Gap Cuts CEO Bonus, Boosts Stock Options

Gap Inc. cut President and Chief Executive Paul Pressler’s cash bonus by 64% last year, but the clothing retailer also awarded him options to buy an additional 1.5 million shares, according to documents filed Wednesday.

The San Francisco-based owner of the Gap, Old Navy and Banana Republic chains reduced Pressler’s 2004 bonus to $1.1 million, down from $3.1 million in the previous year. The 2003 bonus included a $1.87-million payment guaranteed to Pressler when he left Walt Disney Co. to become Gap’s CEO in fall 2002.

Pressler’s 2004 salary remained unchanged at $1.5 million.

Gap also disclosed that its board last week voted to supplement the options on 5.6 million shares previously granted to Pressler. The board gave Pressler the option to buy 500,000 shares that will vest in 25% increments over the next four years and an additional 1 million shares that will vest in March 2010 and March 2011.

All the options awarded to Pressler last week carry an exercise price of $22.42 -- the trading price of Gap’s shares at the time the board reached its decision. Gap’s shares have since declined, falling 31 cents Wednesday to $21.86 on the New York Stock Exchange.

Just how much Pressler profits from the options will be determined by how high Gap’s shares climb above the exercise price.

Upon Pressler’s arrival, Gap snapped out of a prolonged sales slump. The company’s market value has nearly doubled -- adding $10 billion in shareholder wealth -- under Pressler’s reign.

More recently, the company’s sales have been wavering, although profit has continued to improve.

Gap guaranteed Pressler options to buy 5 million shares when he joined the company.