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Penney's new CEO receives $53.2 million pay

By Anne D'Innocenzio
AP Retail Writer / March 29, 2012
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NEW YORK—J.C. Penney Co. gave its new CEO Ron Johnson, who is re-inventing the mid-brow department store retailer, compensation worth $53.2 million in 2011.

Johnson, a former Apple executive, who joined the board last August and became its CEO in November, received a base salary of $375,000 but the largest share of his pay came from stock awards valued at $52.6 million, according to documents filed with the Securities and Exchange Commission late Wednesday. Johnson also received a performance-based cash bonus of $236,302, which was pro-rated on his actual period of service.

Johnson also received other compensation of $13,275 that covers the cost of perks such as his personal use of corporate aircraft.

Johnson succeeded Mryon Ullman III, who had been at the helm since December 2004. Ullman received total 2011compensation worth $33.7 million, almost triple his package of $12.3 million in 2010.

Ullman got $1.49 million in salary, stock awards of $11.4 million and option awards of $3.6 million. He also received a performance-based cash bonus of about $1.9 million. The former CEO also received $15 million in other compensation that included $10.1 million in what the company calls "transition service" payment, $4.75 million for the fair value of all outstanding options that would have otherwise been forfeited and $43, 269 for accrued but unpaid vacation. The perks also covered the cost of his personal use of corporate aircraft at $362,682.

In recent years Penney has suffered because its core middle-income customers have been among those hardest hit by the weak economy. It's also failed to make its stores fun places to shop for many people. In its latest fiscal year ended Jan. 28, Penney, based in Plano, Texas, reported a loss of $152 million on revenue of $17.26 billion. That compares with a profit of $389 million on revenue of $17.76 billion in the year-ago period.

Revenue at stores opened at least a year, considered a key indicator of a retailer's health, rose a slim 0.2 percent for the latest fiscal year. That compares with rival Macy's Inc., which enjoyed a 5.3 percent increase.

Under Johnson the retailer is overhauling just about every aspect of its business, including pricing.

The core idea is to make pricing in its stores more predictable and to break the cycle of heavy discounting that has depressed the chain's profits and hurt its image. The new plan officially kicked off Feb. 1, after the end of the company's fiscal fourth quarter.

Penney is eliminating hundreds of discounts a year in favor of a three-tier strategy: everyday prices that are about 40 percent less than what they were a year ago, monthlong sales on select items and clearance events on the first and third Friday of each month. The company added a monthly catalog to highlight some items.

Penney also is changing the in-store shopping experience. It announced in December that it will develop mini-shops in its stores with Martha Stewart.

In February the company also outlined plans to add 80 to 100 other brand shops inside its stores. It's also planning to add spots in its stores called Town Squares, like Apple's Genius Bars, that will offer services and advice.

Going forward Penney faces a challenge in selling shoppers on its new pricing. Some like the thrill of the sale and Penney has become known for its heavy discounting. Johnson said in a pre-recorded call following its fourth-quarter earnings results that February sales were trending below a year-ago, particularly on days with blockbuster sales events.

In a note to investors this month, Charles Grom, an analyst at Deutsche Bank, wrote that traffic is "very weak" and formerly busy weekends are now slow, with the exception of the first and third Fridays when the company holds its clearance sales.

"Of concern, we noticed that employees have received limited training on the strategy change and that morale is waning as payroll hours are cut," Grom wrote. "Bottom line, this change will take time to work."

In its annual report, filed with the SEC this week, Penney offered a cautious assessment of its pricing strategy It stated that "there is no assurance that it will be able to successfully implement these strategic initiatives and that it could result in a "prolonged decline in sales."

The Associated Press formula for executive compensation calculates an executive's total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits, which makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.

The value that a company assigned to an executive's stock and option awards for 2011 was the present value of what the company expected the awards to be worth to the executive over time.

Companies use one of several formulas to calculate that value. The number is just an estimate and the amount an executive ultimately receives will depend on the performance of the company's stock.

Most stock compensation programs require an executive to wait a set time to receive shares or exercise options.

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