Five Gap Executives to Exchange Stock Options
Gap Inc. said Friday that Chief Executive Paul Pressler and four other executives had accepted the retailer’s offer to exchange their stock options for ones that will result in lower taxes for the employees. As part of the swap, Gap will pay the five as much as $10.1 million.
In a regulatory filing, Gap said it was making the payments and replacing the old stock options because of tax rules adopted since the San Francisco-based company negotiated compensation packages for Pressler and the other executives. Stock options give the holder the right to buy or sell shares at a specified price by a set date.
To lure Pressler from his position as head of the theme park division at Walt Disney Co. in 2002, Gap gave him 1.1 million stock options priced at $5.92 a share, well below the stock’s market value at that time. Under the new tax rules, the executives would have incurred an immediate tax liability on the difference between the exercise price and market price, plus an additional 20% tax on that unrealized income.
To reduce the tax hit, Pressler’s stock options will be replaced with another batch of 1.1 million options carrying an exercise price of $11.83 a share -- a price at or above Gap’s market value on the day of his hiring, the company said.
Gap compensated Pressler for the loss of the lower-priced options by paying him $2.36 million this year and as much as $4.14 million in the future.
The total payment of $6.5 million translates into $5.91 a share, the difference between the exercise prices of Pressler’s old and new options.
The other Gap executives who are swapping a total of 512,500 stock options and getting $3.6 million in cash are Cynthia Harriss, president of Gap North America; Jenny Ming, president of Old Navy; Byron Pollitt Jr., chief financial officer; and Eva Sage-Gavin, executive vice president of human resources. Harriss and Pollitt are former Disney executives whom Pressler recruited to join Gap.
Pressler still stands to profit from the newly issued options because Gap’s stock climbed shortly after his arrival. Gap’s shares fell 9 cents Friday to $17.64.
But Gap has been struggling during the last year, causing some industry analysts to question whether it’s time for new leadership at a company that owns the Gap, Old Navy and Banana Republic chains.
Gap’s same-store sales -- a key measure of a retailer’s health -- have either declined or remained flat in each of the last 12 months, contributing to a 16% decline in the company’s stock this year. Pressler has pledged to boost sales by doing a better job of gauging consumers’ fashion tastes.
