Apple Guy's Approach to J.C. Penney Exec Comp: Here’s a Pile of Cash – We Hope You Stick Around

J.C. Penney (JCP), like a lot of old line retailers, has been in an awful state of decline for years.

JCP Revenues TTM Chart

JCP Revenues TTM data by YCharts

Hiring Ron Johnson, former retailing chief at Apple (AAPL) last June, brought some immediate shine to the dowdy old merchant, and he quickly took charge and laid out a new strategy of everyday low prices, like Wal-Mart (WMT), and promised to ditch the constant sales and promotions that have driven Penney’s revenues – and enfeebled its margins – for years.

JCP Profit Margin Chart

JCP Profit Margin data by YCharts

As YCharts noted in January, Johnson’s strategy sounds remarkably like one poor Sears (SHLD) tried to pull off in the late-1980s, hoping to expand its share of retail sales, only to abandon it when it discovered that its customers were addicted to promotions.

But any generous observer would note that Ron Johnson is likely smarter and more determined than the poor souls who ran Sears into the ground.

It almost imediately became clear upon his arrival that Johnson didn’t have the highest opinion of Penney’s other top managers, as he went outside to find new ones – and then paid them lavish upfront cash bonuses with almost no strings attached. What a great boss.

Johnson swiped Michael Francis and named him Penney president. Francis was formerly an executive vice president and chief marketing officer at Target (TGT). Also hired was Michael Kramer, as chief operating officer, a former CEO of Kellwood and an Abercrombie & Fitch (ANF) veteran who, earlier, had been at Apple’s retail unit. Daniel Walker was brought aboard as chief talent officer. He, too, did time at Apple. Finally – some geniuses to undo all the mess caused by prior bumblers.

But geniuses don’t come cheaply. Johnson, as widely reported, received a stock award valued at $53 million to come aboard. (He also bought a 7.5-year warrant, with $50 million of his own money, covering Penney shares.)

The others, however, got a lot of cash to show up, and notably get to keep it all even if they skip out after working at Penney for just one year. Francis got a sign-on bonus of $12 million (on top of a stock award valued at $32 million). Kramer got $4 million in cash (plus a stock award valued at $29 million). Walker got $8 million cash (plus a stock award valued at $12 million; he must be a weak negotiator).

They all get nice salaries and other stuff. But the cash with strings that last only one year is remarkable. Burl Osborne, 74 and a former newspaper publishing executive, is the chair of the Penney compensation committee. If we had his phone number, we’d publish it here.

It will likely be multiple years before investors can determine whether Johnson & Co. are turning Penney around, or merely rearranging the deck chairs. Penney doesn’t sell iPhones and iPads, after all, but rather shirts and dresses and sheets and towels, and generating excitement about such things won’t be easy. In fact, given the history of such turnaround efforts in retail, failure seems more likely than success.

Oh, one shouldn’t forget Myron Ullman III, the Penney CEO who so graciously stepped aside to make room for the new guy from Apple. Ullman’s compensation for 2011 was $34.6 million. Safe travels, Myron.

Jeff Bailey is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.



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