Charming Shoppes CEO loses some perks

It seems consumers aren't the only ones making do with less as the economy batters their buying muscle.

So is at least one local chief executive officer.

Charming Shoppes Inc., a $3 billion clothing company that runs Fashion Bug and Lane Bryant, has stripped its longtime chief executive of many of the perks she has enjoyed for 12 years, including a rent-free condominium in one of Philadelphia's most exclusive high-rises.

The Bensalem company, which is being targeted by activist shareholders it calls "corporate raiders" and has seen its stock price plummet more than 50 percent in the last year, made final an agreement last week to no longer provide free housing to Dorrit J. Bern at the condominium the company owns at the Rittenhouse Hotel, according to a filing with federal regulators.

Bern still lives on the 22d floor of the Center City building on Rittenhouse Square, but she now must write a rent check - for $7,900 a month.

The board of directors of the beleaguered retailer also eliminated the $1-million-a-year bonus Bern used to receive simply for staying on as CEO and chairwoman.

The commuting stipend that used to cover her airfare to and from her home in Illinois all these years? And occasional use of a corporate jet for the same purpose?

"That's out," said director of investor relations Gayle Coolick. Bern's new, three-year contract took effect Feb. 1.

Coolick said the company, which announces its earnings today, did not make the changes to Bern's contract because of pressure from activist shareholders the company is suing. The company is trying to block the investors from gaining influence on the board of directors.

"Our compensation committee's decision to act independently and act in the interest of shareholders is wholly unrelated to any recent events," Coolick said yesterday.

Two investment firms that have accumulated a combined 8 percent stake in the company since early last year are vying for representation on the board of directors. They have publicly criticized Bern and other executives for earning too much at a time when the company's stock has fallen to a near record low and the chain is cutting stores and staff.

Charming Shoppes earlier this month sued the two New York investment firms, Crescendo Partners and Myca Partners, in federal court in Philadelphia to block their efforts to name three new board members at the company's annual shareholder meeting, scheduled for May.

Rob Frankfurt, president of Myca Partners, declined to comment yesterday.

Coolick said negotiations over Bern's compensation began last year. She noted that the activists had gone public only earlier this year with their efforts to win board seats.

Bern's three-year contract was up for renewal, as is her term on the board this year. The two investment firms are seeking to replace her and two other board members.

Local retail analyst Holly Guthrie, of Janney Montgomery Scott L.L.C., said she did not know whether the impetus to eliminate the perks came from the board or from Bern herself. But it appears consistent with cost-cutting efforts the company has made since the U.S. retail slowdown began to take hold in recent months.

"There was a lot of cost reduction that began at the company as business began to slow," Guthrie said.

Few other companies have offered the same sort of fringe benefits to their top executives for so long, said Paul Hodgson, senior research associate at the Corporate Library in Portland, Maine.

Companies typically provide housing assistance for six months to a year. Any longer, and they risk sending the wrong message, he said.

"The picture that that sends to shareholders and investors is that the CEO holds too much of the balance of power," Hodgson said.

Bern was named chief executive officer in August 1995. She had overseen women's apparel and home fashions at Sears, Roebuck & Co.

Bern joined Charming Shoppes as the company was entering a spiral of declining profits.

A few months before naming her CEO and board vice chairwoman, Charming Shoppes had reported its first money-losing quarter since its founding in 1940. The company has been publicly traded since 1971.

Within a few months of Bern's arrival, Charming Shoppes posted a year-end loss of $139 million on $1.1 billion in sales.

Charming Shoppes agreed to pay the rent on her apartment at the Rittenhouse and to pay for air travel back and forth to Illinois, according to company documents on file with the Securities and Exchange Commission.

"She had struck that deal years ago when she basically saved them from bankruptcy," said Guthrie, the retail analyst in Philadelphia.

As Bern began to move the company's earnings back toward positive territory, she was further rewarded. In January 1997 she was promoted to board chairwoman.

And later that year, in November 1997, the company purchased Bern's apartment at the Rittenhouse for $310,100, according to documents on file with the City of Philadelphia.

Bern continued to live at the Rittenhouse rent-free for the next decade, while also receiving travel stipends.

Coolick said the perks remained in place over the years "as a measure of balance. . . . In negotiations there's some give-take."

The company has nearly tripled in size under Bern's leadership as she has engineered several high-profile acquisitions, including taking ownership of Lane Bryant, a chain of stores catering to plus-size women.

A year ago, with consumer confidence still bolstering the retail sector, Charming Shoppes recorded $108 million in profit on more than $3 billion in sales.

But with its stock price and revenue down, analysts said the company might be at risk of being dismantled and sold if the activist shareholders won board seats.

Bern's new contract does give her a $250,000 annual cash raise, boosting her base salary to $1.55 million. The board also restructured Bern's noncash compensation so that more of it is dependent on company performance in the future.

Still, Hodgson said that giving such a sizable cash raise while stripping perks could leave the wrong impression with shareholders.

"They may have begun these negotiations before the stock price went into a tailspin," Hodgson said. "In which case they could be forgiven for allowing that decision to go through. But it's all about how this looks to shareholders."