By Emily Kaiser
January 22, 2003
CHICAGO (Reuters) - Kmart Corp. <KMRTQ.PK> will pay Julian Day, its newly named chief executive, a base salary of $1 million plus a $1 million bonus when it exits bankruptcy, the retailer said in a regulatory filing on Wednesday.
Kmart said former CEO and current Chairman James Adamson will receive $3.6 million when he steps down, as planned, after the company emerges from bankruptcy.
Day's employment contract, which runs through Jan. 31, 2006, includes perks such as use of a company jet and a 10-year option for 1.5 percent of the equity in the reorganized company once it emerges from bankruptcy, Kmart said in a filing with the U.S. Securities and Exchange Commission.
Kmart named Day to the additional post of CEO on Sunday, making him Kmart's third chief executive in less than a year. He replaced Adamson, a turnaround specialist who will continue to serve as chairman through the final stages of Kmart's reorganization.
Compensation experts said Day's pay package sounded reasonable, noting that companies in bankruptcy often have to pay a premium to attract executives.
"A $1 million base salary for a company this size doesn't shock me," said Andrew Gaines, a partner with law firm Akin Gump Strauss Hauer & Feld in New York who specializes in executive pay.
Kmart, based in Troy, Michigan, filed for Chapter 11 bankruptcy protection a year ago, battered by fierce competition in a discount sector dominated by Wal-Mart Stores Inc. <WMT.N>. It hopes to emerge from bankruptcy by the end of April and is expected to file its plan of reorganization with the bankruptcy court in Chicago by Friday.
Kmart said last week it would close 326 of its roughly 1,800 stores and cut up to 37,000 jobs.
PERFORMANCE BONUS
Day's salary is roughly in line with that of Alan Lacy, chairman and CEO of Sears, Roebuck and Co. <S.N>, who received a base salary of $900,000 for 2001, according to the company's proxy statement filed in March. Lacy also received a bonus of $672,975 and other annual compensation of $138,306.
Larger competitor Target Corp. <TGT.N> paid its chairman and CEO, Robert Ulrich, $1.4 million in 2001, with a hefty $3.7 million bonus and other compensation of $922,437.
Many companies pay executives $1 million or less because that is the highest amount tax laws allow them to deduct, said Bill Coleman, a senior vice president with Salary.com, which tracks executive pay and offers compensation and benefit calculating software. Performance-based bonuses are exempt.
Day's pay package calls for a bonus of up to four times his base salary if Kmart beats performance targets that will be spelled out in its business plan.
For the current year, any bonus will be at the discretion of a post-emergence compensation committee.
For fiscal 2004, the performance target is $400 million in earnings before interest, taxes, depreciation and amortization, Kmart said in the filing.
If Kmart hits 75 percent of that target, Day would receive a bonus worth half of his salary. If it reaches that goal, the bonus grows to 100 percent of base salary, and if it doubles that mark, the bonus would be 200 percent. If it reaches 300 percent or more of the earnings target, the bonus would be four times annual salary.
Day's contract allows for use of company aircraft for business purposes and personal use if necessary for "security," according to the SEC filing.