Albertson's Johnston Gets a Hefty Pay Package

Bloomberg.com ^ | 05-26-04 | Graef Crystal

[em2vn]

Albertson's Johnston Gets a Hefty Pay Package: Graef Crystal May 26 (Bloomberg) -- While he's trying to cut the pay of his supermarket clerks and other workers, Lawrence Johnston, the chief executive officer of Albertson's Inc., the third-biggest U.S. grocer, seems to have forgotten to trim some other costs -- most notably his own bloated pay package and those of his top subordinates.

There's some irony here, because the criticism of a number of large institutional investors has been aimed, not at the Boise, Idaho-based Albertson's, but, rather, at Safeway Inc., the second-biggest U.S. food retailer in net sales.

Last Oct. 11, the Food and Commercial Workers International Union (UFCW) struck the Pleasanton, California-based Safeway's Vons supermarket chain. Following a pre-established pact, Albertson's and Kroger Co., the Cincinnati-based supermarket giant, promptly locked out their workers. The strike lasted until March 1.

The goal of the three chains was to cut the pay of new workers and to require all employees to pay part of their medical insurance. They claimed their motivation was to prepare for the onslaught of low wage-paying Wal-Mart Stores Inc., which was said to be about to open some 40 hypermarkets in California.

Calpers Pushes Safeway

In recent weeks the institutional investor group, of which the most prominent member is the giant California Public Employees Retirement System (Calpers), has pushed to reform Safeway's board and to cause the ouster of its embattled chairman and chief executive, Steven Burd. (Last Thursday, Safeway shareholders withheld 17 percent of their votes for Burd's re- election. Compared with the 45 percent of votes withheld for Walt Disney Co.'s Michael Eisner, Burd could be said to have been re- elected handily.)

Some critics have accused Calpers of helping its board president, Sean Harrigan, in the pursuit of his own agenda. Harrigan is a senior official of the UFCW.

Maybe that's true and maybe it isn't. According to Calpers spokesman Brad Pacheco, Rob Feckner, the chair of the board investment committee -- on which sits every Calpers board member, including Harrigan -- made a unilateral decision to go after Safeway without putting the matter up to a committee vote. That seems rather odd to me, especially from a board that prides itself on matters of corporate governance. It also seems odd because Feckner, who is a glazing specialist for the Napa Valley Unified School District, wouldn't seem to possess the requisite skills to make such a decision all by himself.

If one focuses specifically on executive pay, there's no doubt that Calpers is going after the wrong person.

Burd Gets No Bonus

In 2003, Burd earned only his salary of $1 million, which was also his salary in 2002 and 2001. He received no bonus in 2003, no options or anything else. (Data for the analyses in this article were obtained from Aon Consulting's eComp database.)

True, his performance has been terrible, but at least he has had the grace to slice his pay to what, for CEOs, is the bone.

More than that, Burd has permitted the pay of three of his top four-paid subordinates to exceed his own, and by a substantial margin. Two of the four subordinates earned more than triple what Burd received in 2003.

As for Kroger, two CEOs held the job in FY2003, Joseph Pichler and his successor David Dillon. The 2003 tenure-weighted pay of the two averaged $3.8 million, a figure that was down 52 percent from the $8 million that Pichler earned in 2002.

Johnston's Compensation

Now we come to Albertson's Johnston, who came to the CEO's job from General Electric Co. in April 2001, where he had been president and CEO of GE's Appliances Division. Notwithstanding that he didn't work for Albertson's for the entire year, he nonetheless earned stupendous pay of $34.5 million. His pay package was buoyed by a free share award worth $24.5 million at its grant and a stock option that I estimated was worth another $6.3 million. That sort of money goes a long way in Boise.

To be fair, Johnston sustained a pay cut in 2003. But it was only 5 percent. His pay dropped to $11.6 million from $12.2 million. Contrast $11.6 million with the $3.8 million paid to the Pichler/Dillon combo at far-larger Kroger and the $1 million pittance paid to Burd.

It's not just Johnston alone who is eating up the profit of Albertson's shareholders. The pay of the top five at Albertson's was $21.2 million in 2003 versus $12.4 million for Kroger and $10.8 million for Safeway.

Johnston's Performance

As for his performance, Johnston hasn't delivered much for his pay. Albertson's total return from April 23, 2001, the day before he became CEO, through last Friday was negative 4.5 percent a year. That was lower than the negative 2 percent return on the Standard & Poor's 500 Index, though better than the negative 9.4 percent return at Kroger and the negative 25.5 percent return at Safeway.

None of the three chains is in great favor with investors just now. Albertson's looks to be in the worst situation. Eighty- eight percent of analysts' current recommendations for Albertson's are either ``holds'' or ``sells.'' The comparable figures for Kroger and Safeway are, respectively, 75 percent and 67 percent.

Maybe one reason is that bloated executive pay structure. It's not as though supermarkets coin money. The return on net sales -- after excluding extraordinary items and non-operating gains and losses -- was just 1.5 percent, 1.5 percent and 2.4 percent, respectively, for Albertson's, Safeway and Kroger.

It's hard for rank and file workers to pull in their pay belts if they can't even see their chief executive's belt due to the enormous pay gut that overhangs it.

Johnston needs to take a big pay cut and so do all his top subordinates. When that's done, maybe they'll have more credibility the next time they ask their workers to pass the hat.

[em2vn]

Setting an example?

[talleyman]

Oh, at first I thought someone's Johnson was getting a hefty pay package - never mind...

[r9etb]

You say Albertson's Johnson is a hefty package? That might explain why he can get somebody to pay....

[billorites]

Albertson's Johnson Gets a Raise

[Paul Atreides]

Those are, without a doubt, the creepiest commercials.