Abercrombie, Compensation, and the Need for Access (Part 1)

Abercrombie Fitch filed its proxy statement not long ago.  It is a Company with a CEO that has a controversial profile when it comes to compensation. 

Michael S. Jeffries is the CEO.  It is clear that he took over a moribund product back in the 1990s and made Abercrombie into a popular and successful brand.  As Business Week described back in 2005:

• Since Jeffries became CEO in 1992, he has transformed a floundering men's haberdashery once owned by Limited Brands Inc. into a brand so popular that the company has posted profit gains for the past 48 quarters (excluding a one-time charge last year). That's a record unmatched by its peers. Jeffries revived A&F by selling preppy but edgy casual clothing at high prices unheard of in that market.

It is also clear from the proxy statement that the Board views Jeffries with considerable deference.  As the Statement notes: 

• The Board believes that combining the Chairman and Chief Executive Officer positions takes advantage of the talent and knowledge of Mr. Jeffries, the person whom the Board recognizes as the 'founder' of the modern day Abercrombie & Fitch, and effectively combines the responsibilities for strategy development and execution with management of day-to-day operations.

For 2009, the proxy statement revealed total compensation of slightly over $36 million.  The Compensation Committee believed that certain "considerations" were "relevant to an understanding of the compensation awarded to Mr. Jeffries in Fiscal 2009."  Most of the compensation related to stock appreciate rights were given as part of a retention agreement.  Moreover, the rights came with significant limitations.  As the proxy statement noted: 

• The Compensation Committee views those stock awards, particularly the Retention Grant provided to Mr. Jeffries through the Jeffries Agreement, as compensation to be earned by Mr. Jeffries over the full five-year term of the Jeffries Agreement. The Retention Grant will not become vested (meaning that Mr. Jeffries will not be able to exercise the award and receive any shares earned under the award), unless and until Mr. Jeffries remains continuously employed by the Company through January 31, 2014 (subject only to limited vesting acceleration under the severance provisions of the employment agreement) and is subject to certain transfer restrictions. Similarly, no portion of the semi-annual grant made in September 2009 under the terms of the Jeffries Agreement vested in Fiscal 2009, as the stock appreciation rights which are the subject of the semi-annual grant will become vested in equal annual installments over the four-year period following the grant date.

What we find particularly interesting is not the total compensation but the board's decision with respect to the CEO's personal use of the aircraft.  We will explore that in the next post.