Hudson’s Bay Co. shareholders have backed a $54.8-million pay package for its executive chairman, Richard Baker, despite opposition by some major North American institutional investors amid the retailer’s weak performance.
At its annual meeting in Toronto on Tuesday, shareholders of HBC, owner of Hudson’s Bay, Saks Fifth Avenue, Lord & Taylor and Kaufhof in Europe, voted more than 70 per cent (of votes cast) in favour of the executive compensation, stock option and restricted share unit plans – including the big package for Mr. Baker. It was one of the largest executive pay packages.
Matthew Rubel, a member of HBC’s board of directors and chairman of its compensation committee, said it hired a consultant to advise on the pay, which is heavily weighted toward performance and long-term incentives – and the grants will vest only if performance targets are achieved.
But a shareholder asked Mr. Baker to respond directly to his question about the fairness of the pay since “it’s one thing to award a package; it’s another thing to accept it.” Mr. Baker thanked him for his question but did not reply.
The controversy around the executive pay package comes as HBC is under pressure to turn around its disappointing financial results and improve its share price in an overall challenged retail environment.
To help breathe new life into the troubled business, HBC named a veteran U.S. merchant, Helena Foulkes, as its new chief executive officer last February. The former drugstore executive told HBC shareholders on Tuesday the company’s performance “was not where we wanted it to be,” but after 100 days on the job, she is rushing to focus on customers’ needs while heightening staff accountability, improving the corporate culture and “making some tough decisions.”
Already under her leadership, HBC has decided to close 10 of its Lord & Taylor stores, including the flagship in New York, and sell its Gilt.com flash sale fashion site. She is reviewing a host of other possibilities to revive the business, including selling more stores, she said.
“There is nothing we won’t consider,” she said.
Among major shareholders that said they were voting No to HBC’s compensation packages are Ontario Teachers’ Pension Plan, which is HBC’s third-largest shareholder with almost 10 per cent of its stock; British Columbia Investment Management Corp.; California Public Employees’ Retirement System, a U.S. pension giant; and California State Teachers’ Retirement System, another big U.S. pension plan.
While proxy advisory firm Institutional Shareholder Services Inc. (ISS) recommended voting in favour, noting HBC’s executive compensation is primarily performance-based, proxy adviser Glass Lewis & Co. LLC recommended opposing the pay practices. It said Mr. Baker already is one of the five largest HBC shareholders and information was insufficient on why he needed a retention grant. His $54.8-million package included $37.2-million in share-based awards.
At Tuesday’s HBC meeting, another shareholder asked its executives why they don’t build condominiums on top of their stores to make more money. The shareholder, Heino Ader, said now is the time to build condos while the market is hot, predicting that a recession could arrive in a couple of years.
Ms. Foulkes replied HBC is “looking strategically at selling certain properties,” but she said it wasn’t looking to sell everything quickly.
Mr. Baker, a long-time U.S. real estate developer who oversees HBC’s property strategies, said his focus is to use existing space better to squeeze more value out of it, such as leasing it out to other retailers or even health clubs, rather than selling it off.
Last fall, HBC cut a deal to sell its Lord & Taylor flagship store to WeWork for more than $1-billion, although it had planned to lease space on the bottom floors for its retailing while WeWork ran shared office space on the top floors. Now HBC is looking at leaving the flagship altogether.
Mr. Baker said Hudson’s Bay has cleared all goods from 100,000 square feet on its Toronto flagship’s seventh and eighth floors, without reducing the overall amount of inventory the store carries. WeWork is leasing the space for more than $50 a square foot annually, he said. That’s six or seven times more what many previously thought it could generate in rent, he said.