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Kai Ryssdal: Macy’s is trying something new. It’s not the company’s spring line, but the way it pays its executives. Yesterday the department store chain filed a new compensation plan with the SEC. In the past, executives would be given stocks in the company, and they’d benefit on that stock price rising. Pretty standard stuff. But what happens when the whole market goes does? How do you link incentives with worthless stock options? Now Macy’s will pay execs their stocks, but only if they do well against a pool of 10 competitors. Amanda Aronczyk reports.
AMANDA ARONCZYK: Picture a marathon. On the starting line: Macy’s, Target, the Gap, Nordstrom’s, and six other retailers. And they’re off!
This is a long race, it ends in three years. In 2011, if Macy’s comes in the top five, its executives get 75 percent of their stock options. If they’re in the top third, they get the whole package.
TOM LAWER: In competition consulting worlds, this is an exciting new development.
Tom LaWer is a partner at Compensia, a compensation consulting firm. He says in a rising market everyone likes stock options. Shareholders like it because the executives are motivated. And the executives like it because they can profit from gains. In a down market, he says, that mutual affection for options doesn’t last.
LAWER: There’s a natural inclination on the part of executives to ask for new stock options at a low price. And a natural inclination on the part of the stockholders to say, “No, you need to suffer the way we’re suffering.” So that’s breaking down.
LaWer says that this is an unusual idea. But he says other companies are considering similar plans.
Burt Flickinger is a consumer industry analyst for SRG Insights. He says the new program could motivate Macy’s officials and give the company some much needed momentum.
BURT FLICKINGER: The department-store sector has been slowly dying for years, and many of the major chains may be dead within a couple quarters. And Macy’s is doing a heroic job to hold on.
Flickinger says that the announcement hasn’t affected Macy’s stock yet. He says the entire retail industry is so beaten down by the recession it could take every one of those three years for the company to see positive results.
In New York, I’m Amanda Aronczyk for Marketplace.
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