New CEO on the Way, Nash Finch Execs Guaranteed Pay
By George Anderson
As David Livingston of DJL Research points out: “It’s pretty standard for a new CEO to clean house.”
That would seem to explain why Nash Finch’s compensation committee signed deals with 16 top executives at the company to pay them for up to two years in salary and benefits should they find themselves out of job when a new chief comes in to replace Ron Marshall, who is stepping down next March.
According to a report in the Star Tribune of Minneapolis, the compensation committee was concerned that senior managers might look for employment elsewhere during the interim period and decided the agreements would ensure “continuity of leadership.”
Mr. Livingston said the agreements are less about maintaining continuity and more about severance. “If you have senior vice presidents and they get fired because of a change in management, they usually get one to two years’ salary as severance. These people make some pretty high dollars, and they’re usually 50 to 55 years old. It’s not easy to get a new job paying that kind of money.”
Moderator’s Comment: Are retention agreements such as those at Nash Finch common when new CEOs are joining a company? Did Nash Finch’s compensation committee
make the right decision for the company’s various stakeholders in signing the retention agreements described in the Star Tribune report? –
George Anderson – Moderator
A “stay bonus” is common when a company is being sold, and you don’t want key people playing leapfrog over the door. A two-year parachute for 16 people seems a bit much under these circumstances, but like Genial Gene said, there are a lot of questions to which we don’t have answers.
Never having had a retention agreement of any kind when heading Kroger and Supervalu, I wonder if times have changed and I have been left me in the dust … or is there some strategic reason why Nash Finch’s compensation committee feels it must offer 16 current executives retention agreements right now?
I start with these questions: 1) Why is Ron Marshall leaving Nash Finch at age 51 after being there only seven years? Ron is reputed to be a “brilliant financial strategist” who cultivated Wall Street better than any other grocery CEO. This summer he reportedly sold 500,000 shares of his stock for a about $15 million, a great short-term reward for the grocery industry.
3) Were some of the current executives opting to sell their stock too and bail out?
2) Is Nash Finch in trouble?
And 4) Is Chairman Al Graham, a very successful Canadian wholesale executive himself who heading up the new CEO search, thinking Nash Finch now needs a turn-around specialist?
If I knew the true answers to these important questions I would be in a more qualified position to comment on whether the NF compensation committee did the right things for Nash Finch
stakeholders. So here I sit pondering the matter.
It’s not unusual for a few upper-level execs to have management contracts that spell out their severance. When 16 people get contracts all at once, it’s usually because the company is concerned about massive turnover. Sometimes the motivation is to preserve “the old boys’ club” and sometimes the motivation is to add stability to help a company survive a difficult period. Unfortunately, even competent, hard working sincere executives are often dumped for political reasons, regardless of their tenure or loyalty. Executives who are good at protecting themselves try to get their severance deals in writing in advance. If the company is publicly held, it’s up to the shareholders to sell their stock if they think the severance deals are inappropriate.
I seriously doubt Nash Finch’s compensation committee is concerned about executives leaving the company because of their execellent management skills. And I don’t believe there is a great demand in the supermarket industry for Nash Finch executives. Nash Finch has been a revolving door for executives, anyway, and it would actually be more convenient for a new CEO if they would quit. But these people aren’t going anywhere until shown the door. So there is no worry that some invaluable person is going to leave the company. I think this is all about milking the company before the new boss gets hired.
Anyway, it looks like 16 people will probably go play golf for a couple years. With the lucrative severance package, this will reduce hard feelings after the new CEO takes over. Since most of the executives will probably be fired within weeks of a new CEO, the advantage is they can be open and honest with the new CEO without the worry of losing there job — because it will already be lost.
A new CEO needs to bring in his own people. A CEO needs people on his team that he can trust and that he is comfortable with. Often they are not the most qualified people but it’s human nature to surround yourself with people who make you feel good about yourself. Even if the new CEO needs to spend $10-15 million to politely send the current management on their way, they usually see it as an expected expense. Whoever the new CEO is, he is going to have one heck of mess to clean up.
Funny thing, but a military man can run almost any organization with the cards that are dealt him. It is going to be sad to see Nash Finch pull in a second tier executive, run off people who already know the system and the problems, and start over at ground zero. Nash Finch really doesn’t have much except a customer list and you can bet that massive change will cost them some customers.
A smart committee would look for a hands-on leader with a huge focus on customer service – someone who is secure enough to let his executives manage their departments. Find someone who is smart enough to work with suppliers, streamline procedures, master logistics and take advantage of every possible technology to deliver better service. I would suggest a military man with 20 years experience in armor.