Circuit City Stores Inc. is offering millions of dollars in cash incentives to hundreds of its key executives and managers to keep them from fleeing the beleaguered chain.

The Henrico County-based retailer's board of directors approved a special cash retention plan and a separate stock-incentive program. The plans are critical as Circuit City tries to improve its financial performance, the company said.

The second-largest U.S. consumer-electronics chain will award $1 million each to its two executive vice presidents and $600,000 each to its 11 senior vice presidents if they stay with the company until Jan. 1, 2011, according to a filing late yesterday with the Securities and Exchange Commission.

They would get 50 percent of their cash bonus if they stay until Jan. 1, 2009, an additional 33 percent the following year and the remaining 17 percent in the final year.

They also are eligible for special stock incentives.

A special cash retention award also goes to hundreds of other key managers -- vice presidents, directors, district managers and the 600-plus store managers. The cash amount was not given for those employees, but they will be eligible for the financial award after two years, getting half after Jan. 1, 2009, and the remainder a year later.

Circuit City could pay out millions of dollars for the cash retention bonuses. The company declined to give a total amount.

The bonuses come as Circuit City has seen four senior-level executives leave in the past year, including the chief financial officer and the chief merchandising officer. In recent years, the chain has battled for market share with larger rival Best Buy Co. Inc. and discounters, especially Wal-Mart Stores Inc.

It also comes as the company prepares to report fiscal third-quarter earnings results tomorrow. Earlier this year, Circuit City said it expected to report a loss after taxes that would be slightly better than the $128 million after-tax loss that the chain reported for the fiscal second quarter.

Philip J. Schoonover, Circuit City's chairman, president and chief executive, wrote in a memo to key managers that the plans are designed to provide them with a total reward potential that is commensurate with their industry peers. It also will help the company attract and retain key employees.

"We are in the midst of a difficult but very achievable drive to restore Circuit City to a position of reasonable profitability," Schoonover said. The plans "help ensure we have a unified, consistent, and motivated group of leaders across all levels of the company to help us execute at the highest ability over the coming months and years to achieve our goals."

Schoonover, however, will not receive a cash bonus. "He doesn't want to accept anything that is not performance based," spokesman Bill Cimino said.

However, Schoonover will be eligible for a stock award valued at $2.925 million if he stays with the company until January 2011. The value of the stock award for the executive vice presidents is $775,000, and for the senior vice presidents is $300,000.

The cash-bonus plan does not provide for any provisions if the employee is let go because of a change of ownership. However, the company does have change-of-control provisions -- cash payouts -- in place for its top officers.

Cash retention awards typically are offered by a distressed company to keep its best talent, said Richard Coughlan, the associate dean for graduate and executive programs at the University of Richmond's Robins School of Business.

Circuit City is either hemorrhaging talent or is worried about it, he said.

"It's obvious there is great concern at Circuit City about hanging onto its top talent," Coughlan said.

But he said the impact likely will be minimal. "At levels we are talking about, it is not unusual for a firm that is very interested in acquiring talent to structure a package that is more attractive than the retention package that Circuit City has just structured."

Cimino, the retailer's spokesman, said companies always worry about attrition during challenging times. "Turnarounds are never easy, and not everybody accepts that challenge."
Contact Gregory J. Gilligan at (804) 649-6379 or ggilligan@timesdispatch.com.