Mike Duke, the CEO of the world's largest retailer, makes a fine living, pulling in about $20.7 million last year. Add in stock and his full compensation is $27.8 million. But that's paltry compared with the $36 million (each) paid to two Dillard's execs: CEO William Dillard II and President Alex Dillard.
That has to be demoralizing for execs at Walmart (NYSE:WMT) (annual sales last year: $466.1 billion) looking at the financial reports from its much smaller fellow Arkansas-based chain, Dillard's (NYSE:DDS) (annual sales last year: $6.6 billion).
Arkansas Business reported that the compensation difference was based on stock options and a stunningly unusual increase in Dillard's stock price. "The phenomenal run-up in the price of Dillard's stock—from about $3 in the spring of 2009 to a 2012 peak just under $90—encouraged all of the Little Rock retailer's top executives to cash out," the story said.
Beyond the two top execs, other Dillard's execs fared quite well, too: "Chief Financial Officer James I. Freeman realized $18 million from exercising stock options, while Executive Vice Presidents Drue Dillard Matheny and Mike Dillard gained $19.7 million and $18.8 million respectively on their options."
Stock options are very tricky things and there are some powerful arguments that they should be re-evaluated as incentives. The argument in favor is simply that it directly focuses all of the executives' attention on the stock price, a legitimate goal given that the ultimate boss of every publicly-held company is the shareholder.
But the better argument is on the other side. The board needs to have the CEO focus on building the best and strongest company possible. That means investing for the long term and acting strategically. It's impossible to properly run a multi-billion company (let alone a half-trillion-dollar company) with an obsession on quarterly numbers. Wall Street cheers layoffs and hates investing in IT and stores.
Done properly, the board should set strategic objectives and compensation should be based on exceeding those goals, not by the whims of Wall Street.
- See Arkansas Business story
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