Measuring what’s due at Polo Ralph Lauren …

July 2, 2010

It usually isn’t seemly for managers to look like they’re treating a public company like their personal fiefdom (or trough). But when a company is still headed by its founder, and where that founder still holds a significant chunk of the shares, are giant paychecks more tolerable, short of outright exploitation?

These questions came to mind as we browsed the proxy that Polo Ralph Lauren (RL) filed yesterday. We’ve written before about big pay at the company, but in the end, of course, Ralph Lauren himself remains chairman and chief executive.

It’s a classic case: He didn’t just found the company; he still runs it. He controls 76.1% of the voting shares. There arguably might not even be a Polo Ralph Lauren without Ralph Lauren still at the helm for all these years — or, as the company put it in the topmost risk factor listed in the 10-K it filed in early June:

“Mr. Ralph Lauren’s leadership in the design, marketing and operational areas of our business has been a critical element of our success since the inception of our Company. The death or disability of Mr. Lauren or other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on our business.”

When you get right down to it, his name or initials are sewn into many of its products. (Though the proxy notes that he has “retained the royalty-free right to use as trademarks —Ralph Lauren, —Double RL and —RRL in perpetuity in connection with, among other things, beef and living animals.”)

So just how much of the company’s profits should top management get to keep? And does it matter if one of their names is on the building? With those questions in mind, here’s how it actually breaks down at Polo Ralph Lauren, according to the proxy:

The top five executives raked in an amount equivalent to nearly 13% of of the profits the company reported for the fiscal year just ended: some $61.4 million, vs. $479.5 million net income. To put it another way, that’s more than the company’s profits for all of the March quarter of 2009. Lauren himself raked in $27.7 million, all but $7 million or so in cash, and including $558,376 in “reimbursement for personal travel.”

Company performance isn’t bad — the share price is up and has beat the S&P 500 handily over the last 12 months. Revenue fell slightly last year, but operating income and net income are up strongly. Of course, holding so many shares, Lauren benefits from those metrics at least as much as other stockholders do. But we always hear that good managers aren’t all that easy to come by.

So, footnoted readers, what’s your take — founder’s share? Or feeding at the trough?

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Odds & ends: Michael Koehler, who publishes the FCPA Professor blog from Butler University in Indiana, has an interesting post on Smith & Wesson (SWHC) and its disclosures about a foreign bribery case that got some press in January. … And in case you missed it: Just ahead of yesterday’s Canada Day celebrations, the Securities and Exchange Commission accused a company controlled by two Canadians of penny-stock manipulation using Facebook and Twitter, in what we’re told may be first-of-its-kind social-media fraud litigation for the agency.

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See more of what’s in the filings: Check out FootnotedPro, where we highlight unusual opportunities and potential problems well in advance of the market. For more information or to inquire about a trial subscription, email us at pro@footnoted.com.


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