Why renew now?

Late Friday, luxury leather goods company Coach Inc. (COH) filed its 10-K and disclosed new employment contracts with the top three executives: Chairman and CEO Lew Frankfort, Creative Director Reed Krakoff and Chief Operating Officer Keith Monda. The agreements, which the company describes as amendments to each man’s June 2003 contracts, sharply increase both the salary and the bonuses paid to the three men. It also extends their employment through July 2011. But what isn’t clear is why the previous contracts, which didn’t expire for another three years, had to be changed in the first place.

One reason may be salary: under the old agreement, Frankfort was paid an annual base salary of $811K and a maximum bonus of 150% of his base; under the new agreement, his salary climbs to $1 million and the “maximum bonus shall be equal to at least 200% of your annual base salary” but presumably could be much more based on the loose wording. Then there’s the more than 500,000 “extension options” as opposed to the 444,444 stock options he received just two years ago when the initial contract was signed. Frankfort, some might recall, isn’t exactly hurting for cash: last year he exercised $84 million worth of Coach options.

Krakoff, however, does even better. Under his old contract, he was making a meager $1 million a year and was eligible for a $1 million bonus. The new contract bumps it up to $2 million in salary and $3.5 million for the bonus. There’s also a $1.09 million “supplemental bonus” — whatever that means — payable each year through 2009 and increasing to $2.19 million in 2011. There’s also an “additional bonus” due Krakoff in 2009 and 2010 of $1.86 million. That “additional bonus” climbs to $3.73 million in 2011. Finally, there’s 1.68 million options, a significant increase from the 400,000 options Krakoff received two years ago.