Bill McLaughlin, for nine years the CEO of Select Comfort, will hang on to his job for now in the wake of Thursday's vote by shareholders to reject an offer to sell 52 percent of the bruised, high-end mattress company to cash-rich Sterling Partners, a private equity outfit.
There were indications that at least some board members had joined shareholders in changing their opinions since directors voted in May to endorse Sterling's offer of 70 cents per share. The company's performance and outlook have improved. Select shares that were selling for under $1 in May traded above $3 earlier this month.
Regardless, McLaughlin is among the rare chief executive officers who cut their own pay last year. He did so while driving a painful restructuring at Select Comfort amid the worst recession since World War II. In a recent column, I lamented the CEO pay trend, particularly among huge financial institutions, that kept paying their CEOs seven-figure compensation last year, as though it was business as usual, regardless of the pain to shareholders and severed employees.
From 2006 through 2008, the top five executives at the 20 banks that accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation, the Institute for Policy Studies reported in a scathing report this week.
But McLaughlin last year walked the walk on compensation during troubled times along with Select Comfort's surviving troops. In late February of 2008, he quit taking his base salary of nearly $700,000. Lower-cost competitors were flooding the market by 2007 and fewer consumers were showing up in showrooms.
"Our business was a bit of a canary in the coal mine," McLaughlin said this week. "We saw softness by October 2007. We had a great product, important in owners' lives, but it is discretionary.'' He watched the whole mattress industry sag.
McLaughlin, 52, a Pepsico snack food executive in the 1990s, started to draft plans that eventually meant dozens of store closings and widespread layoffs in 2008 and a net loss, including one-time charges, of $70.2 million on revenue that dropped 24 percent to $608.5 million.
When the board approved a save-the-company restructuring plan in February 2008, McLaughlin told them that because he was asking for job and compensation cuts in the ranks, he would forgo his salary until sales improved. At McLaughlin's direction, the board also extended by four years, to 2014, the period over which he would earn 562,500 shares of restricted stock that it awarded him in 2006, a tremendous year for Select.
"I knew we were going to have to ask a lot of our people in terms of restructuring and personal sacrifices," McLaughlin said. "I didn't want to ask anything of the organization that I wouldn't ask of myself.''
Still, he said, "I did not anticipate this being a full-year sacrifice. None of us anticipated the extent of this [business downturn]. But we had fixed the company in 2001-02 by focusing on common goals and objectives. And taking the pay cut was a really good personal motivator to try and get this thing back on track. In the end, we rallied."
McLaughlin, who says he has a supportive family, didn't go hungry. But with two kids in college and another in post-graduate programs, the family had to adjust to the extended loss of cash flow.
"I counted on my past frugality," McLaughlin said. "I had the means to not have to make tremendous sacrifices."
McLaughlin was somewhat overwhelmed by the employee response to his move, even among several who expressed appreciation even as they were laid off.
"Bill really walked the walk and we felt some empowerment from that," said Gabby Nelson, a Select marketing executive. "It helped us focus on the goals."
The board restored McLaughlin's salary in January. His long-term future is uncertain. But he gets kudos from this corner for doing the right thing last year.
Neal St. Anthony • 612-673-7144 • email@example.com