LG Scrapped 2010 Bonuses Amid $178 Million Operating Loss, Sources Say

LG Electronics scrapped annual performance and “stretch” bonuses for its U.S. sales force in the face of $178 million consolidated U.S. loss in 2010, versus a targeted $73.8 million profit, sources familiar with the company said. The operating loss was partly from LG’s U.S. wireless business and a shortfall in LCD TV sales, they said. While LG initially targeted selling 4.1 million LCD TVs in 2010, it lowered the goal to 3.2 million and ended up at less than 2.7 million units, they said. LG also suffered when hhgregg and Wal-Mart sold a larger-than-expected mix of lower-end 32- and 42-inch sets rather than the step-up models that were targeted.

The LG field sales force bonuses were to have been paid March 11, but were canceled during a conference call March 7, we're told. About 60 percent of the bonuses were linked to an annual operating revenue target, while 40 percent were from consolidated operating income. While the U.S. subsidiary fell short in consolidated income, it achieved 101 percent of the operating revenue target, we're told.

LG also had planned to pay “stretch” bonuses in each of three regions if LCD TV unit sales were within 90 percent of target, sources said. All three LG regions surpassed 90 percent of their target marks for unit sales, which should have triggered a minimum bonus equal to 15 percent of a regional account manager’s annual gross salary that typically starts around $80,000. The central region achieved 98 percent of the target for unit sales, while the western and eastern divisions were at 94 percent each. LG spokesman John Taylor declined to comment, saying he wouldn’t discuss “internal” matters.

In a sign of belt tightening, LG combined the western and central sales regions under Central Sales Director Andrew Terry, we're told. Terry and Jim Capizzi, eastern region sales director, also froze travel for the company’s regional account managers in March after some had unpaid expenses dating to December, we're told.

LG also laid off 35 sales trainers Jan. 28, moving that function to ActionLink. The switch to ActionLink was disclosed to employees last year and took effect Jan. 1, LG spokesman Taylor said, confirming the move. Among the regional account managers, Bill Brush, who handled the Florida region since 2006, left the company. LG has 24 regional account managers and is said to be weighing trimming that to 19.

"LG gained market share in 2010 and is doing so in 2011 and the sales organization is evolving to best support our customers as that continues,” Taylor said. “LG decided to outsource training activities and the new system is working and providing increased support for our retailers."

Meanwhile, LG has postponed delivery of its active-shutter 72-inch 3D TV as it converts the set to passive technology that’s being promoted under LG’s Cinema 3D banner, Taylor confirmed. LG is shifting the formerly active-shutter LW9500 series of 47-, 55- , and 65-inch 3D LCD TVs to passive and is featuring built-in 2D/3D conversion, 480 Hz panels, THX certification and the Smart TV Internet-capable Netcast Entertain Access platform for Vudu, Netflix and others. Delivery of the 9500 series was postponed to late summer. The 9500 series will join the passive LE8500 series of 42-, 47- and 55-inch that contain 240 Hz panels and shipped this month. The sets feature LG Display’s film patterned retarder (FPR) technology that is applied to LCDs to allow them to be paired with passive polarized glasses. A shipment date of the 72-inch LCD TV hasn’t been set, Taylor said.

The decision to throw additional support behind passive technology was partly done to “meet consumer needs in the United States,” Taylor said. It also stems from blind research tests conducted in late 2010 and verified earlier this year that showed consumers preferred Cinema3D by a 3:1 ratio over active shutter technology because of lighter weight and less-expensive glasses, Taylor said.