July 24 (Bloomberg) -- A compensation consultant to Best Buy Co.’s board quit after the electronics chain awarded more than 100 managers retention bonuses without tying them to performance, said three people with knowledge of the matter.
Don Delves, who worked with Best Buy’s compensation committee for seven years as an independent consultant, was opposed to the payments, said the people, who asked not to be identified because the situation is private. Delves, president of the Chicago-based Delves Group, a corporate governance and an executive pay advisory firm, confirmed in a telephone interview that he resigned this month.
Chief Financial Officer James Muehlbauer and Michael Vitelli, head of the U.S. division, were among executives awarded extra pay as incentive to stay while Best Buy seeks a replacement for Chief Executive Officer Brian Dunn, a June regulatory filing shows. The retailer’s stock had sunk 20 percent this year through July 23, torpedoed by the first annual loss in two decades and a scandal tied to Dunn’s conduct.
“There were no performance criteria or metrics tied to it at all, which is sort of unusual,” said Frank Trestman, chairman of Richfield, Minnesota-based Best Buy’s compensation committee for 12 years until he resigned from the board in 2010. “You always try to tie it or at least couple it with some other offer that is performance related so it’s not just a matter of sticking around.”
Best Buy said the incentive pay is “intended to ensure leadership continuity,” according to an e-mailed statement yesterday.
“We’re confident that the compensation paid by Best Buy is fair, reflects market realities and is based on responsible practices that reflect the transformation of the organization,” Best Buy said in the statement. “As part of our long-term plan, and to ensure a strong and stable future for the company, Best Buy’s board of directors has taken action to retain key senior leaders during the current period of transition.”
Best Buy fell 2.8 percent to $18.16 at 9:38 a.m. in New York today.
Muehlbauer, Vitelli and two others -- International President Shari Ballard and Carol Surface, the head of human resources -- were set to get lump-sum cash payments of $500,000 each, according to the filing. The executives also were to receive $2 million in restricted stock as part of the bonus plan. Planned bonus packages for more than 100 other Best Buy managers were structured similarly, said the people.
“Two million dollars is a lot just for sticking around,” said James Reda, managing director of James F. Reda & Associates, a New York-based executive compensation consulting firm. “The retail space is shrinking so the odds of those four leaving is not great.”
Best Buy director Mike Mikan is serving as interim chief executive officer, earning annual cash compensation of $3.3 million and as many as 263,000 shares worth about $5 million upon completion of the interim assignment, according to a company statement May 21.
Trestman said Mikan’s compensation “seems exorbitant” if the assignment “could last nine months, 10 months or 11 months until you get a new CEO. I’m not saying that would be an exorbitant package once you find a permanent CEO.”
Best Buy won’t discuss Mikan’s compensation or Trestman’s comments, Bruce Hight, a spokesman for the company, said by telephone.
Dunn, 52, resigned in April amid revelations that he had an inappropriate relationship with a female employee. A month later, the chain said an internal probe found both he and Chairman Richard Schulze acted inappropriately in their handling of the matter, triggering Schulze’s resignation as chairman.
Schulze, also Best Buy’s founder, is exploring whether to take the retailer private as he examines options, including a sale of his stake, a person familiar with the matter said last month. He held more than 20 percent of the company as of June, according to data compiled by Bloomberg.