Chief’s Pay Rises as Gap Struggles

Gap Inc. Chief Executive Paul Pressler last year failed key performance measures set by the apparel chain’s board.

So how did directors respond? By awarding him stock options worth $15.2 million -- nearly triple the amount he got the year before -- and maintaining his $1.5-million annual salary.

Pressler’s compensation was outlined Tuesday in a regulatory filing made by the San Francisco-based apparel giant. He was not given a bonus because he failed to meet the company’s criteria for earnings, “economic profit,” cash flow and growth in earnings per share.

But the Gap board’s compensation committee awarded him two separate grants of stock valued at $15.2 million. The larger grant is contingent on meeting per-share earnings targets.

The option awards were based on “competitive practices,” the amount of options already granted “and Mr. Pressler’s continued value to the organization,” the filing said.

“They’re saying they did their due diligence, and this is a competitive award that they need to make in order to keep him and to satisfy the compensation philosophy they’re operating under,” said David Leach, managing director of consulting firm Executive Compensation Group in Los Angeles.

Some analysts had said that Pressler’s days could be numbered given Gap’s prolonged sales slump. But company executives have continued to express confidence in the Walt Disney Co. veteran, who took the CEO reins in 2002.

The nation’s largest specialty apparel retailer, which operates 3,000 Gap, Old Navy and Banana Republic stores, has continued to struggle. Sales at stores open at least a year, a key measure of growth, fell 11% in February from a year earlier. Except for a 1% increase in January, same-store sales have been flat or on the decline for 14 straight months. Fourth-quarter profit fell 11%.

Gap also said it had entered into a stock deal with some of its executives who had received discounted stock options in the past. The company bought their shares, paying Pressler $2.57 million for his, and replaced them with new options at market prices. The move was prompted by tax rule changes; the executives would have been subject to tax on options not yet exercised, as well as a possible penalty tax.

Pressler’s total compensation for last year: $19.56 million.

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Times staff writer Kathy M. Kristof contributed to this report.