mean that ethics and the law share the same inflection point. Ethics should occupy the space above the legal limits.

Dick Seesel
BrainTrust

A smart C-suite executive who is already well compensated would pause his or her bonus even if it was performance based or contractually driven. This would send a supportive message to the remaining workforce, even on a furlough, that “we’re all in this together.” And perhaps the money going toward executive bonuses could be redeployed toward an extra month of insurance coverage, etc.

Retention bonuses make some sense in challenging situations like these, to make sure that capable executives keep the ship afloat. But most of the examples in this article really do look like bad optics or tone-deafness.

Craig Sundstrom
Guest

Money not left on the table is absolutely a squandered messaging opportunity: If you’re given lemons, make lemonade, not vinegar … to throw in someone’s face.

Peter Charness
BrainTrust

We’re all in this together — right? Taking care of each other in tough time. What’s happened here is the symbol of much that is wrong in our me, me, me culture.

Neil Saunders
BrainTrust

It looks bad. It feels bad. And that’s because it is bad. In many cases the bonuses are just not deserved. Macy’s is a prime example: being blunt, it is a badly managed retailer where the executive suite is unable to innovate or guide the company to a sustainable future. That in itself damages the prospects for employees, but it adds insult to injury to see people at the top being rewarded for it.

Lee Peterson
BrainTrust

Well, no need to wonder why they’re struggling. Associates are the life blood of a company, not the fodder that holds up top executives. According to Starbucks’ Kevin Johnson, associates’ and customers’ health was their number one priority, duh, so they paid their workers even during the shutdown and supplied masks and necessary PPE when open — I guess that’s not so “duh,” apparently. P.S.: Starbucks is NOT struggling.

Bob Phibbs
BrainTrust

This is outrageous. Trying to argue you deserve bonuses while laying off workers because your leadership failed the brand shows what poor leaders these people are. Bankrupt in many ways.

Phil Rubin
BrainTrust
2 months 12 days ago

Leadership means setting an example, not a double standard.

The leaders of these companies, and their boards, are worse than tone deaf or simply guilty of bad optics, they are aggressively running their once relevant (that’s gracious to J.C. Penney) businesses into the ground. Which is where they all belong. As bad as it is (was) to shop these stores, it’s clearly worse to work there (except for the C-suite). And those two experiences are but one factor explaining why these brands are and should be history.

Ian Percy
BrainTrust

Hmmmm, I wonder where retail “leaders” got the idea of a double standard. Seems to me that’s now an indigenous part of our culture. Sad isn’t it?

Shep Hyken
BrainTrust

The optics are BAD (capitalized on purpose)! The retail industry – or any other industry – should always be rethinking how employees from frontline to C-suite are compensated. They do need to consider the times. What they don’t need to do is make decisions that make them look bad. I get that the CEO of J.C. Penney was under contract. There may or may not have been a better way to handle it. While many in leadership are taking salary cuts to show they are in it with their team (all employees), which sets a good example, others are taking bonuses while employees are being cut and suppliers are not being paid, and that doesn’t look good at all.

Camille P. Schuster, PhD.
BrainTrust

All three of these retailers are in dire financial straits. What did the top executives do to earn these bonuses? The optics are that they are getting bonuses for laying off workers and putting the company in a precarious financial situation. Really? Is that what should be rewarded?

Cynthia Holcomb
BrainTrust

This is very sad. Imagine all the laid-off, front-line workers struggling to survive. Unemployment at an all-time high due to COVID-19. Schools may or may not open. The list of challenges for laid-off JCP, Macy’s, and Neiman Marcus employees is exhausting. Where are the glowing reports of corporate ethics and morality frequently touted in retailer press releases? Obviously, these retailers’ internal behaviors have earned them their fate.

Jasmine Glasheen
BrainTrust

What a brutish move in a time when frontline workers are struggling to make ends meet and to retain their healthcare. We aren’t just talking numbers and investments … these are people’s lives at stake.

Before all of this happened, we were talking a lot about how top-down management styles no longer resonate. It’s interesting to see some of the department stores that were called out for an unwillingness to change making a move that’s brazenly anti-worker, anti-employee, and frankly, anti-middle class. Remember this when next-gens boycott these retailers.

storewanderer
Guest
2 months 11 days ago
I find it somewhat ironic these department stores are doing this. They were doing lousy before the pandemic (certainly not performing in a way that would justify bonuses) and did nothing revolutionary during the pandemic to adjust to the environment. JCP particularly was a joke, taking weeks to open back its stores after Macy’s and Kohl’s did. If anything, these executives for these department store chains should be in for a pay cut, not a bonus. Their chains are performing poorly, laying off thousands (many of these layoffs are a result of poor management/strategy, not Coronavirus), and the in-store merchandising is deplorable at JCP — some of the worst I’ve ever seen — about on par with a messy old Sears, and barely passable at Macy’s. But the reality is, this goes on in a lot of businesses. Management is too “buddy buddy” with the Board of Directors who ultimately approves bonuses of this nature. What surprises me is these people even have the guts to ask for a bonus, knowing the state of the… Read more »
Craig Sundstrom
Guest

Obviously this looks bad, but it makes perfect sense: a company in distress — the laying-off part — needs top quality leadership … and that usually costs money.

But what a squandered opportunity on the part of those hired not to forgo, or at least defer, most of their salary … visibly, though not so much as to make a spectacle of it. Even Trump works for (IIRC) a dollar; it’s quite literally the only thing he’s done that I approve of, but that doesn’t diminish the logic.

Mark Ryski
BrainTrust

Fair points Craig, but the “top quality leadership” are often the same people who were at the helm when the company ran into trouble — they simply retain their “leaders” to help with the wind-down. At that point, these leaders are often as disheartened, disgruntled and angry as most other employees — but they know how the business operates so they’re needed to ensure that receivers can maximize the value of the remaining assets or business itself, if there is any. It’s a morbid process.

I’ve recently been on the receiving end of a number of retailer bankruptcy notices — in fact, some from major chains that have been in the news — basically saying, “sorry we owe you money but we’re not paying” and the letter has a four page addendum listing all the law firms involved. Someone’s getting paid, but it’s not employees or vendors.

Mel Kleiman
BrainTrust

I am only answering this question because I agree with all of the other experts that this is a dumb move. I wonder how the executives who took the bonuses justify their actions in their own minds.

James Tenser
BrainTrust

These executive bonuses are worse than “bad optics” I think. In times of retail business contraction, they amount to a disproportionate transfer of wealth from front line workers to executive management.

The counter argument that such bonus terms are required to attract and keep executive talent is pretty thin too. In the present tough economy, these payouts are looking more like “failure insurance” than rewards for good performance.

I wonder if the contract terms that enable this practice could be subject to legal challenge. Shareholders and creditors may have greater means to take action than suddenly unemployed store clerks.

tracy
Guest
2 months 8 days ago

If these “C” level leaders are so essential, why are their companies Chapter 11? Just because you are good enough to take your company into Chapter 11 does not mean you are sharp enough to lead them out. Let’s see some fresh talent take these venerable brands into the new reality (at half the cost).

wpDiscuz
Braintrust
"It's tone deaf and is not going to help morale in any manner, shape or form. Better the C-suite occupants should go and work WITH the front line workers for a day or two."
"These acts really cause people to ask, where is the oversight from the boards?"
"Not to throw shade, but well-run companies don’t do this."

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