Chasing performance (bonuses) at Best Buy…
Consumer-electronics giant Best Buy (BBY) splashes a “Deal of the Day” prominently on the front page of its website. Meantime, buried among its filings, is what looks like a nice deal for its top executives.
On Friday afternoon, the company filed an 8-K summarizing some changes to its Long-Term Incentive Program. This kind of thing often makes for reading as dry as an extended warranty, but in this case Best Buy kept it pretty short and sweet, in part by leaving out most of the details. (For one thing, it didn’t file the new plan or the text of any amendments to the old one; investors have to make do with the company’s summary until it gets around to filing the actual documents.)
Still, the gist of the change is simple enough: The company is ditching its past practice of using stock options to pay 75% of its long-term incentives, with the rest in restricted stock; all the grants vest (or become the executive’s to keep) 25% at a time over four years. Now, the long-term incentive mix will now be a third options, a third restricted stock, and a third restricted stock tied to corporate performance measures. That’s nice for executives in a down market, because restricted stock generally holds some value, while options can always languish underwater for years.
Where it gets vague is with those performance-linked restricted shares, which “will be contingent on business performance criteria, such as return on invested capital and net earnings.” We aren’t told just what measures will be used, or how performance will affect the payouts; presumably these are mere details. Eventually, the company will have to file the actual plan documents, but until then, we’re in the dark.
Then comes what may be the real payoff:
“Combined with the introduction of the performance-based component, the LTIP redesign also provides for grant level increases approximating the median value of benchmark companies as determined by application of the Executive Compensation Framework.”
If that strikes you as comp-consultant speak, that’s because it probably is. To us, it sounds to us like this means the grants are going to be bigger. (That cryptic “Executive Compensation Framework,” incidentally, isn’t defined or described in the filing either; investors have to turn to the proxy, which is helpfully described as “a set of internal and external factors that allow for a comprehensive, multi-faceted evaluation of total compensation based on each individual’s personal attributes and talents, the internal “value” of their role, and objective external market data.” Oh, but the factors don’t all apply equally, and aren’t all applied to all executives, so good luck keeping score at home.)
And that whole “long-term” business? It’s going to get 25% shorter — those new equity grants will vest over three years instead of four.
All of this goes into effect in the company’s 2013 fiscal year, starting in February. But it turns out that this isn’t the only tinkering Best Buy has been doing with its long-term incentive program. In fiscal 2011 (which ended earlier this year), for example, the company boosted the size of the awards its executives get, pretty substantially: CEO Brian Dunn’s award went up by 75%, and other executives’ rose by 30% on average, according to the company’s proxy.
In the end, it seems like Best Buy can always find a reason to boost and tinker with pay: Last year’s 10% salary hike for executives, for example, was justified to recognize Dunn’s “maturity in the chief executive role” (we’re glad he isn’t behaving like a child), and for other executives “due to increased scope, scale and responsibility for our largest business unit.”
Best Buy is something of a frequent flyer here at footnoted. Highlights include its litany of related-party transactions, which Michelle footnoted back in 2005, and which continue strong today: For example, the company paid $854,000 to entities owned by Chairman Richard M. Schulze to use their airplanes, it bought $9.7 million in store fixtures from a company owned by Schulze’s brother, and Schulze’s daughter runs the Best Buy Children’s Foundation and made almost $300,000 cash (plus a bunch of options) as a vice-president of the company. (On a lighter note, Best Buy is also the company that loves to baffle ’em with PowerPoint, as Michelle footnoted three years ago.)
With all of this going on, we’re less sure that folks are paying much attention to the kinds of things investors really care about, like performance. Best Buy shares have been on a tear — in the wrong direction, with 37% declines trailing the S&P 500 horrifically. In fact, the company’s total return (including dividends) appears to have trailed its industry for at least four years running.
That’s the kind of deal investors could do without.
It’s another merger Monday. What hidden signals are you missing in the filings? Find out more over on footnotedPro, where we delve behind the boring boilerplate to find what’s buried in the fine-print. To find out more, please contact us.