INCENTIVES LURE TURNAROUND CEOS

JON SPRINGER

When Larry Johnston walked away from Albertsons earlier this year with a benefit package that by some estimates exceeded $100 million, jaws dropped, lawsuits were filed and executives throughout the supermarket industry marveled.

But the time to raise questions about the chief executive officer's so-called golden parachute was when he boarded the plane six years earlier, a supermarket executive recruiter told SN.

"Although Larry Johnston's exit package has created a buzz among senior executives in the industry, his package should come as no surprise. Larry and his representatives did a great job of negotiating his deal when he joined Albertsons," said Bill Reffett, Seattle-based managing partner of Preston-Reffett Executive Search. "His exit package is the result of his entry package."

SN's list of the annual salaries of the CEOs of various publicly traded food retailers shows four companies - A&P, Pathmark, Nash Finch and Winn-Dixie - with new leaders named in the last 19 months. And while those companies are significantly smaller than Albertsons - indeed, the annual sales of the four combined total only about half of Albertsons' annual revenues - their new top executives enter to lead various stages of a turnaround, as Johnston did when he was recruited from GE to lead Albertsons in 2001.

Such executives typically receive generous incentives to join and stay with their new organizations, and stand to gain significant benefits as a result of their work, according to Gary Preston, a Philadelphia-based partner with Preston-Reffett. In addition, he said, these executives are more focused today on landing safely in the event the new step does not work out.

"When you look at turnaround deals - the companies that have a ways to go - in order to get top talent they're going to have to provide an incentive for people to leave the environment they're in, and then have a significant upside," Preston told SN. "That's the way it works."

And while the golden parachute triggered by the sale of Albertsons that entitled Johnston to a series of benefits - ranging from salary, stock, benefits and bonuses to perks including use of the corporate jet and the requirement that Albertsons purchase his Boise home - has raised interest among top executives in the details of exit packages, investor concern over such deals has also grown. A recent report from Institutional Shareholder Services, a proxy analysis company in Rockville, Md., noted that 59% of public company shareholders are concerned about excessive severance: Albertsons shareholders in 2004 and 2005 in fact voted in favor of proposals to require shareholder approval for severance pay packages exceeding 2.99 times annual salary and benefits. The measures, however, were nonbinding, and not in the best interest of the company, the Albertsons board argued.

A compromise is a trend toward compensation and benefits at troubled companies that tie rewards more closely to performance, according to Jose Tamez, managing partner of the executive search firm Austin Michael, San Antonio.

"As long as there are companies going through troubled times, you'll see packages that offer strong incentives," Tamez told SN. "The only thing that will alter a little bit are incentives more tied to true company performance in terms of stock price and profits."

Peter Lynch, the former chief operating officer at Albertsons - who happened to have been passed over for Johnston for the CEO role at that company in 2001 - took over at Winn-Dixie when that company was teetering on the brink of bankruptcy in late 2004. The company filed for Chapter 11 protection within two months of his arrival. As Lynch oversaw programs to arrest declining sales and stabilize the ailing retailer, company directors, pleased with his progress, offered retention bonuses of $1.5 million in 2005 and another $1 million to stay through August of this year.

Lynch, whose annual salary is $900,000, said last month he was looking forward to arranging another retention agreement with Winn-Dixie to stay on as CEO following its emergence from Chapter 11.

Battling Northeast retailers A&P and Pathmark each named new CEOs a little less than a year ago, and each is working on various turnaround strategies.

John Standley of Carteret, N.J.-based Pathmark, received an annual base salary of $900,000, a sign-on bonus of $350,000, and restricted stock awards worth $5.4 million as part of a long-term incentive plan upon his employment, company filings show. Standley made $830,000 in annual base salary as an officer at Rite Aid, his previous employer.

A&P gave its new chief executive, Eric Claus, an $800,000 sign-on bonus when he arrived a year ago and an annual salary of not less than $550,000, filings show. Claus, whose expertise at A&P Canada is being leveraged at A&P's stateside operations, received total bonuses of $1.7 million during A&P's most recent fiscal year, which ended in February.

Most recently, Alec Covington joined wholesaler Nash Finch as its new CEO, taking over as that company faces difficulties realizing the benefits of a recent acquisition and with struggles among its own retail holdings and that of numerous independent customers.

The former CEO of Tree of Life receives an annual base salary of $850,000 and a bonus of not less than that amount this year, filings show.

Exit packages consisting of double and triple annual salary and benefits, depending on circumstances, are not uncommon.

"Most executives we work with as job candidates are now becoming more focused on what an exit package would look like," Reffett said. "And companies that are eager to make a deal are willing to give more consideration in the event the marriage does not work out."

2005 Executive Compensation

The chart below summarizes the annual salary and bonus earned by the top executives at a sample of publicly traded companies from SN's

Power 50 and Top 75 lists over the last two years. Figures do not include various benefits accrued under long-term compensation plans.

Executive, title; 2005 Salary; 2005 Bonus Compensation; 2005 Other Compensation; 2005 Total; 2004; % Change

H. Lee Scott, President, CEO, Wal-Mart Stores: $1.3M; $3.9M; $163,000; $5.4M; $5.6M;(3.6%)

David Dillon, Chairman, CEO, Kroger: $1.1M; $1.9M; $43,000; $3.04M; $1.8M; 67%

Jim Sinegal, President, CEO, Costco Wholesale: $350,000; $100,000; $12,900; $463,000$550,000; (15.8%)

Sinegal has received the same annual base salary since 2001.

Steve Burd, Chairman, president, CEO, Safeway: $1.3M; $1.95M; $283,000; $3.5M$2.3M; 52.2%

Burd's base salary increased 30% since 2003.

John Lederer, President, Loblaw Cos.: $1.35M; $0; $16,889; $1.37M; $2.35M; (41.7%)

Lederer chose to forego his bonus in 2005. In 2004, he received a bonus of around $878,000.

Jeff Noddle, Chairman, CEO, Supervalu: $1M; $823,000; $0; $1.8M; $2.7M; (33.3%)

Bill McEwan, President, CEO, Sobeys: $912,000; $540,364; $84,435; $1.54M; $947,00062.6%

Peter Lynch, President, CEO, Winn-Dixie Stores: $502,000*; $2.0M*; $70,000*; $2.57M*;N/A; N/A

Lynch in 2005 received a $1.5 million retention bonus.

Pierre Lessard, President, CEO, Metro: $716,700; $860,040; $0; $1.58M; $1.24M; 27.4%

As of Dec. 2, 2005, Lessard held shares of Metro equivalent to 15 times his annual base salary.

Eric Claus, President, CEO, A&P: $483,000*; $1.7M*; $10,700*; $2.3M*; $863,000; 73.3%

Claus received a sign-on bonus of $800,000 to become A&P's CEO in August 2005. His annual salary is $550,000.

John Standley, CEO, Pathmark: $380,769*; $335,000*; $25,881*; $741,650*; N/A; N/A

Standley's annual base salary in his previous job as CEO at Rite Aid was $830,000. His annual base salary at Pathmark is $900,000.

Ron Marshall, President, CEO, Nash Finch: $673,000; $162,000; $171,000; $1M; $1.1M(9.1%)

Marshall resigned from Nash Finch in March and was replaced by Alec Covington on May 1. Covington will receive an annual base salary of $850,000 and a bonus in 2006 of not less than $850,000, minus any annual performance bonus received from Tree of Life, for whom he served previously as CEO. Future bonuses depend on performance.

John Mackey, Chairman, CEO, Whole Foods Market: $356,000; 126,000; $460,000; 942,000; $460,000; 104.8%

*Through end of fiscal year. Claus' 2004 figures indicate salary paid as CEO of A&P's Canadian division o Figures for Lederer, McEwan and Lessard, as well as Claus in 2004, expressed in U.S. dollars

Years 2005 and 2004 indicate each company's two most recent annual proxy reports as of July 19, 2006 o Source: Company reports