Mike Jeffries, Abercrombie & Fitch's 69-year-old chief executive officer and chairman, will be staying on after his employment contract expires on Feb. 1, despite recent pressure from an investor to oust him.
The company said today that it has entered a "new and restructured employment agreement" with the CEO that will aim to pay Jeffries more fairly by hinging more of his compensation to Abercrombie's stock price. It's also taking the idea of finding Jeffries' successor more seriously, by starting a search for separate brand presidents to oversee Abercrombie and Hollister.
The announcement comes less than a week after activist firm Engaged Capital fired off a nine-page open letter to the retailer's board, blaming Jeffries for Abercrombie's precipitous stock decline, drop in same-store sales, and failure to keep up with changing teen tastes.
In that letter, Engaged's Glenn Welling wrote that the upcoming expiration of Jeffries' employment contract is "a significant opportunity" for the board "to set a new direction for the company under new leadership."
"While losing Mr. Jeffries' leadership may have been negatively perceived in the past, it should now be abundantly clear that a transition in leadership is not just needed, but absolutely required, to restore investor confidence in the company's future," he wrote.
Abercrombie clearly didn't agree.
The retailer's decision to renew Jeffries' contract "is the result of an extensive review by the board and detailed discussion with shareholders over several months, and the specific terms of Mike's new contract reflect direct feedback from those discussions," Abercrombie's lead independent director, Craig Stapleton, said in a statement today. "The new agreement employs a more simplified, performance-based compensation structure that is designed to align incentives closely with the success of the company and the interests of shareholders."
Jeffries, whose salary has rankled shareholders in recent years, will continue to receive his base salary of $1.5 million a year and participate in a bonus plan in which he can earn up to $4.5 million. He'll also continue to get up to $200,000 a year for use of the corporate jet, which got him into trouble last year, thanks to pages upon pages of specifications on how workers on the airplane should dress and speak.
Unlike his latest five-year contract, he will no longer receive semi-annual equity grants. The new agreement starts Feb. 2 and may be terminated by either Jeffries or Abercrombie any time after Feb. 1, 2015, given 12 months written notice, or for cause or retirement. According to the document, he will not receive quite as much in compensation if fired or replaced after a change in control, which may pique private-equity interest.