The reinvention of Nelson Peltz (cont.)
Throughout his career, Peltz has had a reputation for being overpaid. And by many measures, Peltz's compensation at Triarc looks excessive. In 2005 he earned $29 million as chairman and CEO of Triarc, an astounding number at a company with just $1.2 billion in sales.
The directors justify that figure by claiming that Triarc is more like an investment bank than a restaurant company. "This is more a publicly traded fund that works with management than a pure restaurant chain," says David Schwab, head of the compensation committee. "Nelson is paid for buying, growing, and selling companies, which he does on a regular basis."
Peltz makes no apologies. "I believe in pay for performance," he says. "People would be happy to pay a CEO a large amount of comp for doing what I've done with Triarc or Triangle." He points out that Triarc's shares have jumped from a split-adjusted price of $1 to $19 since he started negotiating with raider Victor Posner in 1991, and that the market cap has risen from $80 million to $1.8 billion.
There's no doubt Peltz has produced big value for shareholders. That's more than can be said for many CEOs who gorged while shareholders suffered, notably the deposed chiefs of Pfizer and Home Depot, Hank McKinnell and Bob Nardelli.
Still, the fact is that Triarc isn't an investment bank or hedge fund. It's principally a restaurant company. Peltz's pay is unparalleled even at most giant food and beverage companies.
Steve Reinemund, chairman and ex-CEO of Pepsi, made just over half of Peltz's comp for 2005 despite running a company 30 times Triarc's size and generating big gains for shareholders. Peltz is promising to establish Arby's as an independent company so that it's no longer part of a "deal shop."
Before targeting Heinz, Peltz pursued an Arby's competitor, Wendy's. In December 2005 he issued an analysis, or "white paper," demanding that Wendy's spin off 100 percent of its highly profitable Tim Hortons, the Dunkin' Donuts of Canada. He charged that Wendy's company-owned stores were generating margins of just 9 percent, less than half the 20 percent posted by its franchisees. Peltz maintained that if the company-owned stores achieved the 20 percent benchmark, Wendy's would raise earnings by $200 million.
His analysis swayed the Wendy's directors, and three of the candidates Peltz proposed now sit on its board. "Nelson's white paper was right on target," says Jim Pickett, Wendy's chairman, who wasn't part of Peltz's slate. "The activists made the board more aggressive than in the past in pushing management to deal with the issues." A year ago Peltz said Wendy's stock price should be $75, or 40 percent higher. That's just about where it is today, when you include the Hortons spinoff in the total.
At Heinz, Peltz won the day because he stuck to the facts, hammering away at the company's weak record. Heinz management lost because it attacked the attackers instead of convincingly defending its record. Peltz charged that as Heinz shrank by shedding businesses, its overhead went in the other direction, hammering profits.
His staff also extensively interviewed Heinz supermarket customers. They said that the company frequently offered big discounts at the end of the quarter to move ketchup. Peltz concluded that Heinz was competing far too much on price instead of launching advertising campaigns like its brilliant "Anticipation" spots in the 1970s.
Peltz proposed a $300 million increase in marketing spending, paid for by a drop in incentive payments to retailers. His message was simple: Spend money on building the brand so that people will be willing to pay premium prices for Heinz products.
Heinz directors claim that the company was moving to slash overhead and pump up advertising before Peltz's arrival. But they acknowledge that he's spurred the process. "When you make yourself smaller, you need to pay attention to overhead costs," says director Chuck Bunch, CEO of PPG Industries. "Did Trian's position heighten our awareness of the issue? It probably did."
Most of all, he earns praise for curbing his animal spirits and acting like a director, not a CEO - witness his strong relationship with Bill Johnson. "People were scared he'd be so belligerent and argumentative you couldn't have a meeting," says director Dean O'Hare, former CEO of Chubb. "Not so. The bottom line is that Nelson is an excellent board member."
In late February, Peltz took a stake in Tiffany. Seated in his glass-enclosed, penthouse-like Manhattan office, Peltz presented a fully formed, daring vision for the Tiffany brand. "Women see Tiffany as a place to buy a gift, or where gifts come from in those beautiful blue boxes," says Peltz. "But it's not where women go to shop for themselves. And it should be."
Peltz pictures a Tiffany's that's less frosty and austere, where women are enchanted by scarves, watches and handbags the way they are in the welcoming precincts of Hermès or Cartier. And this time, in contrast to the resistance at Heinz, management is warmly welcoming his ideas. The Tiffany brass has even invited him to dinner. How times change. Could it be that the fearsome Nelson Peltz, the legendary intruder, is going to have to get used to having cordial meals with management?