April 16, 2007
Federated Execs Get Double Discounts
Top ranking executives and board members at Federated Department Stores know the power of employee discounts. The company gives 20 percent off store merchandise to recruit and retain rank-and-file employees at Macy’s and Bloomingdale’s.
The execs and board are also using the discount perk as a means to motivate themselves to buy at the company’s stores and websites. According to a Chicago Tribune report, top ranking executives and board members receive twice the discount (40 percent) that store workers and others in the company receive.
According to the company’s proxy, the merchandise discount gives Federated “a competitive advantage in attracting, retaining and motivating executive talent.”
The top spender at the company was Ronald Tysoe, the former vice chairman of the company. Mr. Tysoe, who retired in October, got $124,635 in discounts and $46,363 to cover taxes on the merchandise.
Chairman and CEO Terry Lundgren was the second biggest spender among Federated’s employees and board. Mr. Lundgren got $48,382 in discounts last year and the company picked up an additional $21,219 for tax payments.
Mark Reilly, a compensation expert and partner at 3C, Compensation Consulting Consortium, said Federated is misguided in its executive discount package including provisions to pay the tax on purchases.
“It is one more excess,” he told the Trib. “It doesn’t seem right to offer more of a discount to executives than to other employees.”
Federated is not the only company that gives executives bigger discounts than workers on the frontline. Nordstrom provides a 33 percent discount versus the 20 percent everyone else receives.
Others, however, have one discount for the entire company. Wal-Mart gives workers 10 percent off merchandise purchases and J.C. Penney offers a 20 percent discount.
Discussion Question: What is your view on the positives or negatives associated with executives receiving deeper merchandise discounts than frontline workers? What about the perk that provides for paying the taxes on the merchandise, as well?
BrainTrust
Recent Discussions
Discussion Questions
Poll
I’d love to see the data that actually shows that the (doubled) merchandise discount gives Federated “a competitive advantage in attracting, retaining and motivating executive talent” as stated in their proxy.
As George points out, Federated isn’t the only big retailer offering a deeper merchandise discount to senior officers and board members. It may or may not have been “grandfathered” into employment contracts based on the predecessor stores that are now part of Federated/Macy’s. Nevertheless, given today’s scrutiny of “excessive” executive compensation, competitors are wise to take this benefit off the table.
It becomes a morale issue when you do the math: For example, Mr. Tysoe’s purchases would have exceeded $311,000 to qualify for the discount he received last year. (And to have his sales tax “grossed up” on top of the discount!) Most associates are going to be surprised to see a board member spending more in a year than they might earn in salary and benefits over ten years.
If highly-compensated executives get larger discounts than other employees, the excess is taxable income. Sometimes the executives pay the income tax and sometimes they receive “gross-up” subsidies from the company to pay the taxes. If the retail company would just give everyone the higher discount, the taxes would be saved and morale would be higher. Improving staff loyalty reduces turnover. And when the employees buy the merchandise, they’ll sell it more effectively.
It seems that what Federated is able to attract and retain–at least recently–is negative publicity: I can’t think of anything they’ve done that has received universal acclaim since…whatever it was they did before the debacle of the Fingerhut acquisition.
Of course the tempest-in-a-teapot remark has a lot of validity: if you are compensating people with 8-figure packages, who really cares how it’s comprised?
A different pay schedule for “highly compensated” employees sends one message to the “highly worked” employees: You peons are on a different team. If a large discount works for employee recruitment and retention on the top floors in Cincinnati it will work at the notions counter on State Street. There are many families where the deciding factor on the part time job was determined by the discount. Many people end up working for almost nothing as their paychecks go back into purchases.
There are at least two areas of employee discounts that need controls. One is on sale items. A store should have a different discount level on sale items so as not to disincentivize sales clerks, associates, cast members, team members, peons or the great unwashed for pushing slow moving products that they would like.
The second control issue is that discounts are usually for the employee and their immediate family only. The practice similar to servicemen buying tax free cigarettes at a PX and reselling them should not be going on in a public company. This can be controlled through an analysis of items purchased and the total purchases. It would be prudent to audit the expenditures of any employee spending over, say $200,000 to confirm that all the product was for family consumption. Did they spill a lot of wine on their silk shirts and replace them daily? Did they just furnish a new home or are they the go to guy/gal for all of their friends and neighbors?
If a “highly compensated” executive really thinks that they deserve special treatment on employee discounts, don’t play golf with them for money as they probably also believe that because the belong to a country club the rules of golf don’t apply to them.
March year-over-year sales data recently released for the big retailers show many of Federated’s competitors are clipping along in the +8- +15% range. They all endured in the same economic conditions, length of calendar month, late Easter, and similar weather conditions. My recollection is that Federated’s year over year sales for stores open at least a year was around +2.3%. I am not sure this result is an obvious justification of Federated’s defense of their double discount as helping them to hire and keep the best and the brightest upper management.
David Birnbaum got it right. Despite the egalitarian ramblings of Utopians, rank does has its privileges. How smart is it to incent top executives to shop at Federated? Turn it around. How wrong would it be to see Terry Lundgren walk through a Macy’s wearing a suit from Barney’s and shirt hand made in Hong Kong?
Universally, it is a good thing when executives shop at their own store. It is even better when they do so for professional attire. The more they shop, the more they experience the store as a pseudo-customer. That is undeniably a good thing. However, it has never worked to mandate, require, or negatively incent such behavior. Which leaves positive incentives…like deeper discounts.
Tempest in a teapot, but also missing the method behind the madness. Remember the issue at Sears? Contrast those methods and ask which is better for the organization.
Wow, that’s a lot of money to spend on clothes! Based on the amounts, I guess the greater percentage can also be called a volume discount.
I do think these managers are sending a mixed signal. On the plus side, it shows that the execs are buying suits “off the rack” at their stores, rather than from custom tailors or other retailers. On the down side, there is no one listed in the proxy who made less than $3.9 million in total compensation, and the store floor clerk at the Macy’s at Herald Square might wonder why he or she isn’t getting the discount or the tax cost-up.
Offering this discount to recruit or retain will not make or break the decision to join or stay with the company. This rationale is just a poor excuse for a nice perk. Ultimately it’s putting more distance between corporate and stores while hurting morale. Wouldn’t the opposite be more beneficial by offering this perk to store employees (minus the tax benefit)? It would become a great perk, encourage spending, and possibly cut down on some turnover. Why do the execs need a bigger discount than lower income employees?
So, executives get greater discounts than employees at Federated. In my view, our culture worries too much, and too often, about the perception of fairness between incentives and benefits granted to executives vs. employees. This is not a level field, and it should not have to be. Whereas, it’s important to motivate all employees on every level, and to communicate company policies clearly and accurately, I see no reason why a person dedicating him or herself to an executive level position should not be granted certain benefits, incentives, and perks of an executive level nature, so as long as these benefits are not egregious, and the 40% discount seems reasonable for the task at hand. This is part of what capitalism is all about. In as much as employees work hard, long hours, and many, with great commitment, being an executive is a very different kind of commitment, and the work and stress associated with top level positions is also on a whole different level. It’s not a level playing field in any sense, and being an executive needs to have its rewards.
With top executives rewards skyrocketing and with larger discounts for top executives, what’s next? Will all other associates now have to pay to park on company premises? One has to wonder what goes on in the minds of some key people these days.
My view, especially in the supermarket industry, has always been that employee discounts should be provided. There’s nothing so damning as an employee who chooses to shop elsewhere.
The kicker in the Federated case, as I understand it, is the significant use of the employee discount by their top executives to buy one-of-a-kind items. They apparently wanted stuff that Federated didn’t carry, so they allegedly directed buyers to purchase a single unit of the item and hold it for them. An extra benefit was instructing the buyers to place unrealistically low retail prices on these singular items which, when combined with the 40% discount, equated to below-cost final purchase prices. Some would call this theft.
The morale issue, however, is just dumb and ever so predictable. We want more and are jealous when we discover that others get more than we. This is human nature, particularly among those who demand less of themselves (especially less education and less job performance). If you want executive perks, become an executive. This is called an “incentive.” But if you expect the same perks for less performance and contribution to the company, go fish.
Retailers can’t win on this issue until they attach clear performance/tenure/position requirements to perks. Rank-and-file employees are delusional if they believe they’re somehow entitled to the same benefits as the best-performing executives. Should they receive the same expense accounts and upgraded healthcare benefits as those who contribute more? If they seem to complain a great deal, perhaps they have too much time on their hands.
Here’s a story with a moral: When I joined Raley’s as VP Adv., part of my compensation was a company car. The headquarters parking lot was full of them, most driven by co-workers ahead of me in tenure but below my pay grade. I was taken to the local Ford dealership to pick out my Taurus, and was told it would be delivered shortly. Then I was informed that Raley’s had decided to eliminate company cars and I was the first to be excluded. What could I do? Sue my employer of just a few weeks? Companies do what they will do. If you don’t like it, go pick another job off of the job tree (and make sure it’s near your wife’s mother).
Disgrace would be the best word. If the Board of Directors is not shopping the store, they should resign. If you’re not committed to the company, don’t take the fees. With the fees they are being paid, additional discounts should not be required. Board members should be visiting stores as often as they can and should be asking their friends and family what they think.
I don’t see how the company and its stockholders could possibly benefit from this. Also, it probably hurts employee morale at the lower ranks. Perhaps these companies feel that if they offer execs a 40% discount, it will discourage them from taking a 100% discount and causing a scandal like at Wal-Mart.
More Discussions
Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?Should IKEA Be Flattening Management?
Should IKEA be trimming down its management headcount?Is Legislation the Answer on Visa, Mastercard Swipe Fees as ~$200 Billion Record Is Set?
Is lawmaking the way forward on swipe fees?
I’d love to see the data that actually shows that the (doubled) merchandise discount gives Federated “a competitive advantage in attracting, retaining and motivating executive talent” as stated in their proxy.
As George points out, Federated isn’t the only big retailer offering a deeper merchandise discount to senior officers and board members. It may or may not have been “grandfathered” into employment contracts based on the predecessor stores that are now part of Federated/Macy’s. Nevertheless, given today’s scrutiny of “excessive” executive compensation, competitors are wise to take this benefit off the table.
It becomes a morale issue when you do the math: For example, Mr. Tysoe’s purchases would have exceeded $311,000 to qualify for the discount he received last year. (And to have his sales tax “grossed up” on top of the discount!) Most associates are going to be surprised to see a board member spending more in a year than they might earn in salary and benefits over ten years.
If highly-compensated executives get larger discounts than other employees, the excess is taxable income. Sometimes the executives pay the income tax and sometimes they receive “gross-up” subsidies from the company to pay the taxes. If the retail company would just give everyone the higher discount, the taxes would be saved and morale would be higher. Improving staff loyalty reduces turnover. And when the employees buy the merchandise, they’ll sell it more effectively.
It seems that what Federated is able to attract and retain–at least recently–is negative publicity: I can’t think of anything they’ve done that has received universal acclaim since…whatever it was they did before the debacle of the Fingerhut acquisition.
Of course the tempest-in-a-teapot remark has a lot of validity: if you are compensating people with 8-figure packages, who really cares how it’s comprised?
A different pay schedule for “highly compensated” employees sends one message to the “highly worked” employees: You peons are on a different team. If a large discount works for employee recruitment and retention on the top floors in Cincinnati it will work at the notions counter on State Street. There are many families where the deciding factor on the part time job was determined by the discount. Many people end up working for almost nothing as their paychecks go back into purchases.
There are at least two areas of employee discounts that need controls. One is on sale items. A store should have a different discount level on sale items so as not to disincentivize sales clerks, associates, cast members, team members, peons or the great unwashed for pushing slow moving products that they would like.
The second control issue is that discounts are usually for the employee and their immediate family only. The practice similar to servicemen buying tax free cigarettes at a PX and reselling them should not be going on in a public company. This can be controlled through an analysis of items purchased and the total purchases. It would be prudent to audit the expenditures of any employee spending over, say $200,000 to confirm that all the product was for family consumption. Did they spill a lot of wine on their silk shirts and replace them daily? Did they just furnish a new home or are they the go to guy/gal for all of their friends and neighbors?
If a “highly compensated” executive really thinks that they deserve special treatment on employee discounts, don’t play golf with them for money as they probably also believe that because the belong to a country club the rules of golf don’t apply to them.
March year-over-year sales data recently released for the big retailers show many of Federated’s competitors are clipping along in the +8- +15% range. They all endured in the same economic conditions, length of calendar month, late Easter, and similar weather conditions. My recollection is that Federated’s year over year sales for stores open at least a year was around +2.3%. I am not sure this result is an obvious justification of Federated’s defense of their double discount as helping them to hire and keep the best and the brightest upper management.
David Birnbaum got it right. Despite the egalitarian ramblings of Utopians, rank does has its privileges. How smart is it to incent top executives to shop at Federated? Turn it around. How wrong would it be to see Terry Lundgren walk through a Macy’s wearing a suit from Barney’s and shirt hand made in Hong Kong?
Universally, it is a good thing when executives shop at their own store. It is even better when they do so for professional attire. The more they shop, the more they experience the store as a pseudo-customer. That is undeniably a good thing. However, it has never worked to mandate, require, or negatively incent such behavior. Which leaves positive incentives…like deeper discounts.
Tempest in a teapot, but also missing the method behind the madness. Remember the issue at Sears? Contrast those methods and ask which is better for the organization.
Wow, that’s a lot of money to spend on clothes! Based on the amounts, I guess the greater percentage can also be called a volume discount.
I do think these managers are sending a mixed signal. On the plus side, it shows that the execs are buying suits “off the rack” at their stores, rather than from custom tailors or other retailers. On the down side, there is no one listed in the proxy who made less than $3.9 million in total compensation, and the store floor clerk at the Macy’s at Herald Square might wonder why he or she isn’t getting the discount or the tax cost-up.
Offering this discount to recruit or retain will not make or break the decision to join or stay with the company. This rationale is just a poor excuse for a nice perk. Ultimately it’s putting more distance between corporate and stores while hurting morale. Wouldn’t the opposite be more beneficial by offering this perk to store employees (minus the tax benefit)? It would become a great perk, encourage spending, and possibly cut down on some turnover. Why do the execs need a bigger discount than lower income employees?
So, executives get greater discounts than employees at Federated. In my view, our culture worries too much, and too often, about the perception of fairness between incentives and benefits granted to executives vs. employees. This is not a level field, and it should not have to be. Whereas, it’s important to motivate all employees on every level, and to communicate company policies clearly and accurately, I see no reason why a person dedicating him or herself to an executive level position should not be granted certain benefits, incentives, and perks of an executive level nature, so as long as these benefits are not egregious, and the 40% discount seems reasonable for the task at hand. This is part of what capitalism is all about. In as much as employees work hard, long hours, and many, with great commitment, being an executive is a very different kind of commitment, and the work and stress associated with top level positions is also on a whole different level. It’s not a level playing field in any sense, and being an executive needs to have its rewards.
With top executives rewards skyrocketing and with larger discounts for top executives, what’s next? Will all other associates now have to pay to park on company premises? One has to wonder what goes on in the minds of some key people these days.
My view, especially in the supermarket industry, has always been that employee discounts should be provided. There’s nothing so damning as an employee who chooses to shop elsewhere.
The kicker in the Federated case, as I understand it, is the significant use of the employee discount by their top executives to buy one-of-a-kind items. They apparently wanted stuff that Federated didn’t carry, so they allegedly directed buyers to purchase a single unit of the item and hold it for them. An extra benefit was instructing the buyers to place unrealistically low retail prices on these singular items which, when combined with the 40% discount, equated to below-cost final purchase prices. Some would call this theft.
The morale issue, however, is just dumb and ever so predictable. We want more and are jealous when we discover that others get more than we. This is human nature, particularly among those who demand less of themselves (especially less education and less job performance). If you want executive perks, become an executive. This is called an “incentive.” But if you expect the same perks for less performance and contribution to the company, go fish.
Retailers can’t win on this issue until they attach clear performance/tenure/position requirements to perks. Rank-and-file employees are delusional if they believe they’re somehow entitled to the same benefits as the best-performing executives. Should they receive the same expense accounts and upgraded healthcare benefits as those who contribute more? If they seem to complain a great deal, perhaps they have too much time on their hands.
Here’s a story with a moral: When I joined Raley’s as VP Adv., part of my compensation was a company car. The headquarters parking lot was full of them, most driven by co-workers ahead of me in tenure but below my pay grade. I was taken to the local Ford dealership to pick out my Taurus, and was told it would be delivered shortly. Then I was informed that Raley’s had decided to eliminate company cars and I was the first to be excluded. What could I do? Sue my employer of just a few weeks? Companies do what they will do. If you don’t like it, go pick another job off of the job tree (and make sure it’s near your wife’s mother).
Disgrace would be the best word. If the Board of Directors is not shopping the store, they should resign. If you’re not committed to the company, don’t take the fees. With the fees they are being paid, additional discounts should not be required. Board members should be visiting stores as often as they can and should be asking their friends and family what they think.
I don’t see how the company and its stockholders could possibly benefit from this. Also, it probably hurts employee morale at the lower ranks. Perhaps these companies feel that if they offer execs a 40% discount, it will discourage them from taking a 100% discount and causing a scandal like at Wal-Mart.