The Levi's Files - Part 3
The company is quietly laying employees off. How many jobs could have been saved if the new Brand President wasn't paid more than $20 million for her first year on the job?
Levi’s laid off about 1000 people during covid in 2020, in two waves — first during the summer and then later, a small round in the fall. Business was tough and that was the excuse to “streamline.” With empathy.
The 2020 layoffs served to bolster profitability and ultimately, the stock price, allowing CEO Chip Bergh to cash in on ~$43 million in stock.
It appears the company is now going through another round of layoffs. There has been no formal announcement but I’ve spotted a few of these LinkedIn posts.
This is not a surprising fact given the well-spun but still disappointing, year end earnings report for Levi’s, which showed a 6% drop in revenues during the fourth quarter. This was the first quarterly decline in sales in 6 quarters.
More to the point, profitability was down. Adjusted EBIT margin was 11.6% for fiscal year 2022, compared to 12.4% in FY 2021. This represents almost a full point decline or about a 6.5% decline in profitability. Which always means layoffs.
As there has been no announcement in the press of layoffs, I can only imagine the company will try to keep the number below the threshold that prompts scrutiny and reporting.
As mandated by the Department of Labor, the WARN Act protects workers and their families by requiring any employer with more than 100 employees to provide 60 days notice to the employees when there are mass layoffs. This prompts headlines.
I can only imagine that Levi’s would prefer to keep this reduction in force on the down-low as someone might wonder: How many of those jobs could have been saved if you didn’t pay the new Brand President $20 million for her first year on the job?
Michelle Gass, former CEO of Kohl’s, was announced as the new Levi’s Brand President and ascendant CEO on November 8, 2022.
Her compensation for her first year on the job is as follows (this does not include baseline salary or bonus for first year of performance):
$8.1 million signing bonus
Stock grant (RSU) with a value of $8.1 million vesting in two installments in first year.
Stock Appreciation Grant (SAR) of $8.1 million, 50% of which vests at the end of her first year.
We can assume her salary is approximately $1 million and that a bonus target is at least another $1 million. Below is current CEO Chip Bergh’s compensation for 2021, which informs my very conservative assumptions.
So this puts year one compensation for Gass at approximately $22 million. Ok. Maybe you’re saying — Whatever! CEOs make a lot of money!
But she was failing at Kohl’s. At the time of her hiring by Levi’s, Gass was under attack from investors wanting to see her ousted due to a 40% decline in the value of Kohl’s stock during the prior year.
The day Gass’ hiring at Levi’s was announced, Levi’s stock went down, and Kohl’s stock went up.
CNBC’s Jim Cramer asked CEO Chip Bergh about this just last week, on the heels of Levi’s earnings report for 2022. Kramer asked:
“Levi’s stock went down when she moved to Levi’s [. . .] Kohl’s stock went up [. . .] Activists say she wasn’t doing a good enough job. I’d like to know your response to that.”
Bergh answered the question with a question:
“Fundamentally you have to ask yourself is Kohl’s a better company today because of Michelle than it would have been if Michelle hadn’t been there?”
Cramer did not follow up. But here are the facts. Gass became CEO of Kohl’s in May 2018 and the stock was at $61. She left the company in November 2022 with the stock at $29.
Bergh phrased his question carefully. He didn’t say: “Is Kohl’s a better company today than before Gass got there?” Because the clear answer to that is, undeniably, no. The stock is worth 50% less than it was when she took the helm.
Cramer did not follow up on Bergh’s evasive response.
But here’s what I want to know: How many employees’ jobs could have been saved if Gass wasn’t so grossly over-paid? If they gave her $5 million — which would have been generous and a net savings of $15 million — by my calculation, that saves about 115 jobs at an average salary with benefits.
And so I’d ask: is the Levi’s company culture about empathy for employees, as the executives love saying? Or is it really about enriching executives and shareholders at the expense of work-a-day employees, while pretending to be exceedingly caring so everyone just lets them continue doing it?