The CEO of J. C. Penney just had his pay cut by 98%. How much will he be paid? About $2 million.
This means he was being paid over $50 million. Why did anyone think he was worth this much? He ran the struggling company’s profits into the ground. He ruined its original marketing position by eliminating special discounts that had become Penney’s trademark.
The CEO was hailed as an innovator when he was hired. He was going to be able to breathe new life into the firm. Instead, he took the company over the cliff.
Here was the hoopla in late 2011, just before he took over.
Johnson, who left Apple Inc. (AAPL) in June after building its retail unit, will become CEO on Nov. 1 and take charge of a chain that had three straight annual sales declines before a gain of 1.2 percent in its fiscal 2011. Francis’s hiring suggests Johnson may end J.C. Penney’s pursuit of upscale shoppers and focus on thriving as a mall-based discounter, said Bernard Sosnick, an analyst at Gilford Securities.
“That seems to be a much more effective approach than what they’ve been doing,” Sosnick, who’s based in Melville, New York, said today in a phone interview. He has a “buy” rating on J.C. Penney and a “hold” rating on Target.
Mr. Sosnick made a very bad decision. The stock was about $30 when the new CEO took over. It is under $15 today.
So, Penneys hired a hot-shot who had sold high profit margin Apple products. Why? Because the board thought that he could turn around a stodgy, struggling company that sells sheets to middle-age women.
The guy refused to move to Plano, Texas, where the firm is headquartered. Instead, he lives in high-tax California and commutes by business jet.
When a CEO does not care enough about his firm to move to headquarters, sell the company’s shares. They are going down.
The free market works. The CEO will probably not get his pre-Penneys reputation back. He is now a whiz kid emeritus. He will be known as the guy who took over as captain of the Titanic after it hit the iceberg.
What ever happened to hiring from within the ranks? Gone. There is a very good book about this change: The Puritan Gift. The change began in the 1970s. It was a big mistake.