The luxury comp behind the luxury bag at Coach…

September 30, 2011

Here at footnoted, there’s nothing we love better than a company that says one thing publicly, say in their conference calls, but says (or does) another thing in their filings.

Take the proxy that Coach (COH) filed last week, which included this statement:

“We believe long-term growth can continue through a combination of expanded distribution, a focus on innovation to support productivity and disciplined expense control.”

Given some of the fears that seem to be surfacing over China and the voracious appetite for American luxury brands, we can certainly understand how these words are probably comforting to investors.

Too bad the proxy actually tells a somewhat different tale. Indeed, we found ourselves wondering about the “disciplined expense control” phrase, which apparently means expenses other than executive compensation.

Consider the compensation paid to Reed Krakoff, Coach’s President, Executive Creative Director. In FY 2011, his total compensation added up to more than $21.18 million. That included more than $2.62 million in base salary, a bonus of $2.19 million, $600,000 in stock awards, more than $6.16 million in options, and more than $8.98 million as non-equity incentive compensation. And a tiny footnote adds that Krakoff’s base salary is about to rise to more than $2.85 million for FY 2012.

Another interesting nugget concerns the company-employed driver who has chauffeured Krakoff around – for business as well as personal travel – for the past few years (although Krakoff did pay taxes for his personal use of the driver’s time). Krakoff enjoyed the perk through the end of FY 2011, but the filing explains:

“Effective July 1, 2011, the HR Committee authorized the elimination of this position, and the Company no longer employs a driver for Mr. Krakoff. In exchange, the HR Committee authorized a one-time salary increase of $94,000 and the standard monthly cash transportation allowance for Mr. Krakoff.”

Whatever prompted Coach to make the change, it doesn’t appear to be a cost-cutting measure (except for the cost of the benefits that Coach no longer pays for the driver). In the fine print explaining the $627,499 in “Other Compensation” that Krakoff got for FY 2011, Coach discloses that $104,447 of it was for his “Transportation Benefit.” Since Krakoff is getting the $94,000 raise, and depending on how much the company shells out each month for the standard executive transportation allowance, it’s possible that he will end up with more money, or it may be a wash. (The lion’s share of the “Other” comp – $492,400 – was for Coach’s contribution to Krakoff’s Non-Qualified Defined Contribution Plan.) This isn’t the first time that we’ve footnoted Krakoff. Indeed, he’s something of a frequent footnoted flyer (see here and here, for example).

Coach’s Chairman and CEO, Lew Frankfort, also fared well in FY 2011. His total compensation added up to more than $12.39 million. Of course, his total comp number is actually $1.35 million lower than his total comp in FY 2010; however, the $3 million decline in stock awards is partially offset by an increase of more than $1.44 million that he got in the form of cash – mainly due to a $238,250 raise and an increase of more than $1.2 million in non-equity incentive compensation.

Granted, Coach has been doing well despite the global economy’s challenges over the past few years. It is expanding its international presence, having celebrated just last week the opening of its “first European flagship store” in London (brand spokesperson Gwyneth Paltrow and other celebrities turned out for the occasion).

Coach has identified increased global distribution (especially in North America and China) and improved store sales productivity as its key strategies for future growth. If it can weather the ongoing economic challenges and coax nervous consumers to part with their cash, shareholders may not care how much they’re paying their top executives. But it seems that the executives themselves have little reason to be nervous; for them, the money’s in the bag.

Image source: SarahSphar via flickr

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