Analyzing the Incentive Structure and Corporate Governance: Macy’s vs. Nordstrom and J. C. Penny

Topics: Stock, Board of directors, Corporate governance Pages: 13 (2884 words) Published: October 24, 2015


Introduction
Incentive structure, referring to the compensation system for a company, exerts a significant effect on the operation of company. In this assignment, we primarily investigate the corporate governance system of our targeted company, Macy’s, and its relevant two competitors, Nordstrom and J. C. Penny. In details, we firstly explore the primary objective for Macy’s and its two competitors, and then analyze the issues of Compensation Structure, Composition of Board of Directors and Ownership Structures respectively. Company’s objective

As the Proxy statement of Macy’s illustrates that the company treats shareholders wealth maximization as the ultimate objectives. Meanwhile, the significant approach to accomplish company’s objective is to maximize the firm value by effectively satisfying their stakeholders, such as attracting and retaining the high qualify employees and executive managers, and treating their customers as “King”. On the one hand, as the senior manager demonstrates that “Putting the customer first” is not just rhetoric, but part of the Macy’s DNA. Keeping loyal customers happy is a main focus of its customer-centric strategy, and data plays an important role in understanding how to maintain and grow loyal (Macy’s website, 2014). On the other hand, according to the 10-K statement of Macy’s, during 2009, the company obtained shareholder approval for the Macy’s 2009 Omnibus Incentive Compensation Plan under which up to 51 million shares of Common Stock be issued. This plan is intended to help the company attract and retain directors, officers, other key executives and employees and is also intended to provide incentives and rewards relating to the company’s business plans to encourage such persons to devote themselves to the business of the company. Prior to 2009, the company had two equity plans; the Macy's 1995 Executive Equity Incentive Plan and the Macy's 1994 Stock Incentive Plan. Additionally, Macy’s emphasizes equity-based long-term incentive to ensure that executive managers focused on long-term operating and stock price rather than the short-term goals. In fact, the retailing industry is intensely competitive. Macy’s operations compete with many retailing formats, including department stores and specialty stores, such as Nordstrom and J. C. Penny. To compare Macy’s with other two competitors, these three companies have quite similar objective that attract and retain a high-quality management team, design the appropriate stock option or compensation package and value by aligning top managers’ interest with company’s shareholders. For example, Macy’s, the Compensation and Management Development Committee of the board believes that a “pay-for-performance” approach to executive compensation that aligns executive compensation with shareholder long-term interest. Among three companies, the primary objectives of their compensation program build a strengthen linkage between executive pay and long-term shareholder interest. Based on this program, it could better solve the agency problem that the interest conflict between top managers and company’s shareholders. Furthermore, this program could effectively serve the corporate performance. Compensation Structure

The Company seeks to attract customers by offering superior selections, obvious value, and distinctive marketing in stores that are located in premier locations, and by providing an exciting shopping environment and superior service through an Omni-channel experience. Graph 1: The compensation amount of Macy’s

As the graph 1 shows, there are no big differences in the fixed compensation between the CEO and other executives. However, the equity compensation has huge differences between them. There are some advantages and disadvantages between them. Firstly, there are some advantages over the huge equity compensation for the CEO. One of these advantages is that the problem of mismatched time horizons can be solved. The CEO and...
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