Bonus bargain for Sears chief

By most measures, Sears Chief Executive Alan Lacy got a crummy report card last year.

Sales at Sears, Roebuck and Co. stores fell every month in 2002, sometimes by double digits. The company's lucrative credit card business stumbled again, and Sears' stock price plunged from around $60 a share last summer to below $23 in six months, the lowest level in more than 10 years. Thursday, the stock shed 22 cents to close at $20.38.

That performance did not prevent Sears' board of directors from awarding Lacy a $1.8 million bonus in 2002 on top of his $1 million salary, a nearly 80 percent increase from his salary and bonus in 2001.

"This is close to the maximum for most companies," said Paul Hodgson, senior research associate for the Corporate Library, which tracks corporate governance and executive compensation. "Two hundred percent is not that unusual, but if you get up to that level, performance has to be spectacular, and it doesn't look like it was."

In fact, all five of Sears' top ranking executives received bonuses that were greater than their annual salaries, according to the company's proxy statement filed Thursday with the Securities and Exchange Commission.

That included Anastasia Kelly, Sears' chief lawyer, who left the company without another job in late January.

According to the board's compensation committee, Lacy earned his bonus because Sears' earnings per share improved from the prior year and he "achieved the strategic initiative goals established by the board of directors," the proxy states. Those strategic goals were not enumerated.

In fact, Sears' annual earnings per share did rise a lot last year--to $4.29 per diluted share from $2.24 a share in 2001. But most of that increase came from head-count reduction and cost-cutting, not improvements in its core businesses.

Still, Lacy got bonus points for some important strategic moves that will play out more fully this year, says Sears spokeswoman Jan Drummond.

Acquiring Lands' End Inc., the largest direct apparel retailer in the country, for almost $2 billion was a key step in reinvigorating Sears' apparel business, she said.

Sears also launched its private-label Covington line last fall, offering its customers classic apparel at moderate prices, while dumping a bevy of other house brands with little name recognition.

Meanwhile, Sears was re-engineering its stores, creating centralized check-out counters and adding new departments such as closet shops.

"We also laid the groundwork for the first off-mall, full-line store built on a new understanding of our customer," Drummond said. "We actually developed an operating model that is efficient enough to allow us to take it off the mall so we can compete in the same environment with our off-mall competitors."

Sears' shareholders didn't see those improvements reflected in their share price.

Sears stock seriously underperformed its benchmarks, such as the S&P Retailing Index, the S&P 500 Department Stores Index and the S&P 500, during the last five years. A $100 investment in Sears in 1997 was worth $59.29 at the end of 2002.

Over that same period, $100 invested in the companies that make up S&P's retail index was worth $154.69 at year's end.

Tribune staff reporter Lorene Yue contributed to this report.