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Best Buy Bets Big on Hubert Joly

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The troubled electronics retailer agrees to compensate Joly greatly, even if he's not able to take the job.

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MINYANVILLE ORIGINAL Recently, the Minneapolis Star reported that Best Buy's (BBY) newly announced President/CEO Hubert Joly will receive a pay package valued at $32 million over three years in exchange for his help in turning the electronic retailer around. The highly priced deal, which comes during a time of record losses for the company, is "necessary" to compensate Joly for the money he was earning at his previous position as CEO to the Carlson Cos. hospitality chain, according to the company.

Best Buy is finding itself in a hard sell situation: its profts are down, the stock is pushing under a nine-year low, it was recently downgraded, and observers are openly speculating about immenent bankruptcy.

The contract is drawing criticism especially due to one provision that would reward Joly, a native of France, $6.25 million even if he can't get proper authorization to work in the US for the company. The deal also includes a $20 million signing bonus, a cash award of 8.75 million for the company's coming fiscal year, and a 1.75 million base salary with millions in stock options.

Giving Joly all this free money, even though he might not be able to take the job, may seem risky, but the Minnesota retailer defended its decision yesterday by explaining that most of his future Best Buy pay is tied to incentives for helping the company. Best Buy's spokespeople seem to have a lot of faith in Joly, who has proven himself able at turning around troubled enterprises, having done so at Carlson, though his lack of retail experience left many Wall Street analysts scratching their heads at this selection.

According to a Wall Street Journal article, former best buy director Frank Trestman has been critical of the recent retention bonuses received by its executives and questioned the board's decision on Joly. He's quoted as saying, "If I was on the search committee he would not have been the candidate we needed for the company at this point, because of his lack of retail experience, so if you start from that, any amount Best Buy is paying him is too much."

Still, Best Buy wouldn't be the only company to give millions to a CEO for not doing any work.

Earlier this month, Progress Energy Resources (PRQNF) CEO, William Johnson was given $44 million for spending just one day as chief executive after its merger with Duke Energy (DUK). Frankly, there are plenty of CEOs that net millions for doing nothing or for walking away after mergers or acquisitions, but in Joly we have a rare case where an executive may take home millions even after failing in his objective, or being unable to try. With this in mind, investors may be right to worry.


No positions in stocks mentioned.
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