Best Buy (NYSE:BBY) is expanding its demands for noncompete agreements. The chain will now require a one-year noncompete from all executives and directors who receive stock awards, not just top executives, the Star Tribune reported on Thursday (June 6).
The change comes as the retailer continues to tighten up its executive compensation rules. Its board faced whithering stockholder criticism after former CEO Brian Dunn was forced out in a scandal in 2012, but collected a $6.6 million parting gift from the company anyway. Two other executives also received large retention bonuses last year and left the company in short order anyway.
Under the new policy, executives must agree not to work at a competitor anywhere in the world or use any idea or experience gained at Best Buy for 12 months after they leave the company, according to the Star Tribune.
The policy shift is partly a matter of where Best Buy is headquartered—Minnesota courts have ruled that noncompete agreements are enforceable—and partly another step in the retailer's process of shedding some of the cronyism of its early days. Until recently, for example, Best Buy leased its corporate jets from a company owned by founder Richard Schulze. CEO Hubert Joly is trying to push the policies toward U.S. corporate standards instead of the practices of an overgrown family business.
That means the carrot for Best Buy executives is now stock awards to attract them. The stick is the noncompete to discourage them from leaving. And the problem is that, though the agreements may be enforceable, they can be very difficult for retailers to use. "Does Best Buy have a lot of trade secrets? It strikes me as unusual to sign up people that far down the ladder," said Hillary Sale, a Washington University corporate law professor. And if there are no trade secrets to spill, no financial harm done and no damages to collect, even legally enforceable noncompetes are really just window dressing.
- See this Star Tribune story
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