Region: North America
Sector: Cyclical Consumer Goods / Services
Industry: Retail – Computers/Electronic
Market Cap:$6,529.5mm (Large Cap)
ESG Rating: D
By Paul Hodgson – Chief Research Analyst
Best Buy’s new CEO has been offered a contract that is summarized in an 8-K filing from August 19. In many ways there are no surprises here: a $20 million buyout to extricate Hubert Joly from his position as CEO of Carlson. No surprises, except that such “golden hellos” still lack any justification. Such buyouts are to compensate executives for compensation they leave on the table if they are recruited, yet the compensation that is relinquished is intended to reward the executive over the long-term as well as have a retentive effect. I’ve said it before and I’ll say it again: If the executive leaves, then it fails at both these, thus it should and does lapse. When a hiring company makes an executive whole for such a legitimate loss it undermines the purpose of such long-term compensation both at the company that is hiring and the company the executive has left. Matters are not improved by the fact that less than a fifth of the award is tied to performance in any way.
While the golden hello does not surprise, this does:
Work Authorization. In the event Mr. Joly’s petition for U.S. work authorization is not approved permitting him to commence his employment by September 30, 2012, either the registrant or Mr. Joly may terminate the Agreement. In such event, and only if Mr. Joly’s employment with his prior employer has been terminated and he had incurred a forfeiture of compensation as a result of such termination, Mr. Joly is entitled to receive a payment of $6.25 million from the registrant.
In other words, if Mr. Joly does not take the job, but he’s lost his job with Carlson, Best Buy will pay him $6.25 million.
I have never seen anything like this before in my 19 years of research in executive pay.
Golden hellos, golden handcuffs, golden goodbyes, golden parachutes, but never a golden green card™. The board should have made this employment offer contingent on getting a work authorization. In other words, you get work authorization and we’ll sign a contract, not the other way round. And this kind of potential expenditure is barely responsible in a company that only made $12 million in profit last quarter.
On the other hand, the availability of cash does not seem to concern this board, since it also bought back $122 million worth of shares in the last quarter. It is difficult to imagine how such a purchase was financed.