Friday, April 12, 2013

JC Penney believes in pay for performance

JC Penney recruited former Apple exec Ron Johnson to turn the company around.  And he did, albeit not in the direction that the JCP Board had in mind. 

Usually when we see a CEO depart, we also hear about a 7 or 8 figure separation package.  Johnson walks away with the stock he received when he became CEO -- stock that is worth 50% less.  Nothing more, unless he qualifies for unemployment benefits.  WSJ reports that Johnson walked away from $107m of Apple stock when he became JCP CEO. 

This is a unique case of very high-powered incentives where the well being of the CEO was perfectly aligned with that of the shareholders.  Chicago Booth's Steve Kaplan notes in WSJ that most CEOs negotiate a termination package on the way in as a form of insurance.  Not sure how much insurance an exec like Johnson really needs (he made $138m in his last years at Apple after cashing out his options), but one must always be aware of earnings opportunities elsewhere that execs walk away from when they take a new job. 

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