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Shed Tears for Penney Shareholders, Not Johnson’s Slashed Pay

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2012 was a rough year for J.C. Penney (JCP) and CEO Ron Johnson. The retailer lost $4 billion in sales in FY 2012 and same-store sales were down 32% in the fourth-quarter. The company's stock now trades at $14.43, less than half of its value before Johnson became CEO in late 2011. Now the board of J.C. Penney is slashing Johnson’s pay by 97% to $1.9 million.

To be clear, the 97% cut sounds more dramatic than it is -- in order to lure Johnson away from his prior job at Apple, J.C. Penney provided him with more than $50 million in stock options. According to SEC filings, Johnson's cash target was expected to be $3.375 million in 2012. Instead he received a $1.5 million base salary as well as $345,000 for use of the corporate jet, $30,000 for home security, and $3,000 for IT services. In comparison Kevin Mansell, CEO of Kohl’s (KSS), made $7.8 million in 2012.

J.C. Penney’s has undergone a series of mishaps since Johnson was hired. First Johnson did away with sales but then brought them back when customers complained. Next he set out to redesign and modernize the company's stores but ended up leaving many stores in a state of perma-construction. Johnson also introduced a three-tiered pricing model that turned out to be too confusing to customers. The company is currently in the midst of a costly legal battle with Macy’s (M) after signing a deal with Martha Stewart Living Omnimedia (MSO) to carry its home products.

Johnson’s salary keeps him firmly in the 1%, says The Daily Ticker's Henry Blodget, but “at least there is some tying of his compensation to the fact that J.C. Penney is going down fast.”

J.C. Penney’s senior management also felt the pinch when the Board of Directors granted them no bonuses or raises last year.

"Ron Johnson has struck out across the board on every metric of performance," adds The Daily Ticker's Aaron Task. "There are no tears being shed for him. Instead they’re being shed for J.C. Penney shareholders.”

Among those shareholders is Bill Ackman, the activist investor and head of the $12 billion hedge fund, Pershing Square Capital. Ackman worked with J.C. Penney to bring Johnson into the company and still believes that Johnson is the guy to turn the failing retailer around.

“This is a classic mistake made by a hedge fund guy,” says Blodget. "We’ve seen this before. Bill Ackman is known for making huge concentrated bets. Sometimes they work, and sometimes they don’t. So far this one has been a disaster.”

Johnson came from a storied retail background at Apple (AAPL) and Target (TGT). If he's able to make some sort of comeback, the upside for J.C. Penney could be huge.

“J.C. Penney is a huge liquid stock,” says Task, “and if they can turn things around there’s potentially huge upside in the shares from here.”

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