Advance Auto Parts

Meeting Date: May 18, 2016

The packages for incoming Advance Auto Parts CEO Tom Greco and departed CEO Darren Jackson both show – in different ways – the way the promise of long-term incentive compensation becomes hollow with job changes. Greco will receive from AAP as make-up payment equal to the target value of forfeited equity awards at Pepsi regardless of how those awards would have been paid out; and Jackson will receive accelerated vesting on his long term incentive awards as if he had retired instead of having been forced out.

Following pressure from activist investor Starwood Value, CEO former Jackson was asked by the company’s board of directors to retire effective January 1. Jackson’s total 2015 compensation of $7.9 million includes $4.8 million that is the result of accelerated vesting on long-term incentive awards. Specifically, “Jackson’s LTI awards that were unvested as of the date of his retirement from the Company at the end of Fiscal 2015 to vest, based on the Company’s performance during the relevant performance periods, as applicable, as if Mr. Jackson had satisfied the definition of Retirement contained in his respective LTI award agreements.” It also includes a severance of $1.3 million, and reimbursement for Jackson’s legal fees for working out this agreement. Also included in the package: “reimbursement of $65,532 for temporary living expenses.”

A few days after filing its preliminary proxy Advance Auto Parts filed an employment agreement for its new CEO Tom Greco who will take the position on April 11. The agreement for Greco includes a number of goodies: a base salary of $1.1 million, a guarantee of $5 million a year in equity compensation for the next three years. Fifty percent of this is time-based restricted stock, guaranteed to have some value even if the stock price falls dramatically. He also received a $2 million sign on bonus to “replace the unvested cash-based long term incentive awards that he forfeited when he left his prior employment.”

Greco will receive a grant of “RSUs to replace unvested performance shares and pension benefits from his prior employment (“Make-Whole RSUs”). The aggregate grant-date fair value of the Make-Whole RSUs will be equal to the target value of the forfeited equity awards plus the value of the forfeited pension benefits on the date of Mr. Greco’s separation from his previous employer (the “Forfeited Amount”).”

The details of this new compensation package do not show up on the current proxy statement. Next year, when the figures appear the company will describe it as old news. On the whole, the disclosure seems optimally timed to go beneath the radar.

Greco comes from a 30 year career at Pepsi, where his most recent position was CEO of Frito-Lay North America. Unless the company plans to start selling spark plugs in vending machines it is hard to see how clearly this experience translates. In any case, it represents a pay increase for Greco whose total compensation at Pepsi in 2015 was $6.2 million. He also exercised options on 45,000 shares of Pepsi stock last year, realizing $1.7 million in value.