Has saying goodbye ever been so lucrative?
George Sherman, hired as CEO of GameStop Corp. two years ago, is leaving the Grapevine-based video game retailer with an exit package valued at $127 million, according to a regulatory filing.
Sherman also will get a big pay bump in June, about a month before his scheduled departure, when another 308,477 company shares will vest and become his. At GameStop’s closing price of just over $151 a share on Friday, those holdings would be worth roughly $46.6 million.
In total, Sherman will be walking away from GameStop with a package worth over $173 million, although the actual value will depend on the stock price, which has been highly volatile — and is the reason for the big payouts.
To put Sherman’s severance into context, consider that his annualized compensation last year was just under $7.2 million, according to Thursday’s filing.
“Gosh, that severance is an awful lot,” said Brent Longnecker, founder of the consulting firm Longnecker & Associates and an expert on executive pay. “And it seems awfully unusual that so many in the C-suite are getting a package at the same time.”
GameStop has been turning over its management and board of directors after activist investor Ryan Cohen began acquiring a big stake last year and joined the board in January, along with two associates. Cohen co-founded Chewy, an e-commerce pet site that was sold for over $3 billion.
Since March, chief financial officer James Bell and chief customer officer Frank Hamlin have left GameStop. They’re getting severance packages of $58.1 million and $41.7 million, respectively, the filing said.
Chief merchandising officer Chris Homeister is expected to depart by the end of July, which is when Sherman will be gone. Homeister’s severance is $48 million, the filing said.
That means four departing executives are walking away with almost $275 million, largely in company shares. Add in Sherman’s shares that vest in June, and it’s costing over $321 million to clear out GameStop’s C-suite. (Chief transformation officer Daniel Kaufman left last June, prior to Cohen’s involvement, with a $3.1 million payout.)
“The severance payments are an egregious example of pay for failure if there ever was one,” said Brandon Rees, deputy director of corporations and capital markets for the AFL-CIO and a key contributor to the union’s Executive Paywatch report.
Rees pointed out that GameStop has been shutting stores and laying off workers in an effort to cut costs and boost results. In the past two years, GameStop has closed almost 1,000 stores, according to its annual filings.
Three years ago, GameStop had 22,000 full-time employees. As of January, it reported about 12,000 full-timers. The number of part-time workers has fallen sharply, too.
“So they’re pushing all these retail employees out the door, and at the same time, they’re giving tremendous rewards to the CEO and his executive team,” Rees said. “It’s just unconscionable.”
GameStop officials declined to discuss the details on Friday.
The primary factor behind the high payments has been GameStop’s soaring stock price. As part of their pay packages, the executives received restricted shares based on performance or their tenure with the company.
Sherman voluntarily agreed to cancel his 2020 performance shares, the filing said, and they could have been worth tens of millions of dollars, depending on his performance. But the shares that vest over time will become his when he goes.
“This accelerated vesting of time-vested restricted stock is one of the severance rights provided in Mr. Sherman’s employment agreement,” the company said in the filing.
Accelerating such benefits is not unusual in executive contracts, Longnecker said. What’s extraordinary is the rise in GameStop’s stock price, which was trading at less than $5 a share a year ago.
In mid-winter, the stock took off after Reddit’s WallStreetBets community drove up the price and tried to squeeze short-sellers. The price closed at well over $300 a share in January, hitting $483 in intraday trading on Jan. 28. The price topped $200 a share last month.
“If the stock was still trading at $5, you wouldn’t be calling me about the severance — it wouldn’t be a material number,” Longnecker said.
He called the big payout “an unintended consequence” and said it’s extremely rare for executives to be pushed out when the stock price is a high-flier.
“Usually, when you see this kind of [price] appreciation, you’re giving a big ol’ hug to the CEO,” Longnecker said.
Reddit speculators, not GameStop management, deserve most of the credit for driving up the stock price, Rees said. The AFL-CIO urges companies to not accelerate time-vested shares when an executive leaves, especially if the departure is related to poor performance, he said.
The union also wants companies to require executives to hold their shares for a long time in the same fashion that many investors and pension funds keep their shares for years. He said that would better align the interests of all involved.
“Allowing executives to cash out based on a speculative bubble completely defeats that purpose,” Rees said.
