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Abercrombie Wages Charm Offensive After Revolts on Executive Pay

Abercrombie & Fitch Spring/Summer 2014 | Source: Abercrombie & Fitch
  • Bloomberg

NEW YORK, United States — Michael S. Jeffries, the Abercrombie & Fitch Co. chief executive officer who was paid $48.1 million in 2011, got 95 percent less last year after the company's board tried to placate shareholders who twice slammed its executive pay structure.

Abercrombie is one of eleven companies in the Russell 3000 Index that failed to win majority shareholder support for pay practices in non-binding votes for their two most recent fiscal years, according to data compiled by Bloomberg.

“The board has repeatedly granted excessive CEO compensation despite the company’s poor operating and share price performance,” Denise L. Nappier, the treasurer of the state of Connecticut, wrote in a resolution to be voted on at Abercrombie’s annual shareholder meeting in June.

Shareholders also signaled majority disapproval of pay packages in the two most recent votes at closeout retailer Big Lots Inc. and enterprise software supplier Oracle Corp., the data show.

“When you get that two years in a row, that is an incredible wakeup call,” Alan Johnson, a managing director of compensation consulting firm Johnson Associates, said in a phone interview from the company’s office in New York. “When you get 20 or 25 percent it’s a big deal. It gets headlines and it puts stress on the company.”

In a year-long charm offensive, Abercrombie has reached out to institutions that control about 60 percent of its shares, fielding concerns about connections between pay and performance and highlighting a new employment agreement with Jeffries, according to its proxy statement. Jeffries was removed as chairman in January after 15 years in the role.

‘Simplified Structure’

“The new agreement employs a more simplified, performance- based compensation structure that is designed to align incentives closely with the success of the company and the interests of shareholders,” Craig Stapleton, a board director, said in a Dec. 9 press release. Blair Fasbender, a spokeswoman with public relations firm Joele Frank, said in a phone call that the company declined to comment.

Abercrombie sales have fallen four quarters in a row as the company struggles to keep its brands relevant. Revenue from international stores open at least a year fell 19 percent last fiscal year. The company trades at 19.5-times earnings, making it 20 percent more expensive than its peer group average, according to data compiled by Bloomberg.

No Bonus

Asset managers Citadel LLC and Columbia Investment Advisers LLC both owned more than five percent of Abercrombie last year, according to the company’s 2013 proxy statement. Each of the Chicago-based companies has whittled down its stake to less than one percent, according to data compiled by Bloomberg. Both companies declined to comment on their ownership in Abercrombie.

“The shareholders you have this year may not be the shareholders you had last year,” Johnson said. “You’re not even campaigning with the same people.”

Jeffries, 69, was paid $2.24 million in 2013, down from $8.16 million in 2012, according to the summary compensation table in the company’s most recent proxy statement. Net income at the teen fashion retailer declined 77 percent last year and Jeffries received no bonus.

“Maybe the horse has already left the barn, but they seem to be locking the doors,” Johnson said.

Non-binding “say on pay” votes were mandated in 2010 by the Dodd-Frank financial reform law. Under the law, companies must hold these votes at least every three years. Seventy percent of companies in the Russell 3000 hold them annually, according to data compiled by Bloomberg.

Outreach Program

Failing votes on pay packages are rare. Support for pay packages in Russell 3000 companies in 2014 averages 91 percent, according to research by consulting firm Towers Watson. Only two percent of companies in the index had a majority of shareholders disapprove of packages.

Most companies consider shareholder support of less than 80 percent enough to spur an outreach campaign, said Daniel Ladden, a partner at Compensation Advisory Partners, by phone.

“Shareholders just want to know that you’re willing to listen,” Ladden said. “They may not even have much to say. It’s that you take their opinion seriously and that it has weight.”

Jeffries was hired by billionaire Leslie Wexner to run Abercrombie in 1992, when it was a brand owned by The Limited Inc., which spun off Abercrombie in 1996. The company increased revenue every year through 2007 at an average rate of 25 percent.

Clean Shaven

Jeffries made headlines in 2011 after it was revealed that he required models who worked on an Abercrombie-owned Gulfstream G55 to be clean shaven, wear boxer briefs, flip flops and a “spritz” of the company’s cologne when he traveled, according to a manual disclosed in a lawsuit.

Big Lots received 31 percent shareholder support for its pay packages at both of its last two annual meetings as CEO Steven Fishman received five times the pay than other top executives at the company, according to its summary compensation table. In May 2013, David Campisi was hired to replace retiring Fishman.

Net income at Big Lots has fallen 45 percent since 2011. Margins at the company narrowed by half during that period as mass merchants cut prices to lure customer traffic. Over the past two years, Columbus, Ohio-based Big Lots reached out to shareholders to field concerns, mostly in telephone conversations, said Andrew Regrut, the director of Big Lots investor relations.

Failed Support

“A number of changes that have been made in response to the feedback we received from shareholders,” said Regrut. “We asked them specifically what awards they would find to be most appealing or satisfying and we tried to synthesize that in a way that was understandable and most importantly actionable.”

Campisi was paid $5.36 million in 2013, less than $12.31 million paid to Fishman in 2012, according to summary compensation tables. The company added clawback provisions, eliminated certain excise tax reimbursements, decreased the target and maximum bonuses that can be paid out and separated the roles of chairman and CEO, Regrut said.

“We will certainly be counting the votes as we approach the general meeting,” Regrut said.

Three companies have failed to garner shareholder support in every pay vote held since Dodd-Frank was passed, according to the data. Los Angeles, California-based real estate investment trust Kilroy Realty Corp., Bermuda-based land drilling contractor Nabors Industries Ltd, and Sylmar, California-based general contractor Tutor Perini Corp. all saw less than 50 percent shareholder support three years running.

Summary compensation tables are mandated by the U.S. Securities and Exchange Commission and show some awards in the year they’re granted rather than for the year they’re earned. Some awards are restricted, vesting and paying out over a set time frame, and the receipt of others may depend on future performance goals. The summary compensation table also counts changes in pension and the value of perks.

By Caleb Melby, with assistance from Hideki Suzuki; Editors: Peter Newcomb, Matthew G. Miller

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