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Teamsters, proxy advisers suggest ‘no’ vote on Rite Aid say-on-pay proposal

The International Brotherhood of Teamsters is calling on fellow Rite Aid shareholders to vote against the company's say-on-pay proposal at its annual meeting Oct. 30 to demonstrate their displeasure with executive compensation in the 2018 fiscal year, which ended in March.

After the $24 billion merger between Rite Aid and Albertsons Cos. was terminated in August following investor pushback, Rite Aid CEO John T. Standley received a $3 million retention payment.

The retention payment is one of the main reasons the Teamsters are encouraging a "no" vote, according to a letter to shareholders earlier this month.

The two biggest proxy advisory firms, Institutional Shareholder Services and Glass Lewis, have also come out against the say-on-pay proposal.

ISS took issue with Rite Aid lowering the threshold performance goals for annual incentive awards midyear, "resulting in payouts that otherwise would not have been earned, and CEO pay increased despite declining stock price performance," the firm said in a research report released Wednesday. "Moreover, the CEO's long-term incentives remained sizable, and the larger number of shares granted in FY 2018 effectively insulated the grant value from the impact of negative stock price movement. These factors underscore a disconnect between pay and performance."

In its letter, the Teamsters criticized the Rite Aid's compensation committee for lowering the threshold EBITDA level midyear, resulting in a 75% payout to executive officers, adding that the committee has gone to "extraordinary lengths to cushion the financial impact on executives of the strategic and operational challenges facing the company."

In its proxy statement, Rite Aid said its primary compensation goals for named executive officers are to "attract, motivate and retain the most talented and dedicated executives" and to align executives' interests "with the interests of our stockholders." Additionally, the company's compensation programs are designed to reward the executives "for the achievement of annual and long-term strategic and operational goals and the achievement of increased total stockholder return, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking," the proxy statement said.

Rite Aid spokesman Peter Strella said the company has no further comment besides what is in the proxy statement.

Michael Pryce-Jones, the Teamsters' senior governance analyst, said if the board believes Mr. Standley deserves the compensation it should be because "he's running this company successfully and rebuilding and reinvesting in this company to try and turn itself around, not finding any which way it can to give him money."

"The board has underestimated the level of concern facing this company, and we'll be seeing that on Oct. 30," Mr. Pryce-Jones added.