Best Buy Pays Big Bucks for CEO Best Buy, the Richfield, Minnesota retailer awar

Question

Best Buy Pays Big Bucks for CEO

Best Buy, the Richfield, Minnesota retailer awarded its new CEO, Hubert Joly, a pay package valued at as much as $32 million for three years. The slump- ing consumer-electronics chain with 1,400 stores had been without a permanent CEO for about five months. Mr. Joly, who is a native of France, will be paid $6.25 million if he is unable to get a visa to work in the United States. The deal further calls for Mr. Joly to get a base salary of $1.175 million for the coming years, but guarantees him an annual long-term cash award of no less than $8.75 million for the same period. Mr. Joly insisted on payments to make up for the compensation he leaves behind as he leaves his job as CEO of the hospitality chain Carlson Companies. Best Buy defended the arrangement saying that it had to compensate Mr. Joly for the money he left behind at Carlson, but that most of future pay is tied to incentives based on his per- formance for the company. According to one spokesman, the cash compensation is in the mid- dle range of executive compensation for a com- pany the size of Best Buy. The founder and leading shareholder of Best Buy, Richard Schulze, has announced his intent to try to take the company private after the latest quar- terly earnings fell 91%. That may require a proxy fight, although Mr. Schulze remains open to discus- sion. Best Buy has struggled to make changes in its business to deal with the growth of online retailers such as Amazon.com Inc. Mr. Joly has a record of stabilizing troubled companies, but he has not previously worked before in retailing. His pay package of $32 million is primarily made up of $20 million in signing bonuses. A person familiar with the situation said, “He is a sitting CEO doing well.” Another observer declared, “All he has to do is show up for three years to get most of it.” “As a shareholder you would like to see more strings attached.”82

QUESTIONS

1. Was Joly overpaid?

2. What factors probably led to this pay package?

3. If you were able to vote on this pay package (“say on pay”), how would you vote and why?

Explanation / Answer

Ans: 1

Joly was not overpaid as the cash compensation he is going receive is middle level rewards for any executive given consideration to the position of Best Buy in industry. Best Buy has offered him cash rewards which were not so high compared to the industry standards for that executive post.

Ans: 2

Joly has previously helped troubled company and overcome them from those kinds of problematic situations.

Ans: 3 –

Given consideration to achievement of Mr. Joly he has deserved the pay package and his work complement his pay package, Mr. Joly’s track record for helping company is considered for vote in his favor.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.