Right Place, Right Time: Nicolas Ghesquière

When he bowed out of Balenciaga a year ago,Nicolas Ghesquière became fabulously wealthy—having been an owner of equity in the brand he helped rejuvenate.

According to court documents obtained byWWD, the Frenchman received 32 million euros, or $42.3 million at current exchange, for his 10 percent stake in Balenciaga, as well a 6.6 million euro indemnity ($8.7 million) for breaking his contract before its expiration date.

Balenciaga is seeking to recover 7 million euros ($9.3 million) alleging that Ghesquière violated his exit agreement when he granted aninterview to System magazine and, the lawsuit claims, besmirched the company’s reputation.

No matter the outcome of that legal case, those compensation figures surely shattered the myth of the starving-artist fashion designer.

“What is atypical about the fashion industry is that it’s not uncommon for a creative director to earn more than the ceo,” says Hugh Devlin, a lawyer at London-based firm Withers Worldwide, who has advised creative directors working at Mulberry, Givenchy, Pucci, Pringle, Aquascutum,Chloé and Alexander McQueen.

Legal experts agree it’s rare for an employee designer to be granted a percentage in a heritage brand.

According to sources, among the happy few is Alber Elbaz, Lanvin’s creative director, who holds a sizeable stake in the Paris-based fashion house via shares in a holding company controlled by majority owner Shaw-Lan Wang.

Betsy Pearce, the American lawyer who represented Ghesquière when Gucci Group acquired the brand in 2001 and granted him the equity stake, says the Italian conglomerate was keen to retain Ghesquière and motivate him to build the Balenciaga brand, which then enjoyed a “halo of luxury” but was still a very small-scale business.

“The challenge is to have the designer as motivated as possible for a medium-term change in value,” Pearce explains in an interview. “Nicolas was there at the right time and under the right circumstances.”

The context was an acquisitions spree by Europe’s big luxury players, and Gucci Group spied in him the potential to remake Balenciaga into a fashion leader.

“That’s the deal that works: when there’s legitimate motivation and an actual opportunity to cash out rather than circumstances that are illusory,” Pearce says.

She and Devlin agree history could repeat itself if a private-equity fund acquiring a fashion brand wishes to incentivize a designer by granting a partial stake.

In such a scenario, “at a certain level, the designer is as important as the ceo in bringing that company from point A to point B,” Pearce notes.

Most designers and creative directors engaged by a brand are simply paid a salary and bonus, the latter usually linked to personal performance, according to Devlin. He noted it’s more unusual when bonuses are linked to an increase in sales.

According to sources, when LVMH Moët Hennessy Louis Vuitton engaged former Chloé creative director Phoebe Philo to remake its sleepy Céline brand, the English designer was granted an equitylike “trust” that grows according to certain profitability thresholds and upon which Philo can draw at specific vesting intervals.

Devlin said star designers today are earning as much as they were a decade ago. Sources estimate those amounts are creeping into the high-single-digit millions.

But that could change.

“There’s more resistance now to the superstar salary than was the case 10 years ago,” Devlin says.

“The groups are realizing that the brand should be the star, not the designer. If you look at some of the bigger brands, they don’t necessarily make their money from the catwalk collection,” he adds, noting there are often important design talents behind the creative director who are in charge of lucrative categories.

Given their high salaries, media profiles and the competitive environment, are today’s designers traded like pro athletes?

Not really, Pearce says, because non-compete clauses typically bench designers for a period of at least six months to a year.

In a context of scarce design talent and fierce competition between rival luxury players, brand owners are increasingly focused on non-compete clauses, Devlin says. “The groups are tending to focus on protecting themselves and making it difficult for their creative directors to be poached,” he explains.

At press time, Ghesquière was considered a frontrunner to succeed Marc Jacobs as the artistic director of Louis Vuitton.