It can’t be easy for bargain stores such as Dollar Tree, Inc. (DLTR) to generate big profits by selling merchandise that costs a buck or less per item. Presumably it’s the volume of sales that matters, not the individual bottle of dishwashing liquid or greeting card. But however they do it, the business model is successful enough that it resulted in one executive, president and chief executive Bob Sasser, getting a surprisingly large reward.
In an 8-K that Dollar Tree filed yesterday, it disclosed that — upon the recommendation of the Compensation Committee — the board of directors just showered Sasser with a $10 million “special one-time retention award.” We’ve never really understood why companies are so eager to hand out retention awards, but here’s Dollar Tree’s reasoning, as stated in the filing:
“The independent directors believe that Mr. Sasser has had a direct impact on the significant increase in Dollar Tree’s share price during his tenure as Chief Executive Officer since 2004. In light of his contributions to increasing long-term shareholder value, the independent directors believe it is in the best interest of the shareholders to provide an additional incentive for Mr. Sasser to remain with the Company.”
We’re certainly not ones to quibble with the fact that Dollar Tree’s stock has soared in recent years. The stock price is up nearly 77% in the past year, and it’s almost 165% higher than the trading price five years ago. Clearly the board believes that Sasser’s leadership has been invaluable. But we can’t forget that Sasser’s $10 million award also reflects some “lucky” timing based on factors beyond his control; indeed, consumers’ reliance on deep discount stores such as Dollar Tree grew dramatically after the fall of 2007, when the subprime mortgage mess led to wave after wave of layoffs, foreclosures, and other grim economic news.
Dollar Tree’s filing notes that the $10 million retention award will be in the form of restricted stock units (RSUs) that will vest all at once after five years, assuming Sasser remains employed and meets some net-income thresholds. That’s an important point: Sasser isn’t getting the money today. But he might not have to wait for the whole five years, either: The board can accelerate the award if it wants to. Usually that kind of accelerated vesting comes into play if a change in control occurs or if an executive is terminated without cause. However, the filing doesn’t go into detail about the specific “employment scenarios” in this particular case.
We found it interesting that two Dollar Tree executives sold significant chunks of stock recently. Just yesterday, an article reported that its Chief Operating Officer, Gary Philbin, sold 6,396 shares on June 18 for $715,457. And last week, the same publication reported that Chief People Officer, James Fothergill, sold 6,713 shares for $695,218. After their respective sales, Philbin still owns 40,743 shares; but Fothergill’s transactions (there was actually one on May 29 and another on June 6, for a total of 6,713 shares) left him owning no stock.
At any rate, Sasser’s award will definitely boost his compensation numbers. We took a peek at what he got in fiscal 2011, as reported in the May 11 proxy, and last year he received more than $6.1 million in total compensation, including $1.08 million salary, $1.8 million in non-equity incentive compensation, and $3.1 million in stock awards.
Throw in that new $10 million award, and Sasser can buy any kind of dishwashing liquid he wants for the rest of his life, or just buy new dishes whenever the old ones get dirty.
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