Best Buy (BBY) Defends Estimated $32 Million Pay Package for New CEO
(NEW YORK) -- Best Buy (BBY) is giving new CEO Hubert Joly a compensation package valued up to $32 million for three years, including a guarantee of more than $6 million even before he starts work if the deal falls apart.
A native of France, Joly has been guaranteed $6.25 million if he can't obtain a visa to work in the United States by the end of September and the deal falls apart, the Wall Street Journal reported. He will have an annual base salary of $1.175 million, plus additional cash and stock awards.
The company said Monday it had hired Joly, the former CEO of hospitality group Carlson, to replace interim CEO Mike Mikan after former chief executive Brian Dunn resigned because of an inappropriate relationship with an employee.
Best Buy Tuesday announced a near-90-percent drop in profit for the second quarter to $33 million. The company has had struggling sales as customers shop for lower-priced goods online.
Maggie Habashy, a spokeswoman for Best Buy, said in a statement that two-thirds of the amount cited by the Journal "is a one-time payment intended solely to make Mr. Joly whole for the outstanding compensation he left behind in departing Carlson, his previous employer."
A spokeswoman for Carlson, which is a privately held company based in Minnetonka, Minn., declined to comment about his pay.
Even though Joly was already working in Minnesota, he needs to obtain a new visa because he's changing employers.
Habashy said "the amount that can accurately be described as compensation going forward is weighted approximately 90 percent to variable incentives, the value of which will depend on how operational goals are met and movements in share price."
"The cash compensation is squarely in the mid-range for a CEO of a company the size of Best Buy," Habashy said in the statement. "This package was developed in consultation with leading search and compensation firms and is in line with best practice for Fortune 500 companies."
Aaron Boyd, research director with executive compensation research firm Equilar, said Joly's annual target pay figures appear to align with what other top CEOs at the largest companies receive.
The median pay for CEOs of the S&P 500 was at $9.6 million per year, Boyd said. Joly's annual pay will be at about $12 million per year.
"Beyond the annual pay, he'll likely get the most amount of value from make-whole awards meant to compensate him for leaving Carlson and the value he gave up by leaving there," Boyd said.
Best Buy is giving him a grant valued at $20 million, Boyd said.
"It is not unusual for a company to give out awards to make up for what had to be given up," he said.
Recent examples include Yahoo's hiring of Marissa Mayer from Google in July and J.C. Penney recruiting CEO Ron Johnson away from Apple Inc. in November.
Mayer has an annual base salary of $1 million a year plus other awards, including $12 million in Yahoo stock. She could earn up to $60 million if she stays with the company for five years.
J.C. Penney paid Johnson $53 million last year.
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