Ralph Lauren’s Proxy is a Pageturner!

July 7, 2009

Last Thursday, Polo Ralph Lauren Corporation (RL) filed its proxy with the SEC, and – while it wasn’t exactly the same experience as relaxing on the beach with a thriller – it was a pretty dramatic read.

Our protagonist is a guy named Ralph. At age 69, he’s at the top of his game. The company he started in 1967 went public in 1997, and – 12 years later – Ralph is still the Chairman/CEO and a director.

There’s some nice dramatic tension on pages 20 and 21. There’s this group called the Compensation Committee of the Board of Directors, see. Well, they’re charged with working with this consulting firm, which was hired to “provide guidance in association with significant compensation decisions.” So they’ve got to look out for the top guys, but – wait! They’re also looking out for the shareholders, too. Right?

On p. 22, we find out more about Ralph. He’s been forced to get by (no raise) on the same paycheck he’d earned since November, 1997: a mere $1 million per year. Happily, though, he got a new employment agreement in June, 2007 that boosted his salary to $1,250,000 as of March 30, 2008. (The company just amended his agreement again on June 29, 2009, to provide that the 75,000 shares of stock he’s going to get each year will be performance-based restricted stock units rather than time-based restricted stock units.)

But there’s more! It turns out the company has this bonus program…. We learn that “[a]t the time that the targets were set, the company believed that the specific targets for fiscal 2009 incorporated an appropriate level of difficulty and required significant ongoing performance improvements on the part of the Company in order to be achieved. The five named executive officers of the Company were eligible for a bonus in fiscal year 2009 when the Company reached 80% of the net income before taxes target established by the Compensation Committee.”

Oh, no! More Tension!

Well, [spoiler alert] it all turns out okay for Ralph; this employment agreement of his seems to be a good one. Here are a couple of juiciest sections from page 24:

The bonus payment for Mr. Lauren pursuant to his employment agreement is based solely on the performance measure of net income before taxes and is not adjusted for the strategic goal of Company selling, general and administrative expenses as a percentage of net revenues. The bonus payments for the other four named executive officers are subject to adjustment for this strategic goal….

and

Mr. Lauren’s employment agreement provides for an annual bonus in fiscal 2009 with a target of $13,000,000 and a maximum of 150% of target, or $19,500,000. Based on the Company’s achievement of performance goals relative to the net income before taxes target established by the Compensation Committee, for fiscal 2009 Mr. Lauren received an incentive bonus of $13,886,364, representing 107% of his bonus opportunity.

We don’t learn much more about the minor characters – the shareholders – but the outlook for them is a bit bleaker. According to this article published at the end of May, net income for the 4th quarter of FY 2009 was $45 million, compared to $104 million for the same period last year. But maybe they’ll do better in the sequel?

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