As Grocery Stores Struggle, Some CEOs Get Bargain-Bin Bonuses
June 10 2017 - 9:29AM
Dow Jones News
By Heather Haddon
Bonuses for many grocery executives were curbed last year as the
sector faces competition across several fronts and a historic
decline in food prices, possibly making it harder for retailers to
attract the kind of talent they need to turn around their
businesses.
Chief executives at the 10 largest U.S. grocers received a total
of $6.6 million in performance-based pay last fiscal year, down 40%
from $11 million in 2015, according to ISS Analytics, the data arm
of proxy advisory firm Institutional Shareholder Services Inc. Some
companies eliminated bonuses altogether.
That contrasts with the broader corporate sector, where
incentive pay has steadily increased, growing 3% in 2016 from a
year earlier.
While most other industries have benefited from improving
economic conditions since the recession, grocery retailers are
facing intensifying competition from online merchants, discounters
and new ways to buy food like subscription meal-kit services, even
as deflation has eroded food prices.
Same-store sales were flat across major food retailers last year
after rising by at least 3% each of the three years prior,
according to a FactSet industry average. Grocery stocks are down by
an average of 5.4% so far this year.
"The food-retailer space has been hit harder," said John Roe,
head of ISS Analytics. "It's clear that in aggregate there was a
sharp reduction in annual incentive payouts."
Only one of 10 major food retailers, Casey's General Stores
Inc., raised its chief executive's bonus last fiscal year, compared
with more than half of the 3,000 biggest public companies, the ISS
analysis shows. CEOs of household- and personal-product firms saw
the biggest jump in compensation last year, followed by executives
at food, beverage and tobacco companies and those leading utility
businesses, while retail heads fared the worst.
Long an executive staple in other industries, performance-based
bonuses are newer in the grocery sector, which more recently has
tapped them to attract outside talent, according to management
consultants.
But if the industry remains stagnant, it could become harder to
recruit the kind of younger, tech-savvy executives that grocery
stores needs to compete with Amazon.com and other e-commerce
food-sellers, industry analysts and recruiters said.
"It creates a lot of uncertainty," said Jose L. Tamez, managing
partner for Austin-Michael, a Denver-based executive recruiting
firm focused on food retail.
The hit comes as base pay for food-retail executives has also
fallen. Salaries for CEOs at large food retailers averaged $1.5
million last year, down 14% from $1.75 million in 2012, according
to an analysis of 32 supermarkets by Austin-Michael. Other C-suite
salaries fell by single digits.
Kroger Chief Executive Rodney McMullen received incentive pay of
$720,000 last fiscal year -- a quarter of the $3 million he made in
2015. The cut followed Kroger's largest miss on performance-based
milestones since 2002.
A company spokesman said Kroger, the nation's largest
supermarket chain, remained confident it would deliver growth for
investors and was committed to having executive bonuses rise "when
performance justifies doing so and decline when it does not."
Whole Foods Market, Inc., for the second year said it wasn't
awarding bonuses to executives, as the natural-food grocer deals
with flagging sales. Sprouts Farmers Market Inc., Publix Super
Markets Inc., Supervalu Inc., Natural Grocers By Vitamin Cottage,
Inc., Village Super Market, Inc., Weis Markets, Inc. also
eliminated or slimmed down performance-based bonuses during their
most recent fiscal years.
"Across our industry, 2016 was a challenging year," David Hirz,
chief executive of Smart & Final Stores Inc., told
investors.
Persistent deflation in food prices prompted the
California-based grocer to cut its targets last August to make
bonuses more achievable. Though the warehouse-style grocer couldn't
hit most of the easier metrics, Smart & Final gave out $518,840
in discretionary bonuses last fiscal year based on its success in
expanding store count, a spokeswoman said.
If the industry's troubles persist, executives and recruiters
say companies will need to revise their performance targets or
provide some other kinds of incentive.
Still, providing compensation that's too large would be off-key,
consultants said. "Business is bad. It's pretty hard to justify big
compensation when business is so down," said Bob Goldin, co-founder
of food-industry strategy firm Pentallect Inc.
(END) Dow Jones Newswires
June 10, 2017 09:14 ET (13:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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