Boca Raton-headquartered Office Depot has paid millions of dollars in severance to departing executives in the past year, as the company’s latest CEO, Gerry Smith, replaces top leaders.
While former executives typically receive severance and bonuses related to their employment agreements, Office Depot’s proxy statement to shareholders for its annual meeting on Friday includes an unusual amount of detail on what has been paid to departing executives, and incentive compensation for Gerry Smith, who became CEO in January 2017.
One reason may be that shareholders are being asked to vote on the company’s executive compensation plan at the meeting. While the vote is only advisory, shareholders are being given at least a glimpse at the millions paid in the most recent effort to turn around Office Depot, a long-struggling retailer that has had two CEOs in the past five years.
Update: On Friday, Office Depot shareholders voted to approve the advisory vote.
The proxy gives details on current executive compensation as well as “golden parachute” payments to former executives.
Dan Marcec, director of content for Equilar, a California-based executive compensation firm, said Office Depot’s proxy has “perhaps more detail and transparency around their pay program than is standard.” But, he said, “it’s material information to shareholders that millions were paid to former executives, and they want to explain why.”
In the 16 months since joining Office Depot, Gerry Smith has shaken up the leadership team, recruiting executives he worked with at tech company Lenovo, as well as local talent. Those leaving included the chief administrative officer, chief operating officer and chief financial officer.
His stated mission is to turn Office Depot into a business services company, not only an office supplies retailer — and he has called 2018 a “year of transition.”
Office Depot spokesman Danny Jovic declined to answer questions about the annual meeting or the company’s latest strategy. He said the CEO will address strategy questions on May 16 at its Investor Day, when leadership typically meets with analysts in New York.
The proxy statement reveals that Gerry Smith received $16.77 million in total compensation in 2017, including annual salary, bonuses, stock and stock option awards, incentives and perks. The highest annual compensation for previous CEO Roland Smith was $11.77 million.
Gerry Smith’s compensation is actually on the “low end” of Equilar’s 2017 list of CEO pay at the 100 largest companies, which bottoms at about $13 million. CEOs at Boeing, Cisco and Ford had similar compensation levels to Gerry Smith in 2017, according to Equilar.
In its proxy, Office Depot states that “a competitive level of compensation is needed to recruit, retain and motivate talented executives critical to Office Depot’s long-term success.”
Like at many public companies, Office Depot’s executive compensation is tied to performance, often with bonuses attached to metrics.
For Gerry Smith, 87 percent of 2017 compensation was “at risk,” based on the company’s operating performance, relative total shareholder return, and/or changes in Office Depot’s stock price. In 2017, he was awarded about $3.7 million in stock and other incentives, according to Equilar. He has to remain in his role for at least two more years for those shares to vest.
He also received $1.2 million in March 2017 to make up for what he forfeited with former employer Lenovo when joining Office Depot. The company paid $511,000 in personal aircraft usage for Gerry Smith while he commuted to his new job. He has since bought a home in Delray Beach for $6.7 million.
Other payments include, according to the proxy filing:
–$2 million paid in September 2017 to former CEO Roland Smith, which was the amount earned as a special bonus in his employment agreement.
–$1.26 million in severance to former chief administrative officer Michael Allison in November 2017; he also was to be paid another $1.3 million this spring, according to provisions of his employment contract.
–More than $987,800 in severance to Troy Rice, chief operating officer, in October 2017.
–$1.2 million in severance to be paid by May 4 to former chief financial officer Stephen Hare, who had been recruited by Roland Smith.
Besides changing CEOs, Office Depot’s headquarters work force of 2,000 in Boca Raton has weathered the failed merger with competitor Staples, which was terminated in May 2016, as well as the integration of its 2013 acquisition of OfficeMax.
In 2017, Office Depot invested $1 billion in the acquisition of Texas-based CompuCom, an IT provider for small- and medium-sized businesses.
In talking with analysts in October about the company’s billion-dollar purchase of CompuCom, Gerry Smith said: “Technology is the office supply of the future … Acquiring CompuCom is the first step in this new strategic direction.”
Some analysts cast doubt on the strategy. Following the announcements of 2017 earnings and the CompuCom acquisition, Matthew Fassler, analyst for Goldman Sachs, wrote that “the road to recovery appears likely to be a long one, in our view, as the company issued a 2018 profit outlook sharply below our expectations on extensive investments … ”
At the annual meeting, shareholders will vote on a company proposal to approve the executive compensation plan. Under the Dodd-Frank Act, the Securities & Exchange Commission requires “say-on-pay” votes once every three years, in which companies ask their shareholders what they think of their executive pay packages.
But that doesn’t mean a company’s board has to abide by it.
“While this ‘say-on-pay’ vote is advisory and therefore non-binding, Office Depot values the opinions of shareholders and will consider the outcome of the vote when making future executive compensation decisions,” the proxy statement says.
Meanwhile, Office Depot’s stock hit a 52-week low of $2 in early April. The stock closed Wednesday at $2.31, up 0.01 cents or 0.43 percent in Nasdaq trading.
For fiscal 2017, Office Depot had $10.24 billion in sales, a decline from $11 billion a year ago.
First-quarter results are scheduled to be released May 9.