Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

J.C. Penney Company, Inc. (JCP): The One Way Ron Johnson Has Helped

Page 1 of 2
J.C. Penney Company, Inc. (NYSE:JCP)‘s executive compensation has recently come into the spotlight, following the company’s proxy filing last week. Various news outlets reported that CEO Ron Johnson had taken a massive 97% pay cut in 2012, compared to the previous year. Some observers commented that the pay cut signaled good judgment on the part of J.C. Penney’s board, in light of the company’s terrible performance last year. Here at The Motley Fool, we pointed out that Johnson’s reported 2011 compensation of $53.3 millionis a bit of an exaggeration: Most of that was a stock grant designed to replace Apple Inc. (NASDAQ:AAPL) stock options that Johnson had to give up in order to take the J.C. Penney job.
J.C. Penney Company, Inc. (NYSE:JCP)

What has been overlooked by most media outlets is that — on a net basis — Ron Johnson hasn’t really been paid at all by J.C. Penney Company, Inc. (NYSE:JCP)! When Johnson decided to take the CEO job at the retailer, he invested $50 million of his own money in the company. That’s more than the present value of the compensation he has received from J.C. Penney since he started working there a year and a half ago.

How is that possible?
When Johnson started work at J.C. Penney, he received approximately 1.66 million restricted stock units. RSUs are essentially shares of stock that cannot be sold until after a certain date; in Johnson’s case, Jan. 27, 2012. Based on J.C. Penney’s closing stock price of $31.71 on the effective date of the RSU grant (Nov. 1, 2011), the award was worth $52.7 million. However, J.C. Penney Company, Inc. (NYSE:JCP) stock has dropped by more than 50% since then; based on last Friday’s $15.45 closing price, the value of 1.66 million shares is approximately $25.7 million.

Johnson has also received cash compensation and benefits from J.C. Penney. In his first three months on the job, this totaled approximately $625,000. In fiscal year 2012 (the period ending in February 2013), Johnson earned $1.9 million in total compensation. Thus, as of Feb. 2, Johnson had earned slightly more than $2.5 million in cash and benefits in his tenure at J.C. Penney, along with 1.66 million shares of J.C. Penney stock (worth $25.7 million today).

On the other hand, Ron Johnson paid J.C. Penney $50 million cash when he accepted the job, in return for warrants that allow him to purchase more than 7 million shares of J.C. Penney Company, Inc. (NYSE:JCP) stock for $29.92. $50 million was the fair value of the warrants at the time they were issued, but after J.C. Penney’s recent poor performance, they have lost most of their value. Unless J.C. Penney’s stock price rises above $29.92 before the warrants expire in 2018, Johnson will get nothing for the $50 million he invested in J.C. Penney.

Page 1 of 2
Loading Comments...