Aaron's, Inc. is a lease-to-own retailer. It was founded by John M. Glenn in 1955.[1] The company focuses on furniture, electronics, appliances, computer leases and retail sales. The company is divided into three major divisions: sales and lease ownership; corporate furnishings; and manufacturing. The incorporation of manufacturing as well as retailing makes the company vertically integrated.
As of 11 June 2010, Aaron's, Inc. has 1723 locations, broken down as follows:
1094 company-owned sales and lease ownership stores
11 Rimco stores
7 Franchise Rimco stores
599 Franchised SALO stores
12 Aaron's Office Furniture
This includes the first company owned Canadian store, opened on April 13, 2007 in Windsor, Ontario.
Aaron's delivery truck
In September, 2008 Aaron's announced the sale of its Corporate Furnishings division to CORT Business Services. The Corporate Furnishings division is made up of the company's residential rent-to-rent business, recording revenues of approximately $99 million in 2007. The Corporate Furnishings division operated 47 stores.
"This sale will enable us to focus our resources and energy on growing the Aaron's Sales & Lease Ownership division. With this divesture, we anticipate the Company will record increased revenue and earnings growth rates in future periods," said Robert C. Loudermilk, Jr., President and Chief Executive Officer of Aaron Rents.
Executive Compensation
Philosophy
The Company seeks to provide an executive compensation package that is driven by our overall financial performance, increase in shareholder value, and performance of the individual executive. The main principles of this strategy include the following:
• pay competitively within our industry (and outside based on comparable size) to attract, motivate and retain key employees, and pay for performance;
• closely align our executives’ interests with those of our shareholders; and
• design compensation programs with a balance between short-term and long-term objectives.
Objectives of Executive Compensation
The primary objectives and priorities of our executive compensation program are to:
• attract, motivate and retain quality executive leadership;
• align executives’ incentive goals with the interests of our shareholders;
• enhance the individual executive’s performance;
• improve our overall performance; and
• support achievement of our business plans and long-term goals.
Elements of Compensation
The three primary components of the executive compensation program are:
• base salary;
• annual performance-based cash bonus; and
• long-term equity incentive awards.
The executive compensation program also provides certain benefits and perquisites to the Named Executive Officers.
These elements are designed to be competitive with comparable employers and to achieve the objectives of our executive compensation program, consistent with the program’s philosophy. Although the Compensation Committee does not set overall compensation targets and then allocate among the elements, it does review total compensation when making decisions on each element of compensation to ensure that the total compensation for each Named Executive Officer is justified and appropriate in the best interests of the Company’s shareholders.
Recommendations for, or determinations of, the amount of each element of compensation for the Named Executive Officers are determined by the Compensation Committee, which uses the following factors to determine the amount of salary and other benefits to pay each executive: performance against corporate and individual objectives for the previous year; performance of their general management responsibilities; value of their unique skills and capabilities to support the Company’s long-term performance; and contribution as a member of the executive management team.
The following is a summary of the Compensation Committee’s actions during 2009 with respect to annual base salary, annual performance-based cash bonus awards, and long-term equity incentive compensation awards.
Annual Base Salary
The Company strives to provide its senior executives with a level of assured cash compensation in the form of annual base salary that is competitive with companies in the retail and similar industries and companies that are comparable in size and performance. However, in doing so, the Company does not “benchmark” against other
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companies and does not consult surveys of publicly available salary information. The Compensation Committee is generally aware of publicly available information regarding the salaries of senior management employees of similar size companies and applies this knowledge in establishing base salaries. The publicly available salary information the Compensation Committee considers does not originate from any discrete peer group. The Committee does however routinely review compensation information of the Company’s publicly-traded competitor, Rent-a-Center, Inc.
The Compensation Committee reviews base salaries annually and makes adjustments, in light of past individual performance as measured by both financial and non-financial factors and the potential for making significant contributions in the future, to ensure that salary levels remain appropriate and competitive. With respect to the Named Executive Officers, the Compensation Committee also considers the Chairman’s and the Chief Executive Officer’s recommendations and assessment of each officer’s performance, his tenure and experience in his respective position, and internal comparability considerations.
With regard to the annual review of base salaries for the Named Executive Officers, the Compensation Committee has historically considered a number of financial and non-financial factors in reviewing past individual performance, some of which are not applicable to all of the Named Executive Officers due to their respective roles within the Company. The financial factors considered in 2009 include the individual’s contribution to the increase in the Company’s revenues, same store growth, pre-tax earnings, return on assets, store count and general economic inflation. The non-financial factors considered by the Compensation Committee in 2009 include duties and responsibilities of the executive’s position, ability to effectively perform and/or exceed expectations with respect to duties and responsibilities that accompany such position, tenure in the role, number of new store openings and number of new franchise area development agreements executed.
While the Compensation Committee considers a number of financial and non-financial factors in its annual review of base salaries for the Company’s Named Executive Officers, these factors are not assigned a specific weight or numeric value when considered. Nor are specific performance targets or objectives generally established in connection with the factors reviewed. Rather, the Compensation Committee considers all of the factors as a whole and makes a subjective assessment of the impact the Named Executive Officers make on the Company’s business generally. The assessment of these factors does not typically distinguish between the Named Executive Officers, except that with respect to Mr. Evans, who is responsible for the Company’s franchise operations, the number of new franchise store openings and franchise area development agreements entered into is given relatively more weight than other non-financial factors.
Additionally, the Compensation Committee reviews salary levels historically established for the Named Executive Officers, taking into consideration salary increases awarded in prior years, and years in which no salary increases were awarded. Under this approach by the Compensation Committee, as illustrated in the Summary Compensation Table appearing below under REMUNERATION OF EXECUTIVE OFFICERS, the salary increases awarded to the Named Executive Officers have generally been consistent over the past three years, other than with respect to Mr. Loudermilk, Jr.’s increase for 2008, which reflected his promotion to Chief Executive Officer, and Mr. Loudermilk, Sr.’s increase for 2007, which reflected a shift in the mix of his compensation between salary and annual cash incentive, and also reflected that his salary had remained the same for more than ten years preceding the increase; and Mr. Loudermilk, Sr.’s decrease for 2009, which reflected his transition as Chief Executive Officer duties to Mr. Loudermilk, Jr.
The base salary for Mr. Loudermilk, Jr. was increased in the beginning of 2009, from $465,625 to $600,000, in conjunction with increases for all of the Named Executive Officers except for Mr. Loudermilk, Sr., whose annual salary was decreased from $800,000 to $500,000. For 2009, Messrs. Danielson and Butler each received a $100,000 increase in base salary and Mr. Evans’ base salary was increased $10,000.
Annual Cash Bonuses
Annual cash incentive bonuses provide a direct link between executive compensation and our annual performance. Unlike base salaries, annual incentive bonuses are at risk based on how well Aaron’s and its executive officers perform. Bonuses in recent years have been paid pursuant to the Company’s former Executive Bonus Plan, approved by the shareholders in 2005. As the former plan has now expired, shareholders are being asked to approve a new Executive Bonus Plan, substantially similar to the prior one, at the upcoming Annual
Meeting. For further information on the old and new Executive Bonus Plans, see the discussion of the plan under REMUNERATION OF EXECUTIVE OFFICERS and also APPROVAL OF THE AARON’S, INC. EXECUTIVE BONUS PLAN.
As of 11 June 2010, Aaron's, Inc. has 1723 locations, broken down as follows:
1094 company-owned sales and lease ownership stores
11 Rimco stores
7 Franchise Rimco stores
599 Franchised SALO stores
12 Aaron's Office Furniture
This includes the first company owned Canadian store, opened on April 13, 2007 in Windsor, Ontario.
Aaron's delivery truck
In September, 2008 Aaron's announced the sale of its Corporate Furnishings division to CORT Business Services. The Corporate Furnishings division is made up of the company's residential rent-to-rent business, recording revenues of approximately $99 million in 2007. The Corporate Furnishings division operated 47 stores.
"This sale will enable us to focus our resources and energy on growing the Aaron's Sales & Lease Ownership division. With this divesture, we anticipate the Company will record increased revenue and earnings growth rates in future periods," said Robert C. Loudermilk, Jr., President and Chief Executive Officer of Aaron Rents.
Executive Compensation
Philosophy
The Company seeks to provide an executive compensation package that is driven by our overall financial performance, increase in shareholder value, and performance of the individual executive. The main principles of this strategy include the following:
• pay competitively within our industry (and outside based on comparable size) to attract, motivate and retain key employees, and pay for performance;
• closely align our executives’ interests with those of our shareholders; and
• design compensation programs with a balance between short-term and long-term objectives.
Objectives of Executive Compensation
The primary objectives and priorities of our executive compensation program are to:
• attract, motivate and retain quality executive leadership;
• align executives’ incentive goals with the interests of our shareholders;
• enhance the individual executive’s performance;
• improve our overall performance; and
• support achievement of our business plans and long-term goals.
Elements of Compensation
The three primary components of the executive compensation program are:
• base salary;
• annual performance-based cash bonus; and
• long-term equity incentive awards.
The executive compensation program also provides certain benefits and perquisites to the Named Executive Officers.
These elements are designed to be competitive with comparable employers and to achieve the objectives of our executive compensation program, consistent with the program’s philosophy. Although the Compensation Committee does not set overall compensation targets and then allocate among the elements, it does review total compensation when making decisions on each element of compensation to ensure that the total compensation for each Named Executive Officer is justified and appropriate in the best interests of the Company’s shareholders.
Recommendations for, or determinations of, the amount of each element of compensation for the Named Executive Officers are determined by the Compensation Committee, which uses the following factors to determine the amount of salary and other benefits to pay each executive: performance against corporate and individual objectives for the previous year; performance of their general management responsibilities; value of their unique skills and capabilities to support the Company’s long-term performance; and contribution as a member of the executive management team.
The following is a summary of the Compensation Committee’s actions during 2009 with respect to annual base salary, annual performance-based cash bonus awards, and long-term equity incentive compensation awards.
Annual Base Salary
The Company strives to provide its senior executives with a level of assured cash compensation in the form of annual base salary that is competitive with companies in the retail and similar industries and companies that are comparable in size and performance. However, in doing so, the Company does not “benchmark” against other
16
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companies and does not consult surveys of publicly available salary information. The Compensation Committee is generally aware of publicly available information regarding the salaries of senior management employees of similar size companies and applies this knowledge in establishing base salaries. The publicly available salary information the Compensation Committee considers does not originate from any discrete peer group. The Committee does however routinely review compensation information of the Company’s publicly-traded competitor, Rent-a-Center, Inc.
The Compensation Committee reviews base salaries annually and makes adjustments, in light of past individual performance as measured by both financial and non-financial factors and the potential for making significant contributions in the future, to ensure that salary levels remain appropriate and competitive. With respect to the Named Executive Officers, the Compensation Committee also considers the Chairman’s and the Chief Executive Officer’s recommendations and assessment of each officer’s performance, his tenure and experience in his respective position, and internal comparability considerations.
With regard to the annual review of base salaries for the Named Executive Officers, the Compensation Committee has historically considered a number of financial and non-financial factors in reviewing past individual performance, some of which are not applicable to all of the Named Executive Officers due to their respective roles within the Company. The financial factors considered in 2009 include the individual’s contribution to the increase in the Company’s revenues, same store growth, pre-tax earnings, return on assets, store count and general economic inflation. The non-financial factors considered by the Compensation Committee in 2009 include duties and responsibilities of the executive’s position, ability to effectively perform and/or exceed expectations with respect to duties and responsibilities that accompany such position, tenure in the role, number of new store openings and number of new franchise area development agreements executed.
While the Compensation Committee considers a number of financial and non-financial factors in its annual review of base salaries for the Company’s Named Executive Officers, these factors are not assigned a specific weight or numeric value when considered. Nor are specific performance targets or objectives generally established in connection with the factors reviewed. Rather, the Compensation Committee considers all of the factors as a whole and makes a subjective assessment of the impact the Named Executive Officers make on the Company’s business generally. The assessment of these factors does not typically distinguish between the Named Executive Officers, except that with respect to Mr. Evans, who is responsible for the Company’s franchise operations, the number of new franchise store openings and franchise area development agreements entered into is given relatively more weight than other non-financial factors.
Additionally, the Compensation Committee reviews salary levels historically established for the Named Executive Officers, taking into consideration salary increases awarded in prior years, and years in which no salary increases were awarded. Under this approach by the Compensation Committee, as illustrated in the Summary Compensation Table appearing below under REMUNERATION OF EXECUTIVE OFFICERS, the salary increases awarded to the Named Executive Officers have generally been consistent over the past three years, other than with respect to Mr. Loudermilk, Jr.’s increase for 2008, which reflected his promotion to Chief Executive Officer, and Mr. Loudermilk, Sr.’s increase for 2007, which reflected a shift in the mix of his compensation between salary and annual cash incentive, and also reflected that his salary had remained the same for more than ten years preceding the increase; and Mr. Loudermilk, Sr.’s decrease for 2009, which reflected his transition as Chief Executive Officer duties to Mr. Loudermilk, Jr.
The base salary for Mr. Loudermilk, Jr. was increased in the beginning of 2009, from $465,625 to $600,000, in conjunction with increases for all of the Named Executive Officers except for Mr. Loudermilk, Sr., whose annual salary was decreased from $800,000 to $500,000. For 2009, Messrs. Danielson and Butler each received a $100,000 increase in base salary and Mr. Evans’ base salary was increased $10,000.
Annual Cash Bonuses
Annual cash incentive bonuses provide a direct link between executive compensation and our annual performance. Unlike base salaries, annual incentive bonuses are at risk based on how well Aaron’s and its executive officers perform. Bonuses in recent years have been paid pursuant to the Company’s former Executive Bonus Plan, approved by the shareholders in 2005. As the former plan has now expired, shareholders are being asked to approve a new Executive Bonus Plan, substantially similar to the prior one, at the upcoming Annual
Meeting. For further information on the old and new Executive Bonus Plans, see the discussion of the plan under REMUNERATION OF EXECUTIVE OFFICERS and also APPROVAL OF THE AARON’S, INC. EXECUTIVE BONUS PLAN.