Best Buy Acknowledges Mistakes, Retools Exec. Pay
Looking back on a tumultuous year, Best Buy’s chairman acknowledged that the company has made a number of mistakes, but he said that its turnaround efforts have cut costs and made Best Buy more nimble.
He also said that Best Buy has revamped its executive compensation policies, due in part to shareholder backlash over a severance payment given to the company’s former CEO.
In an introduction to Best Buy’s annual proxy filing, Chairman Hatim Tyabji said that many shareholders did not support a $6.6 million severance package given to former CEO Brian Dunn, who resigned in April 2012 amid a scandal involving “an extremely close personal relationship with a female employee.”
“Many felt that the company offered Mr. Dunn more than he was entitled to and that the payments did not accurately reflect his business performance in the previous year,” Tyabji said, adding that the company’s board “heard these concerns” and took them into account when determining subsequent executive compensation policies.
In outlining its payment policies, Best Buy now said compensation is more directly linked to job performance—in other words, if certain goals aren’t met, executives will receive less pay.
Due to backlash over Dunn’s departing gift, Best Buy said it has been more transparent in both the voluntary and involuntary departure of other leaders, and it has paid out in severance benefits only the amount that was contractually required.
The company also said it will try to recover pay from executives who depart the company. For example, in the case of Stephen Gillett, a digital executive who departed Best Buy after only nine months with the company, Best Buy said it exercised “clawback provisions” in his contract, causing him to return or forfeit about 80 percent of his compensation.
Best Buy’s revamped policies follow a year of significant leadership turnover. In addition to Dunn and Gillett, there was an exodus of many other leaders, and Best Buy approved $10 million worth of bonuses to a handful of executives in an attempt to retain them. In its proxy filing, Best Buy described such payments as “necessary to solve the crisis” it was facing, rather than reflecting its new compensation policies, which “looked ahead to the future growth of the company.”
Tyabji also acknowledged that financial woes Best Buy experienced in the past year were not purely market-driven, but rather due to the company’s own practices.
“In fact, if one were to sum it up, 2012 was the year in which the company rejected the notion of ‘industry headwinds’ and acknowledged that the company’s declining comparative sales and margins were due to its failure to execute,” Tyabji said.
But a concerted effort to combat so-called “showrooming,” partnerships with vendors like Samsung, and $150 million in cuts that the company called an “initial reduction” have positioned Best Buy for a successful turnaround, he added.
Meanwhile, Best Buy’s recent proxy statement disclosed the compensation of current CEO Hubert Joly. Following Dunn’s departure, G. Mike Mikan was named interim CEO; Joly then took the reins in September.
Joly’s compensation totaled $19.6 million during the company’s latest fiscal year, which ended in February, according to the proxy statement.
Shortly after Dunn resigned, founder Richard Schulze stepped down from his role as chairman and launched an effort to take the company private. He did not, however, submit a bid before a board-established deadline, and instead was recently named chairman emeritus.
In the company’s recent proxy statement, Tyabji said Schulze’s appointment as chairman emeritus is “a clear signal of his support for the direction in which Best Buy is heading and the harmony with which he and senior management are now able to operate.”
Best Buy is Minnesota’s third-largest public company based on revenue, which totaled $49.62 billion for the fiscal year that ended February 2.