business news in context, analysis with attitude

We continue to get email about the $94 million in stock options awarded to departing Kmart CEO Julian Day after just ten months on the job…which comes as Michigan is willing to spend millions in tax incentives to keep Kmart’s headquarters where it is, and Georgia is willing to spend millions to lure Kmart away.

MNB user Eric L. Rose wrote:

The $94 Million in stock options allow Julian Day to purchase $94 Million in stock at the issue price (typically the market value on the day the options were issued). These options would expire at some future date. Julian’s hope would be the stock price goes up so at some point in the future he can purchase at below market costs with no risk. If the price drops, he doesn’t exercise his option and gets nothing. A cashless exercise (which he could do today or in the future) would involve him buying and selling on the same day and getting the difference in the price increase over the issue or option price. If the stock has not gone up, this equals $0. I’m not sure we should be so worked up about this.

MNB user Bobby Martyna wrote:

Interesting reactions to the Kmart payout.

But recall that this pay package was established when it was unclear whether or not Kmart would survive. Kmart shareholders said, ‘you get us out of this mess and we’ll give you a small percentage of the upside on the stock price’. This guy was clever enough and motivated enough by the package to figure out how to get them out of bankruptcy and drive extreme shareholder value in a short period of time. That’s the essence of capitalism and the essence of executive pay packages.

Also, giving him stock options guarantees that the value has to be long term versus a quick fix, which is what a cash package would have done. If selling off real estate to build the corporate treasury was the right thing to do for Kmart’s long term success, the stock will remain high and he’ll cash in. Good for everyone.

Kmart’s future survival now seems more certain than it has been in the last five years. So, what is the impact of that on the job market and the workforce versus a bankrupt entity? Would people suggest that $90 million in shareholder value be re-directed to hiring people that lost their jobs? Not likely it would make much of even a short term impact.

Note -- I don’t hold any shares of Kmart.


MNB user John Tatum wrote:

$94M in 'stock options' for Kmart may not be worth much and is a good deal for the share holders. He only wins if they win and it does not absorb needed cash. Kmart remains a significant employer and corporate citizen that any state would love to add.

Please inform your readers that $94M in stock options is not a $94M bonus. They seemed to have missed this point - and you have expanded it by printing their delusions without a correction.


Point taken…though we think we’ve been fairly consistent in referring to the $94 million as being stock options and not a bonus. But maybe we should have corrected any misunderstandings in yesterday’s “Your Views.”

That said, we still think the $94 million for ten months work is obscene. It sends the wrong message to current employees, and suggests that the new Kmart isn’t any different from the old Kmart, where top management got richer even as performance diminished.

We don’t care what the options eventually are worth. He worked there for ten months, and the stores aren’t much better than they used to be. The company consistently gets its fanny kicked by Wal-Mart and Target, and we see little evidence that things are going to change.




Yesterday’s story about Toys R Us putting its toy chain on the market, virtually acknowledging that Wal-Mart was too much for it to compete with, prompted a number of emails.

One MNB user wrote:

The only way Wal-Mart could be hurting Toys R Us is if people are buying toys at Wal-Mart because they're already there. Of all the things Wal-Mart carries, I don't even think they are competitive on toy prices in Phoenix. We are avid bargain shoppers, especially when it comes to buying gifts for four kids and who knows how many classmates' birthday parties. We routinely find better prices and a much better selection at Toys R Us. They also run a variety of different promotions and they always seem to benefit us on what we're shopping for. We also have a Toys R Us VISA card that gives us 1% cashback on credit card purchases good toward Toys R Us purchases. They do have some areas that could be improved, but they aren't significant enough problems for us to shop for toys elsewhere.

Responding to our suggestion that Wal-Mart was capable to competing with its Babies R Us business as well, one MNB user wrote:

Wal-Mart would have to make a much bigger baby section and have many more hands-on displays and multiple color/feature/brand choices and better customer service in order to compete for my baby business. I am 8 mos. pregnant with our first child, and I love Babies r Us - they have many (probably over 30) different strollers on display that my husband and I tried out, everything from ease of handling to durability (yes, we were like kids playing with new Christmas toys). And we didn't just get to play and test them, we had a store representative that seemed to know everything there is to know about strollers to personally help us pick the right one for our family. Then we could roam over to the bedding section - it is enormous - and not just pick from a number of ready-made patterns and colors, but they also have a big mix & match section that further helped me personalize my nursery. I could go on about how much I love shopping in Babies r Us - but the bottom line is that when it comes to my baby, I like the romance that the store offers me. Perhaps at Wal-Mart I'll buy the diapers, and miscellaneous toys, but more important and personal items will stay with Babies r Us.

Another MNB user wrote:

Obviously you haven’t tried to shop for baby supplies lately. Baby’s r us is the only place to go that actually has selection.

None of the mass merchants comes close. Parents today are very specific in their wants. They check out all of the safety and rating info, etc. They often are older and have more to spend. A simple car seat is a major decision and the options are unlimited.

As a new grandmother I have tried Wal-Mart, K-mart and Target. None touch Baby’s r us. Unfortunately it also has many shortcomings. I buy diapers and wipes, for example, on line at drugstore.com because none of the above carry a natural Brand like Seventh Generation. Organic formula is almost impossible to find in Jacksonville, Fl. but Horizon organic is not available on line. There are tremendous opportunities in this category not being met.

Toys is a different subject.
KC's View: