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Marineau’s Millions: Levi’s Chief Exec Sees Pay Jump to $25.1M

NEW YORK — Add Phil Marineau to the short list of apparel executives who have reeled in eight-figure paychecks.While last year didn’t...

NEW YORK — Add Phil Marineau to the short list of apparel executives who have reeled in eight-figure paychecks.

While last year didn’t quite bring the long-awaited turnaround in sales for his employer, Levi Strauss & Co., the company’s president and chief executive officer still saw his pay soar to $25.1 million — almost 15 times what he earned in 2001, according to a filing with the Securities & Exchange Commission.

The biggest boost came from a $22.5 million payout from the company’s “leadership shares” program. That program, which rewards performance over a five-year period, serves as something of an alternative at the privately held company for the stock options that are a key piece of executive compensation at major publicly traded companies.

Levi’s reports its results to the SEC because it has publicly traded bonds.

The jeans giant had its seventh-consecutive year of sales declines last year, but the company saw sales growth for the third and fourth quarters and signed a deal to roll-out a mass-priced Levi Strauss Signature line at Wal-Mart Stores. Sources indicated those two events make it likely that Levi’s will be able to grow sales this year.

Marineau was not available to comment.

The program also paid bonuses ranging from $1.4 million to $2.5 million to four other top Levi’s executives, according to the filing. The 2002 payouts were the first under the program since 1999.

In addition to the $22.5 million payout, Marineau’s compensation included $1.2 million in salary, $1.3 million in annual bonus and $165,777 in other compensation. That’s up from a total package of $1.7 million the prior year, including $1 million in salary, $450,000 in bonus and $233,284 in other compensation.

The “leadership shares” vest over time and are worth about $25 each, but do not represent an actual ownership position in the company, according to SEC filings.

In Marineau’s first year with the company, he was awarded 810,000 shares, with a target value of about $20 million, to make up for stock options he had to forfeit when he left Pepsi. The first third of those shares vested last year and were a major component of his $22.5 million payout.
The balance of shares will continue to vest in fiscal 2003 and 2004, resulting in further bonus payments. A Levi’s spokeswoman said it’s too early to predict what the value of those payments will be, since they will depend on Levi’s performance.

Levi’s overall sales last year were off 2.9 percent, to $4.14 billion.

The amount of Marineau’s compensation exceeds Levi’s reported net income last year, which was $25 million.

Consultant Andrew Jassin, of Jassin-O’Rourke Group, said it’s hard to justify paying a ceo more than a company makes in a year.

“This level of executive compensation can’t be measured in any way that’s sensible,” he said.

The company has remained profitable through the seven-year period its sales have been in decline, though profits have varied widely in recent years, dipping to $5.4 million in 1999 and climbing back up to $223.4 million in 2000. Since then, earnings have slumped.

Levi’s 2002 fiscal year ended Nov. 24, more than a month before most top apparel companies, so it’s not yet clear where Marineau will rank on last year’s ceo pay scale. But his pay exceeded the 2001 compensation of all other ceo’s of publicly traded apparel manufacturers, nudging ahead of Tommy Hilfiger, who topped the last WWD vendor pay index with a 2001 pay package of $24.9 million. Tommy Hilfiger Corp.’s fiscal year ends March 31.

To find a substantially higher apparel vendor paycheck than Marineau’s, one needs to look back to 1998, when Linda Wachner, then chairman and ceo of Warnaco Group Inc., earned $104 million — largely as the result of $87.3 million in stock options she exercised that year.

Sources said that Levi’s tends to pay salaries that are on the low side and primarily compensates its top brass through the leadership shares program.

“It’s not too dissimilar to public companies that offer stock options,” said Elaine Hughes, principal at the New York executive search firm E.A. Hughes & Co. “They need another mechanism which offers incentives and they are long-term incentives, which keep people for some time.”
The four other top Levi’s officials named in the report who received bonuses from the program were:

Chairman Robert Haas received a $2.1 million payment, bringing his total compensation to $3.6 million, up 174 percent from the prior year.

William Chiasson, senior vice president and chief financial officer, and Joseph Middleton, senior vice president and president of Levi’s Europe, Middle East and Africa division, each received payments of $2.5 million. That brought Chiasson’s pay to $3.6 million, up 411 percent, and Middleton’s to $3.2 million, up 370 percent.

R. John Anderson, senior vice president and president of Levi’s Asia-Pacific division, received a $1.4 million payment. That brought his pay package to $2.2 million, up 281.2 percent.

Isaac Lagnado, president at Tactical.org, a New York retail consultancy, said the hefty payout sends “a contradictory message to what else is being done, particularly since the bulk of the strategic moves [Levi’s] has made over the last three years or so have been…draconian cost-cutting.”

As reported, the company since 1997 has closed 37 factories and laid-off 23,600 workers, as part of a shift towards sourcing from foreign contractors.

“To stop domestic manufacturing and sell Wal-Mart, that’s not brain science,” Lagnado said. “That’s a matter of ‘why did it take you so long?’”

The biggest wildcard in Levi’s performance this year will be the debut of the Levi Strauss Signature brand. Levi’s officials have projected annual sales in the hundreds of millions of dollars, but observers suggest that number could easily pass $1 billion.