In an episode of the popular ABC show “Shark Tank” that aired last week, founders of the web-only fashion retailer ranked in the Second ...
Top execs at e-retailers made big bucks in 2008—at least on paper. Despite some belt-tightening, they can prosper again this year.
Working as a top executive at Amazon.com Inc. wasn’t a bad gig in 2008, as the five top honchos at the leading online retailer averaged total compensation of more than $3.4 million for the year. In fact, executives at 28 publicly traded web-only retailers did pretty well in general, averaging compensation of $1.08 million last year, up 4.7% from the previous year.
But there’s an important caveat: 47% of the compensation for e-retail execs last year came in the form of stock grants or options, a significant jump from 39% in 2007. Since stock awards are valued at the time they are granted, and the stock market went on a roller-coaster ride in 2008, the actual value of those shares could be appreciably different today-up or down-from when they were awarded.
Whatever their value, the growing role of stock in top executives’ total compensation underscores the trend toward e-retailers linking executives’ pay to company performance.
That’s only accelerated in 2009, as online retailers responded to the economic downturn. “There is far more emphasis on incentive-based compensation versus base salary,” says Wendy Weber, president of executive recruitment firm Crandall Associates Inc. “Companies are asking for more skin in the game.”
Holding the line
When it comes to salary increases for executives, e-retailers appear to be holding the line this year, Weber says. She recently surveyed more than 60 of her clients, all e-commerce executives making more than $150,000 a year, and heard from them that salaries are flat or slightly lower in 2009. What’s more, some companies have cut benefits, and new hires are finding it’s harder to negotiate a generous relocation package than it was when the economy was booming, Weber says.
Although many executives feel pressured today to do more with less and quickly turn around sales and profits, Weber says her clients were generally sanguine about their status. “In previous years, people were frustrated that raises were not keeping up with trends,” she says. “Now, most are just happy to be employed.”
And top executives at major online retailers are not just employed, they’re handsomely compensated, indicates an Internet Retailer survey of the proxy statements of 28 large, publicly traded web-only retailers. Companies issue proxy statements following the close of the fiscal year, and a company whose fiscal year corresponds to the calendar year typically files this document with the U.S. Securities and Exchange Commission each spring.
Base pay-which averaged 32% of total compensation for the 137 executives in the proxy statements reviewed-averaged $348,562 in 2008, up nearly 11% from $314,604 for 117 executives in the companies’ 2007 proxy statements.
Top base pay
Executives with top titles like CEO, president, chairman and vice chairman also had the top base pay, an average of $454,006. Not far behind were chief operating officers, $437,228, and such other C-level titles as chief technology officer or chief marketing officer at $427,321. Next came chief financial officer at $304,929, executive vice president $268,495, chief information officer $249,541 and senior vice president $230,294.
But base salary is just part of the picture, with many executives earning far more from stock awards and options and bonuses.
When all compensation is taken into account, those with titles such as CEO and president earned on average $1,362,852 in 2008, chief operating officers $1,312,021, other C-level executives $1,072,642, chief financial officers $841,957, executive vice presidents $614,135, chief information officers $473,575 and senior vice presidents $1,337,211.
That last figure is skewed by the impressive pay packages of three Amazon senior vice presidents: Sebastian J. Gunningham, senior vice president of seller services, earned a total of $5,044,125; Marc A. Onetto, senior vice president of worldwide operations, earned $4,598,107; and H. Brian Valentine, senior vice president of e-commerce platform, took home $3,877,118. While eye-opening, those figures were actually less than the 2007 earnings for Onetto and Valentine, who earned $6.2 million and $5.2 million, respectively, in 2007.
In both years, stock-based compensation accounted for the majority of the earnings for the three Amazon executives, with each bringing home stock worth more than $3 million each year.
Bezos’ five-figure salary
The three executives-along with chief financial officer Thomas J. Szkutak whose total 2008 compensation amounted to nearly $2.3 million-made far more than Amazon founder and CEO Jeffrey P. Bezos whose base salary last year was a modest $81,840 and total compensation $1,281,840. Of course, Bezos owns 22.6% of Amazon stock worth $9.2 billion, and a new book reports his early investment in Google Inc. turned into holdings exceeding $1.5 billion.
Amazon’s stock price has recovered from the late 2008 freefall and its shares are likely worth today as much or more than when they were granted to the executives. That may not be the case for other online retailers.
For instance, Nutrisystem Inc. chairman and CEO Joseph M. Redling, the third highest paid e-retail exec in 2008 at $4,572,312, took nearly $3 million of his compensation in stock last year. What that stock is worth today would depend on when it was granted-the company’s stock price as of last month was about 25% below its January 2008 level, which means stock granted early in 2008 may be worth significantly less than reported on the company’s proxy statement.
But just as falling stock prices hurt an executive’s compensation, a rising stock price built on e-commerce success raises the value of shareholdings. Linking executive compensation to company performance is nothing new for online retailing, says Francis Juliano, chief information officer and chief marketing officer for web and catalog retailer The Wine Enthusiast.
“E-commerce has always operated within the Silicon Valley venture capital model-attract talent with a stock option, if not that, a bonus tied to performance,” Juliano says. While executives today might prefer the security of higher base pay over the upside potential of stock, he says, at least there are signs that the economy is improving.
“Things aren’t getting worse,” Juliano says. “That’s the new optimism.” And with stock accounting for nearly half of top executives’ pay, and the economy and stock market improving, e-retailers’ C-suites may well be brimming with optimism.