Staples Inc. performed so poorly in 2013 that none of its top executives qualified for cash bonuses. So the company’s board invented a one-time payout to reward the executives anyway.
Shareholders will get their say Monday on the controversial decision to spread about $500,000 in bonuses among four top executives at the struggling Framingham-based company. They will cast a nonbinding yet influential vote on executive compensation at Staples’ annual meeting in Palo Alto, Calif.
Institutional Shareholder Services, a leading firm that advises investors on proxy issues, recommended that shareholders vote to express their disapproval of the bonuses, dubbed the “2013 Reinvention Cash Awards.” The firm said the awards were created because the retailer’s weak results failed to trigger regular performance-based bonuses.
ISS also expressed concern about “non-rigorous goals” in the executive compensation plans and a lack of disclosure about the standards used to determine how much top managers were paid.
“Shareholders find it problematic when companies replace unearned performance awards with discretionary bonuses,” said John Roe, executive director of ISS Corporate Services. “It tends to unlink pay and performance and potentially lessens the motivation for executives to perform in future years.”
The awards raise the question of whether executives at poorly performing companies still deserve bonuses.
The Staples bonuses were doled for a year in which revenue dropped 5.2 percent and earnings declined 17 percent, compared to 2012.
Staples said the awards are single payments that recognize the extra work executives have assumed under the company’s reinvention strategy, which includes plans to shutter hundreds of underperforming stores and expand its Internet presence.
The retailer also described the bonuses as a method to retain executives and a tool to motivate employees who haven’t received a bonus in two years.
Two other proxy firms, Glass, Lewis & Co. and Egan-Jones Proxy Services, have advised shareholders to approve the compensation package.
Jeffrey Moriarty, an associate professor at Bentley University who focuses on business ethics and compensation issues, questioned whether the board’s decision to undermine the agreed-upon bonus program and allot cash rewards in such small amounts was worth the trouble.
“If you’re going to break this principle, you might as well go big and make it look justified,” Moriarty said.
The decision suggests the board is weak, and stakeholders may begin to wonder if the directors are capable of representing their interests appropriately, he said.
“It makes the board look like they aren’t holding executives accountable,” Moriarty said. “You’re just highlighting the fact that even if they don’t meet targets, you’re going to pay them a bonus anyway.”
In documents filed with regulators, Staples said the one-time bonuses amounted to 16 percent of the total annual bonuses each executive was eligible to earn. The company declined to answer questions about the bonuses.
Ron Sargent, the chief executive, got a bonus of $299,810, bumping up his total compensation to $10.8 million last year. With the bonus, he earned slightly more than the median compensation of CEOs at Standard & Poor’s 500 companies last year.
A recent Associated Press study found that chief executives earned $10.5 million in 2013, up 8.8 percent from 2012.
Chief financial officer Christine Komola received a one-time bonus of $49,257, for a total of $2.2 million in pay.
Joseph Doody, current vice chairman and former president of the North American commercial unit, and Demos Parneros, president of North American Stores and Online, each got cash awards of $88,856. Both earned about $3.2 million overall, according to Staples’ filings.Taryn Luna can be reached at email@example.com. Follow her on Twitter @TarynLuna.