04/01/2013 06:03 EDT | Updated 06/01/2013 05:12 EDT

Robert Dutton, Former Rona CEO, Got $4.5 Million Severance Package


MONTREAL - Hardware and lumber retailer Rona Inc. says it paid former CEO Robert Dutton a severance package worth more than $4.5 million as part of nearly $6.9 million in total compensation last year.

In regulatory documents it filed ahead of its annual meeting in May, the Quebec-based company said Dutton's severance package included $1.8 million in cash representing two years of base salary and the vesting of more than 224,000 options granted since 2009.

Rona (TSX:RON) disclosed it paid Dutton $75,000 a month to work as a consultant during a three-month transition period after he resigned last November.

The 35-year Rona employee also earned $793,141 in base salary in 2012, $845,138 in share-based awards, $281,513 in options and a pension value of $304,000.

Dutton earned $2 million in 2011, including $876,413 in base salary, $845,470 in share-based awards, $281,832 in option-based awards, $87,641 in bonuses and a negative $89,000 pension value due to a change in the way his pension was calculated.

He has been eligible since November to receive an annual pension of $508,000, excluding the value voluntary employee contributions made over his years with the company.

Dominque Boies, who filled the dual roles of chief financial officer and acting chief executive, took home total compensation of $1.9 million, up from $580,000 in 2011 when he was just chief financial officer. His base salary increased to $412,430 while he also received more shares and options and a $57,740 bonus.

Boies will remain chief financial officer following the selection of former Metro (TSX:MRU) vice-president Robert Sawyer as CEO.

Joining Sawyer on Rona's board will be 13 other members, including several people added in January. Steven Richardson and Eric Claus are proposed for election, while Jean-Roch Vachon and Geoff Molson won't seek re-appointment.

The new board will have one woman — Suzanne Blanchet of Cascades (TSX:CAS) — and six members from outside Rona's base in Quebec.

Analysts applauded Rona's selection of Sawyer as a proven retail executive and a "man of action, focused on execution."

But Keith Howlett of Desjardins Capital Markets said he's "unconvinced" by a key point of Rona's strategy to shift from big-box stores to smaller "proximity" locations outside of Quebec.

"Our concern is whether there is enough 'white space' between big box warehouses and hardware stores for the urban proximity store to flourish," he wrote in a report.

He said it's questionable whether these smaller stores can attract a significant number of former Rona big-box customers and those of its large and small-format rivals. The smaller store format in urban markets was hurt when home improvement warehouses expanded in Canada. In the United States, these stores were completely eliminated by big-box competition.

Howlett said the only other company to try such a strategy is California-based Orchard Supply, which has a greater focus on gardening products than Rona.

While Rona is in severe competition with Home Depot and Lowe's, its hardware segment will also face off with retailers Home Hardware, Canadian Tire (TSX:CTC), Sears and Wal-Mart.

Rona's big box business outside of Quebec has about $750 million in annual retail sales. The commercial and professional business sells another $450 million. Reducing $1.2 billion of sales could affect its supply chain infrastructure, the analyst added.

On the Toronto Stock Exchange, Rona's shares closed down 23 cents at $10.95 in Monday trading.

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