ERI Economic Research Institute’s Executive Compensation Index for the first half of 2011 indicated that restricted stock awards increased 27.8%, and bonuses and non-equity incentives increased 32%, while base salaries and stock option awards were relatively constant for the year. These results aligned with the bearish market, conservative spending, and shareholder activism against excessive risk compensation practices that were prevalent for the time period covered, which continue to spill over to current conditions.
Reviewing recent proxy statements, we identified Collective Brands Inc., most popularly known for Payless store brand, as an excellent example that demonstrated these trends. Based on the below Summary Compensation Table, between 2008 and 2009, the company’s CEO, Matthew E. Rubel, received a 55.0% increase in non-equity incentives from $1,166,996 to $1,808,835. In 2010, his non-equity incentive compensation had climbed another 31.8% to $2,383,853. While Rubel’s stock award compensation decreased 67.8% in 2009 from its 2008 value of $1,436,369, by 2010, it had risen to $1,954,613 — a net increase of 36.1%. Also, his base salary had a net change of only 3.5%, similar to the index trend.
On the business side under Rubel’s leadership in 2010, Collective Brands improved free cash flow, expanded operations in non-U.S. locations, and continued to successfully leverage its hybrid business model of store franchises, store ownership, and wholesale licensing. Further review of its stock price performance, we see some volatility in the stock, which can be expected with implementing business expansion strategy largely focused on international markets. Over a 24-month period, the stock price fluctuated from $9 to $26; at the time of the annual meeting, it was $15, then at year-end 2010, it was $21. The price is currently at $15 as noted in the graph below.
Collective Brands executive compensation recommendation garnered an 88.3% favorable Say on Pay vote from its shareholders at its recent annual meeting held on May 26, 2011. When anything less than a 70% favorable vote is considered a failed vote, 88.3% favorable vote is a commendable accomplishment. It appears Collective Brands success can be attributed to having rebalanced their executive compensation programs to improve transparency while also demonstrating pay-for-performance alignment.