Betting on the Future: Korn Ferry Research Shows Retail CEO Bonuses are Increasingly Structured to Reflect Industry Volatility

Betting on the Future: Korn Ferry Research Shows Retail CEO Bonuses are Increasingly Structured to Reflect Industry Volatility

Nearly 20 Percent of Companies Reward CEOs for Planning for Evolving Strategic Priorities

As the retail industry continues to make its seismic shift from bricks and mortar to customer-facing, omni-channel, AI-driven companies, CEOs more and more are being rewarded for innovating and planning for the future instead of simply achieving annual profit goals. That according to new research from Korn Ferry.

“But now it’s absolutely critical that CEOs formulate plans today to guide their companies and tailor their offering to best suit customers, embrace technology such as AI, and create seamless e-commerce channels. If this isn’t happening, retailers will not survive.”

Korn Ferry conducted an analysis of 68 North American retailers, with median annual sales of approximately $6.6 billion, representing approximately 2.5 million employees. The study found that while company profitability is still the most prevalent performance metric by which CEOs are judged, nearly a fifth (17 percent) of companies now have incorporated planning for evolving strategic priorities as a key measure of success.

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“As few as two years ago, strategic planning objectives were not in the mix of what retail CEOs’ bonuses were based upon,” said Craig Rowley, Korn Ferry senior partner and retail expert. “But now it’s absolutely critical that CEOs formulate plans today to guide their companies and tailor their offering to best suit customers, embrace technology such as AI, and create seamless e-commerce channels. If this isn’t happening, retailers will not survive.”

Another trend in CEO bonuses is an increase in the percentage of their target bonuses – up from a median of 100 percent of base salary just a few years ago to a median of 150 percent in 2019 for their 2018 performance.

“In order to incentivize CEOs to achieve company goals, boards have increased the bonus opportunity,” said Cory Morrow, Korn Ferry senior client partner. “The impact goes beyond CEOs to other retail executives – for example, the median COO target bonus rose from 95 percent last year to 100 percent this year.”

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In terms of overall executive retail bonuses, 2019 actual incentive payouts (for 2018 performance) were closer to target bonuses than in 2018 (for 2017 performance). The average payout was 75 percent of target. Thirty-seven percent of survey participants had payouts of at least 100 percent of their targeted bonus. That’s a 22 percent increase from 2018, when 29 percent of retail executives received at least 100 percent of their target bonuses. In 2017, that number was only 15 percent.

“Despite ongoing store closings, the retailers who ‘get it’ and are evolving with changing customer habits are seeing increasing profits, which in turn helps boost bonuses,” said Rowley.

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