The Key To Retail Success: Underpaid Executives
By George Anderson
For a retail grocery chain as successful as Publix Super Markets, it sure doesn’t pay its top executives very well. At least not when you compare the salaries and bonuses the Publix execs take home to what others in less successful businesses are making.
David Livingston, principal of DJL Research and a member of the RetailWire BrainTrust told The Ledger, “It’s (Publix executive’s compensation) like nothing, compared to other big chains.”
“Look at what Winn-Dixie’s paying — and they’re bankrupt. I would say that considering how successful Publix is, those five executive packages are extremely low. That’s not to say these guys don’t deserve every single penny they get. And, they’re not hurting; a lot of compensation comes in the value of their stock.”
According to The Ledger, the five highest-paid executives at Publix made between $369,217 and $713,931 in combined salaries and bonuses last year. The highest paid was Publix chief executive Charles H. Jenkins.
Moderator’s Comment: Is there a connection between what top executives are paid and how well companies perform? Do employees work harder for execs who
have pay packages that are seen as less extravagant?
Publix is not the only shining light of a retailer that pays its top executives modest (comparatively speaking) salaries and bonuses when compared to the
company’s rank and file. Costco has become for many the poster child of responsible compensation packages. –
George Anderson – Moderator
As a “Grocery Widow,” I find it appalling how much top management gets as opposed to middle management. How do you pay a DM less than six figures in today’s economy? Especially when that individual has an advanced degree? Bonuses used to be standard in the industry. Now, struggling companies are removing or “restructuring” their incentive programs to the point where bonuses have all but disappeared, but the upper management incentive packages remain unaffected. What a shame. And this grocery industry wonders why they are losing their base of hard-working middle management at a time when the competition is at its fiercest.
For the most part, Board Compensation Committees ensure that executive salaries are competitive. Their job is to make sure they’re paying their top people enough to keep them aboard. Shareholders make sure that boards of directors perform this task appropriately.
Compensation is much more than just salary and bonus. Perks, such as automobiles, club memberships, vacation packages, homes, etc. must be considered. Retirement packages must be added to the equation. And finally, stock options play a significant role in top executives’ compensation packages. In the case of Publix, the stock price is strong and growing. At Winn-Dixie, now in bankruptcy, the stock has far less value and a questionable future.
Here’s an exercise that provides perspective on the difference in value between the lowest and highest paid employees in a supermarket company (or any company): A $3 billion supermarket chain with 150 stores averages about $300 in sales per hour per checkout (open 15 hrs./day, 12 checkouts/store). A supermarket checker earning $20/hr. has sales responsibility for a multiple of 15X their hourly wage ($300 divided by $20 = 15). That’s a measurement of their impact on, and value to, the business.
If the CEO at this same, $3 billion supermarket chain has a total, annual compensation package of $2 million, their multiple is 1,500X ($3 billion divided by $2 million = 1,500), or about 100 times greater than the checker’s.
There is certainly a correlation between executives who get out on the store floor and roll up their sleeves to help the hourly worker and above average store performance. That’s more telling than the actual pay package of the top execs, and can have a greater impact. Most store-level and warehouse employees don’t have a clue how much the top guys make, they just know it’s much more than minimum wage or union scale (Publix is an exception because it’s employee owned). Hourly workers are more interested in helping people who help them, who encourage them and provide good incentives to do their jobs right. That’s tough to do when your sitting in a large office at headquarters making decisions on stores 1,000 miles away without much direct input from the people on the ground.
I’m not sure that there is a strong a connection between employee’s attitudes and CEO compensation levels. I do think though that Publix and Costco are excellent examples of very well run companies and this is just another tribute to the common sense and fairness of their executives.
There’s no connection whatever, from what I can see, between the top exec’s pay and the job they do. Publix isn’t alone. Look at Costco and several others I could mention.
It makes senses that Publix, Costco and other companies with less well-paid executives are successful. But I doubt it is because of the executive compensation package. Companies with moderately compensated top executives are probably financially conservative in general. I suspect they do a better job of controlling all of their costs not just executive compensation.
When it comes to publicly held companies, I believe that every executive should purchase from their own funds at least $200,000 – $500,000 of the company’s stock. The CEO should be required to purchase at least $1 million worth. For one of the big 3, perhaps tens of millions of dollars. If they can’t or won’t, it shows they don’t have the class needed to be in a responsible position. The same goes for the Board of Directors. I don’t have much faith in executives who work for a salary and will not suffer severe personal financial hardship if they fail to produce profitable results for all employees and stockholders. Basically, if the ship goes down, the Captain is the last in the lifeboat. Employees have more faith in a CEO who gets paid on results rather than providing political favors for large stockholders or board members. I don’t like bonuses tied to stock price because that usually leads to fraudulent financial reporting intended to skew the stock price. It also leads to disastrous cost cutting measures that only help the bottom line in the short run, with harmful long term results.
Look at the store manager salaries of the publicly held chain stores. I would wager that most are still under six figures. Some are as low as $65-80k a year. With such low salaries, they don’t have much to get excited about. But look at the salaries of managers who work for companies like Hy-Vee or Publix. These managers are on commission. Salaries of $150k to $200k per year are quite common. When store managers are paid on results, they will work much harder too.
The real question is, “Why do underpaid executives not leave in droves?” I think that you will find that people tend to feel good about their jobs when they feel appreciated by both upper management and those they manage on a daily basis. They also probably feel that they actually matter and can have an effect on the business and the welfare of those with whom they work. Above all, they have been trained well and know what is expected by the management of a company that doesn’t run itself based on quarterly results.
It’s not that Publix pays too little, it’s that other companies pay way TOO much. We need to shake this prevailing feeling of entitlement if we are to improve as a nation going forward. We seem to have forgotten that people get paid for doing a job, and if they do a good job, their bonus is they get to keep their job. Bonuses are too frequent and overblown for what many executives are actually achieving. Better that a company spreads those bonus dollars in small increments as an incentive amongst lower level employees, who in the case of retail are the ones the public encounters and gets their impression of a business from. If making 1/2 million or 3/4 of a million dollars a year is not enough incentive to stay in a job, then by all means move on if you can, but do not make the mistake of thinking you’re entitled to more and more just for showing up for work. You’re not. If you’re doing a good job, your bonus is you get to keep your job. And enough with executives whining about compensation–you’re an executive, act like one.
Wouldn’t it be easier to pay everyone on commission or in profit-sharing? I know I’d like it. I used to make almost a penny on every unit sold. Now I make less than half a penny on each sold. Never mind that sales are up 400%.
When times are good, that is, when headhunters are calling daily with all kind of dream job offers. A bonus of “getting to keep my job” isn’t going to cut it.
If these executives are so underpaid, why haven’t they jumped ship? They must be getting intangibles. Perhaps that’s a lesson for competitors – that they could save some money by offering more intangible compensation to their own and to future employees.