Arcandor's Top Management

Everyone agrees that Arcandor has been a mess for quite a while. Even politicians keep saying that employees shouldn't suffer for all those management mistakes that have been made, so they are acknowleding that management hasn't exactly been doing a great job.

I thought it might be interesting to take a look at top management compensation. According to the latest financial statements for the year ending 9/08, this is what the CEO (Thomas Middelhoff) earned:

- Total compensation: 4,239,000 €

- Of which "variable compensation for short-term incentivisation", more commonly known as "bonus": 2,642,000 €

All 7 board members together received a total compensation of 19,869,000 €.

Assuming a full-time Karstadt sales person receives an annual salary package of 30,000 € or so, Thomas Middelhoff's package alone would have been enough to pay the salaries of 141 sales people. The 7 board members together received as much as 662 sales people.

But I suppose high performers need to earn a good salary.

And of course Arcandor achieved very commendable performance: The financial statements (which were published barely 6 months ago) show that Arcandor lost only 1.3 bn € in equity during the financial year for which the compensation was paid (740 m € net loss, the rest was stuff not booked through the p+l for various reasons).

But the section "to our shareholders" (signed by Thomas Middelhoff) starts by saying that Arcandor has performed well, has increased its "adjusted EBITDA" (who cares about net profit or changes in equity, the only thing that matters is "adjusted EBITDA", yeah!), and has been improving its performance consistently over the last four years. The management has done "a lot of things right", but has also "made some mistakes". What kind of mistakes? Well, mistakes regarding "communication", which "confused the capital market and the press".

He ends the section by saying that the restructuring and refocusing of the company has been successful, so he can now leave to pursue other challenges. Results in the upcoming year (i.e. the currently ongoing year) will improve further compared to the already significant improvements achieved in the previous four years.

So the only mistakes he made were "mistakes regarding communication", huh? Well, in that case I suppose he fully deserved his bonus, and we should all thank him that he managed to turn the company around so well, thereby limiting the required bank guarantees and KfW loans to only 850 million Euros.