Steinhafel’s ‘Stunning’ Target Exit Softened by Deferred Compensation Plan
Gregg Steinhafel, who stepped down Monday as Target chairman, president and CEO, could reap some $9.2 million as part of an officer deferred compensation plan (ODCP), assuming it was a voluntary termination, said Janney Montgomery Scott. A report by Janney Monday called Target’s ODCP an “obscure compensation package” that Target closed off to new participants in 1996. Steinhafel joined Target in 1979.
Under the plan, an involuntary termination would supplement the $9.2 million package with an additional $11 million under the company’s income continuance policy and $6.3 million for his restricted stock units, Janney said. Target’s latest proxy statement, including discussion of executive compensation, was due “on or about April 28” but has not been filed.
Janney viewed the “stunning” move as positive but said, “Who they hire is critical.” According to analyst David Strasser, a lot “has gone wrong” at Target over the past few years and it’s important that an outsider come in to “revisit several strategic mistakes.” He cited a great but “tarnished” brand, “tremendous supply chain,” and an e-commerce business that’s “far behind where it needs to be.” Strasser stressed the need for a turnaround specialist who can re-energize a “demoralized” workforce, and who can stabilize and grow the Canada business, which “have not met our initial expectations.”
According to Janney, ODCP accounts are credited with earnings based on the average Moody’s Bond Indices Corporate AA rate for June of the preceding calendar year, plus an additional annual return of 6 percent. The minimum credit rate is 12 percent and the maximum is 20 percent, it said. The average Moody’s Bond Indices Corporate AA rate was 3.78 percent in June 2012, when the rate for calendar 2013 was set, it said. Payouts from the ODCP cannot be made until “termination of employment, death, termination of the ODCP, a qualifying change in control, or unforeseeable financial emergency of the participant creating severe financial hardship,” it said. At the time of that filing, the package was worth $7.95 million, Janney said.
In a statement Monday, Target said the board and Steinhafel decided “that now is the right time for new leadership at Target,” effective immediately. The company said Steinhafel “held himself personally accountable” for the credit card data breach in late 2013. It also said Steinhafel led the company through “unprecedented challenges,” including the recession, Target’s expansion into Canada and a proxy battle with dissident shareholder William Ackman that reportedly cost the company $11 million.
The security breach, which affected credit and debit card users shopping in stores Nov. 27 to Dec. 15 -- including the company’s REDcard holders and those using cards issued by third-party banks -- was originally said to be limited to cardholders’ name, card verification value, account number and expiration date. In January, Target expanded the breadth of compromised data to include names, mailing addresses, phone numbers or email addresses for up to 70 million individuals (CED Jan 13 p5). Fallout is still being felt. Outerwall said last week that its number of new unique Redbox credit card accounts experienced a 2.6 percent bump in Q1 due to new credit cards that had to be issued to customers following the Target breach.
Chief Financial Officer John Mulligan was named interim president and CEO, and Roxanne Austin, a current board member, was named interim non-executive chair of the board, Target said. Both will have their roles until permanent replacements are named, Target said. Steinhafel will be in an advisory capacity during the transition, it said. Shares closed down 3.5 percent to $59.87.