The board of directors at Abercrombie & Fitch (NYSE: ANF) has decided to extend the contract of CEO Michael Jeffries, and activist investor Engaged Capital LLC could not be more displeased.

The fund had called for the ouster of Jeffries, arguing not only that he continued to pull in obscene pay despite poor performance, but he also was an obstacle to a sale of the company to a private equity buyer.

According to Abercrombie:

Mr. Jeffries currently serves as Chairman and CEO of the Company. He is not only the “founder” of the modern day Abercrombie & Fitch brand but also the creator of each of the Hollister, abercrombie kids and Gilly Hicks brands. We believe he has been critical to the Company’s long-term success and is critical to the success of our ongoing international expansion and our efforts to enhance the profitability of our brands in the United States. As both the principal executive officer and the senior creative talent, Mr. Jeffries has more knowledge of the Company’s operations than any other individual.

Jeffries’ annual compensation was as high as $48 million in 2011, and he currently owns more than 3.2 million shares, or about 4% of the total float.

At the same time, third-quarter results reflected a net loss of $15.6 million and a net loss per basic and diluted share of $0.20 on a GAAP basis. Jeffries said:

Our results for the third quarter reflect weakness in top-line performance, which we expect to continue in the fourth quarter. However, we continue to work hard to offset these conditions and are aggressively pursuing initiatives we believe will improve the sales trend as we go forward.

Abercrombie’s share price is down about 28% in the past year, far underperforming the S&P 500.

Engaged Capital said it was “disturbed” to learn of the decision to extend the CEO’s contract, calling it an “outright dereliction of the Board’s fiduciary duties.” The fund said it would consider all its options for holding the board accountable.

The restructured employment agreement with Jeffries will take effect upon the expiration of his current agreement on February 1, 2014. Terms of his continued employment and his compensation are detailed in the Form 8-K Abercrombie filed with the U.S. Securities and Exchange Commission.

Abercrombie shares fell 2.2% on Monday to close at $34.10, in a 52-week range of $32.41 to $55.23. They were inactive in premarket trading Tuesday.

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