Author: Theo Francis

This being proxy season, we’re coming across a lot of disclosures that don’t quite stand on their own, but which are interesting all the same. Here’s a few recent disclosures that caught our attention:

Taking a mulligan — You can’t blame Callaway Golf Co. (ELY) and its chiefs for being a little down on the recession, which has hurt business, and executive pay as well. As a result, its latest proxy tells us, the board realized last year that long-term incentive targets were being missed, restricted stock had “significantly decreased in value and all outstanding stock options were underwater and had no intrinsic value. As a result, the retention value of the outstanding awards had been materially diminished.” The solution? Adopt a “special retention incentive grant” giving the CEO $2 million in phantom shares vesting 50% in a year and the rest in two years. Can ordinary shareholders get the same deal?

A real non-compete — Under a revised version of its “Senior Executive Restrictive Covenant and Retention Plan Agreement,” advertising and marketing outfit Omnicom Group (OMC) promises annual payments of up to $1.5 million to participating execs in return for promises from them not to compete against, interfere with or disparage Omnicom when they leave. The payments would run for 15 years after termination (or age 55, if that comes later), as long as the exec has been around for seven years. To calculate, take 5% of the average of the exec’s three highest-paid years, plus 2% of the average for each year of “executive service,” up to 35%, with a maximum of $1.5 million. And, just in case the company is worried about hauntings, the payments continue even after the executive’s death — as do, we assume, the non-disparagement and non-interference clauses.

Call it translucency — The other day we ribbed CVB Financial about the $150 gift cards it gave its top executives, among other employees. Near the other end of the full-disclosure spectrum, we find athenahealth Inc. (ATHN), which helpfully filed an 8-K on Monday letting investors know that it had adopted a new Executive Incentive Plan. Less helpfully, it noted that “the compensation committee has not yet determined the criteria that will apply to the Chief Executive Officer,” making your guess as good as ours what kind of bonus Jonathan Bush could earn. Moreover, “Any and all provisions of the Plan, including underlying goals, may be cancelled, altered, or amended by the Plan Administrator at any time.” All righty, then.

We moved where, again? ACE Ltd. (ACE), the big reinsurance company, moved from the Caymans to Switzerland in mid-2008, going so far as to reincorporate there and change the currency of their shares’ par value. Yet, judging from its recent proxy filing, someone in the legal department is still getting acclimatized: In the company’s preliminary proxy and then the April 5 definitive proxy, the company systematically replaced every reference to its address at 32 Bärengasse with a reference to “Barengasse” — and as far as we can tell, the latter doesn’t exist. (ACE has it right on its Web site and in past filings.) Amusingly, Google Translate tells us the change turns “Bear Alley” into “Cash Alley.” ACE policyholders and shareholders, take note.

Oopsies — Mistakes happen, and coupling the sheer size and intricacy of a modern proxy filing with the circumlocutions and risk-shyness of modern lawyers, and your typical corporate filings load includes plenty of potential for error. The proxy filed March 31 by homebuilder Meritage Homes (MTH), for example, contained a cool 39,702 words (many of them numbers). Maybe less surprising, then, that it had to fix some errors in the summary compensation table with an amendment filed Tuesday, after transposing two columns of pay for one executive, understating Chairman and CEO Steven J. Hilton’s equity awards as $262,260 instead of the $770,760 it should have been, and understating the CFO Larry W. Seay’s equity awards as $106,842 instead of $313,999. Meritage gives no indication how the mistake happened. (Has anyone seen an amendment filed because compensation was erroneously overstated?)

Sometimes, a little candidness can be refreshing. We saw some last week from Jefferies Group (JEF), the investment bank, when the company chucked some of its performance-based compensation to the wind, at least for 2009.

Ordinarily, Jefferies, like most companies, sets out performance targets early in the year. The idea is that bonuses get paid out depending how well the company, and executives, make their targets. “In the past, the board has established targets based on measurable performance criteria with specific weighting,” the company said in its proxy, filed April 6. That makes sense: You don’t really want companies painting bull’s eyes around the arrows.

Then the proxy continues:

“However, given the extreme volatility and uncertainty of the financial markets near the end of 2008 and beginning of 2009, the Compensation Committee did not believe it could establish meaningful objectives at that time. Accordingly, bonus amounts for Mr. Handler and [Executive Committee Chairman Brian P.] Friedman were not established until the end of 2009 and were not based on specific performance criteria or targets. Instead, the Compensation Committee reviewed our strong year end performance at the end of an extremely difficult year and awarded bonuses to our top two executives based on historical performance in 2009.”

In other words, Jeffries painted bull’s eyes around the arrows, as well-shot as those arrows may have been.

This isn’t just a matter of best-practices for Jefferies shareholders. Because bonuses awarded this way are effectively arbitrary — or at least, made based on perfect hindsight — the payment to Chief Executive Richard Handler didn’t count as performance-based pay for tax purposes. That means it wasn’t tax-deductible, and instead of the $6 million he got before taxes, it actually cost the company north of $8 million. (See the full rules on performance deductibility to get all the nuances.)

We like this approach somewhat better than those companies that change performance goals mid-stream, of course. So points for honesty. But it might have been even more refreshing if the company had concluded that performance is as performance does, and that incentive awards should follow suit.

Image source: respres via Flickr.

You can learn a lot by the way companies generally act when employees leave for another job, whether it’s with suspicion, enthusiasm or indifference. But what does it say when a company doesn’t just pay an executive to do something else — it keeps right on paying him?

That’s what Aon Corp. (AON) did with Ted T. Devine, who stepped down as executive vice-president and president of Aon Risk Service on Nov. 18, 2009, though it wasn’t exactly clear from Aon’s announcement at the time.

Devine stepped down explicitly, if perhaps a little abruptly, to head up 1World Sports, a new nonprofit intended to “encourage as many kids as possible to participate in sports and … teach life lessons of teamwork.” Aon’s announcement tells us the group was “founded by a grant from the Aon Foundation.”

According to Aon’s proxy, which was filed on Wednesday, as part of Devine’s sendoff  the company “agreed to recommend to Aon Foundation that it contribute $200,000 to a not-for-profit entity … established by Mr. Devine.” And since three Aon directors also sat on the foundation’s board as of the nonprofit’s 2008 tax return, we can’t imagine that was much of a problem.

What the initial press release didn’t mention, but the proxy does, is that Devine remains an Aon employee, and Aon is continuing to pay him through Nov. 18, 2010. He’s getting not only his base salary of $950,000 and the usual executive retirement benefits, but he also has a nice opportunity to collect another $750,000 from Aon in 2011. The condition? He has to work at least 20 hours a week at “the not-for-profit entity established by him.” In the meantime, restricted shares and restricted share-units will continue to vest while he remains an Aon employee, the company will provide him with secretarial assistance through the end of this year, and next year the company will pay the difference between his COBRA premiums and what he has been paying for health-care.

The deal was approved after the board

“considered Mr. Devine’s overall contributions to Aon during his four years of service and his commitment to develop a charitable organization to foster the link the between sports and the betterment of disadvantaged children, a mission Aon also supports through its Manchester United sponsorship…”

Given Manchester United’s rough image, we think Devine has something a little different in mind. We wish his new venture the best of luck, and surely Aon’s shareholders do as well. Hopefully, this will turn out a bit better than the other sports-related venture that Aon backed (and which was also disclosed in greater detail in the proxy): Chicago’s failed bid to attract the 2016 Olympics.

Image source: MRBECK via Flickr

The long weekend brought a bounty of riches to the footnoted table: some amusing, some intriguing, some just odd. Rather than focus on just one, we decided to take a quick spin through a few of the more unusual:

Risky eating — The health-reform bill may prove better for your waistline than some restaurant bottom lines. Darden Restaurants (DRI) warns in its latest 10-Q that it doesn’t “expect to incur any material costs” from a health-reform provision requiring calorie counts on some menus. Still, it cautions, the company “cannot anticipate any changes in guest behavior resulting from the implementation of this portion of the law, which could have an adverse effect on our sales or results of operations.” Indeed. Pass the unlimited salad and breadsticks, please.

Villas galore — The housing bust and economic malaise may be bad for Stephen A. Wynn and Wynn Resorts Ltd. (WYNN), but at least there’s a silver lining: free Las Vegas housing. In a new lease executed March 18, Wynn got two fairway villas “to serve as Mr. Wynn’s personal residence” while his employment agreement lasts (and it’s not set to expire until 2020, when Wynn will be 78), the company tells us in its latest proxy. For tax and SEC-reporting purposes, the villas will be valued at $503,831 a year, reset every two years. “Certain services for, and maintenance of, the fairway villas are included in the rental,” the proxy notes. (We can’t help but wonder how much Steve Wynn actually uses his Las Vegas housing, given the $1.2 million he racked up last year in personal use of the company’s aircraft.)

Layoff envy — Newspaper chains have resorted to layoffs and unpaid furloughs for some time now, and McClatchy Co. is no exception. Even Chairman and CEO Gary B. Pruitt took an 11.5% cut in salary, dropping to $976,250 from $1.1 million, the chain’s latest proxy tells us. Of course, if he’s laid off, his goodbye might not be recognizable to some of McClatchy’s former inky wretches: For being fired “without cause” — that’s a lay-off to most of his workforce — he gets $5.3 million, largely thanks to severance provisions in his contract. And if he just decides to quit, he still gets $460,000 in stock, thanks to accelerated vesting. That’s on top of the $10 million in pension benefits he accumulated through the freeze of the company’s plans last year.

Image source: PlastiKote

Executive pay gets a lot of attention at this time of year, what with the many corporate proxy filings going out to investors. But we think it’s important to pay more attention to some of the folks behind those pay decisions too.

We couldn’t help doing a double-take as we flipped through the proxy that Western Union (WU) recently filed with the SEC. While at first glance, it looks like the company’s non-executive chairman, Jack M. Greenberg, made a meager $567.70 for his efforts last year, that’s only until you realize the company is leaving off three zeros.

That’s right, Greenberg made $567,700 in 2009 for his role on Western Union’s board. Dinyar S. Devitre, another member of the company’s board and chairperson of its audit committee, made $345,100. All told, the company shelled out nearly $3 million for its nine directors last year, and one of them served only half a year.

The bulk of that came in company stock and options, and some of it was under three-year award programs; about $167,500 was donated to charities on the directors’ behalf (never a bad way to stay on good terms with the alma mater). It’s also a pittance compared to the $8.1 million CEO Christina Gold was paid in 2009.

Still, it’s more than we’ve seen even at most large companies this year, where director pay over $300,000 has been unusual, and typically involves payouts for a departing executive or a post-retirement consulting deal. Meantime, Western Union saw revenue fall 3.8% and net income fall 7.7% in 2009.

We were curious how much it would cost to wire Greenberg’s $100,000 cash retainer from Western Union’s Englewood, Colo., headquarters to New York City. Sadly, the company’s Web site declared the dollar value too high. But if we sent it in $10,000 increments, we could get it there using Western Union’s Money in Minutes service for just $4,750. Presumably, Western Union used a different method.

That’s also just a hair under the $5,000 Western Union spent last year on travel and entertainment for directors’ spouses during board events.

Image source: joeflintham via Flickr

In all the hue and cry over executive compensation, one refrain is constant: Without good pay packages, companies won’t get the best and brightest men and women for the job.

And heck, you never know what it’ll take to keep them coming in to work. For some, like Sprint CFO Robert Brust, it’s rides on the corporate jet. But for others, maybe the little things matter most.

So when we saw the $150 gift cards that CVB Financial Corp. (CVBF) gave to each of its five top executives in 2009, it caught our attention. CVB — the holding company for $6.7 billion Citizens Business Bank and its roughly 50 California locations — doesn’t offer much of an explanation beyond disclosing the gift cards in footnotes to its latest proxy. We couldn’t help wondering: Might it have something to do with the $130 million of bank bailout funds CVB got from Uncle Sam in December 2008 and ultimately repaid on Sept. 2?

No, as it turns out. CVB’s chief financial officer, Ed Biebrich Jr., was kind enough to give us a call back and fill us in. A few years ago, during a good year, the company distributed $150 gift cards to the staff — something we first footnoted two years ago. As longtime Chairman George A. Borba and his wife made the rounds that holiday season, Biebrich told us, “he got such a warm response to the gift-cards that they have kind of kept it on — it’s become a tradition.”

Because all employees get it, the top dogs do, too, though some have donated their cards to charity, Biebrich said. And since the execs get the cards, the company is careful to disclose them, even though they don’t quite meet the SEC’s test for perks disclosure. Still, Biebrich says, “We dont want to ever be hit on the fact that we missed $150.”

The gift cards were a little more significant to other top CVB executives, who earned between $428,733 and $589,842 last year. Think of them as falling in the vicinity of $12.79 to $17.60 apiece.

Image source: buba69 via Flickr

Many an American works two jobs to make ends meet, and plenty of U.S. households bring in two incomes from the same employer. But we suspect it’s rare to find one man working two jobs for the same company — and taking home two paychecks in the process.

Meet that man: Dr. Michael J. Morecroft, who was president and chief executive officer of the Hamilton Beach Brands unit of NACCO Industries (NC) until his retirement on Dec. 31. Over the last two years, according to the proxy NACCO filed on March 26, Morecroft took home $1.16 million from his day job overseeing the manufacturing and marketing of dorm-room pizza-toasters and travel-cup blenders — as well as another $1.55 million in consulting fees, also from NACCO.

Now, we love kitchen gadgets, and have owned a Hamilton Beach gizmo or two over time. Plus, Hamilton Beach’s results were “exceptional” in an otherwise bleak year for NACCO — a truly diversified holding company if we ever saw one: Its other units include lift trucks (sales plunged by nearly half) and coal mining and marketing (improved results).

So the performance of Morecroft’s unit would seem to call for a nice bonus. And yet, the company informs us that it “suspended the incentive compensation plans at HBB for 2009 for all employees, including Dr. Morecroft, and reduced the award opportunity for employees of the Company under its short-term plan.” Understandably, a bonus might not be too seemly.

In any case, Morecroft’s duties went well beyond steam irons and air fresheners disguised as plants, as the proxy notes:

“in addition to continuing his employment duties with HBB, Dr. Morecroft served as a consultant in 2008 and 2009 on management, financial and other matters relating to the Company as a whole and particularly with respect to potential synergies from more closely associating KC and HBB”

KC in this case is shorthand for The Kitchen Collection, a kitchenware and gourmet food retailer NACCO also owns. You could imagine that two kitchen-goods companies under one ownership would be part of Morecroft’s day job, but among his other consulting duties, he “had substantial input on financial matters and long-term planning for the Company on a consolidated basis” and “devoted extraordinary effort and leadership skills to his role as a consultant,” the proxy tells us. Moreover, he agreed to sign non-competition and non-interference agreements, and

“the financial results of the 2009 cost-reduction programs that Dr. Morecroft assisted designing and implementing are vital to the long-term interest of the Company and the subsidiaries…”

Now that he’s retired, presumably both Hamilton Beach and NACCO will manage. Morecroft will: He socked away some $5 million in deferred compensation and earnings during his years on the jobs.

That buys a lot of smudge-proof digital toasters — a hundred thousand of them, in fact.

Like many Americans, we here at footnoted like to know what’s happening with our tax dollars. As a result, we tend to look a little closer at financial companies that got checks from Uncle Sam in the aftermath of the recent financial crisis.

One of those companies was F.N.B. Corp. (FNB), a Hermitage, Penn., banking and financial-services company that got $100 million of bailout money on Jan. 9, 2009. FNB repaid the money on Sept. 9 — so for three quarters of the year benefitted from taxpayer assistance. The funds, the bank in March told the U.S. Treasury’s Special Inspector General, Neil M. Barofsky, “helped to strengthen our capital ratios.”

Unfortunately, given the amount that has been redacted from FNB’s 10-page letter (pdf) to Treasury last March, it’s hard to get a good grip on just how that $100 million was used. But ultimately, money is fungible, and the proxy FNB filed on Friday tells us something about some of its spending last year.

For example, FNB paid some $135,000 to an entity called “PSSI Stadium Corp.” with ties to Pittsburgh Steelers Sports Inc., which it says is, in turn, is co-owned by FNB director Arthur J. Rooney II, a local attorney. Why? FNB isn’t explicit, except to say the funds were doled out “in connection with a Heinz Field Suite Licensing Agreement pursuant to which [FNB] entertains clients at sporting and entertainment events.” So presumably it went to rent a suite at the stadium; the company reported that $368 in perks to at least one executive represented “the cost of tickets to sporting events.”

Rooney’s ties to the Steelers are hardly incidental to his seat on the board. FNB boasts that Rooney’s legal chops and “involvement in significant NFL matters” — he was “principally responsible” for designing, developing and financing Heinz Field, and he’s a member of “the Board of NFL Films, the NFL Super Bowl Site Committee and the NFL Management Council” — has provided him the “requisite experience to help our Board strategically address complex operational and financial challenges.”

It’s not the only business deal FNB has struck with entities related to a board member. Also last year, the company shelled out $100,000 for “fleet, courier and business related travel” to a company co-owned by Stanton R. Sheetz, head of a Mid-Atlantic convenience-store chain, and paid another $114,000 to lease the premises of a branch “from an immediate family member of Mr. Sheetz.” Presumably FNB had trouble finding other fleet services or landlords to rent from (or other qualified director candidates with whom they weren’t already doing business).

Other banks taking the federal dime have also found themselves in business with their own directors as well. One, Fulton Financial Corp. (FULT) of Lancaster, Penn., paid more than $218,000 in legal fees to the Albertson Law Office of West Deptford, N.J., of which one partner is longtime director Jeffrey G. Albertson, “with more than a ten percent interest in the law firm.” The company also rented two branch facilities from entities tied to director Donald M. Bowman Jr., to the tune of $242,743 in 2009, its proxy noted. U.S. Treasury reports show Fulton Financial got $376 million in federal bank-bailout funds in December 2008, and there’s no indication that they have been paid back yet.

Fulton goes into some detail about how it navigates such situations, noting that:

“Fulton does not have a separate policy specific to related person transactions. Under Fulton’s Code of Conduct (“Code”), however, employees and directors are expected to recognize and avoid those situations where personal or financial interests or relationships might influence, or appear to influence, the judgment of the employee or director on matters affecting Fulton. The Code also requires thoughtful attention to the problem of conflicts and the exercise of the highest degree of good judgment.”

In concluding the section on related-party transactions, Fulton’s proxy adds: “The Audit Committee also conducted a review of all other related person transactions for any potential conflict of interest situations with the directors of Fulton and the Executives, and concluded that there were no conflicts present, and ratified and approved all the transactions reviewed.”

All of which, we hope, is reassuring to the company’s other shareholders.

When it comes to executive comp, it’s worth keeping in mind a fundamental assumption behind the whole process: Incentives are intended to drive behavior. That means that when you see the board changing the chief executive’s incentive structure, however subtly, pay attention: It may just tell you something about their hopes and fears.

Consider Macy’s (M), which filed an 8-K on Thursday with an amendment to the compensation agreement of the company’s 58-year-old chairman and CEO, Terry J. Lundgren.

At first glance, the amendment doesn’t seem to change a lot: Lundgren’s base salary remains at $1.5 million a year, where it was when this particular agreement was originally signed in 2007. The contract continues to run through Feb. 28, 2011, which is the same date as in the 2007 agreement.

And then there’s the amended Schedule 1, which looks like pretty much the same hairy table that closed the original agreement. Indeed, quick arithmetic suggests that, if Lundgren hits his targets — for earnings before interest and taxes, for sales and for cash-flow — he is still eligible for a bonus of 150% of his salary, or $2.25 million. Moreover, a little additional calculation shows that hitting the uppermost thresholds in each of those categories will continue to earn him 390% of his salary, or $5.85 million. (One minor change at the upper end: The old formula kept increasing from there, while the new one doesn’t; there’s also an absolute ceiling of $7 million.)

So what changed? Simple — the emphasis the board is putting on each of those three key elements. Sales are up, in that they now are more important in determining Lundgren’s bonus than before. Meantime, EBIT and cash-flow are de-emphasized. So if he hits all his targets dead-on, sales account for 33% of his bonus, up from just 20%. EBIT makes up just over half, down from 60%. And cash-flow makes up just 13%, down from 20% (where it was on par with sales.)

So what does this tell us about Macy’s board? Here’s how the company described the importance of each of these measures in the preliminary proxy filed on March 19:

The EBIT measure focuses the executives on maximizing operating income and is a good indicator of how effectively the business plan, which focuses on growth in profits, is being executed. Top-line sales are a priority for retailers and are a measure of growth. Sales provide opportunities for the achievement of various other financial measures, including EBIT and cash flow. Cash flow is indicative of the manner in which the Company’s operating activities, together with its investing activities, actually generate cash. How a company increases its cash flow and then chooses to invest the cash are among the most important decisions management makes.

In other words, the board seems to be more concerned about increasing growth and opportunity through sales, and less concerned about increasing cash-flow and management’s business-plan execution.

There’s another oddity about Lundgren’s bonus formula: While scoring better on each of the three measures (EBIT, sales and cash-flow) snares him a progressively better bonus, the progression is far from smooth. If he increases sales by a tiny fraction (from 100% of target to 101% of target) his bonus shoots up by $900,000. That’s because hitting his sales target adds $750,000 to his bonus — while exceeding his sales target by 1 percentage point increases his bonus by $1.5 million. There was also a big step in the original contract at the same point — but the reward for that extra percentage point was half as big, at an incremental $450,000.

The bottom line? Lundgren now has more incentive than ever to boost sales — and in particular to reach that elusive 101%-of-target mark. And his incentive to hit his targets for operating income and cash-flow are smaller. That’s what the board seems to want — we’ll see if it satisfies shareholders.

Image source: alistairmcmillan via Flickr

When your company is called Clean Energy Fuels Corp. (CLNE), and you boast of being the “largest provider of natural gas for transportation in North America,” it helps if your top people aren’t just employees, but customers as well. And that gets so much easier if you give them a nice incentive to be customers.

For at least a couple years now, Clean Energy — founded by Texas-oilman-turned-green-energy-evangelist T. Boone Pickens — has lent its top executives natural-gas vehicles, and then plied them with free fuel to run them. The value of the car and the fuel has worked out to somewhere between $2,000 and $8,200 a year, per executive, since 2006.

To make things go even more smoothly, the company has even paid the taxes the execs owe for getting the free cars and fuel: another $1,600 to $6,000 per person, per year. (The figures only reflect the executives’ personal use of the vehicles.)

Then, this year, Clean Energy went one step further, according to the preliminary proxy it filed this week: It decided to just give the execs the cars outright, while continuing to fuel ‘em up. Pricetag: $17,138 for CEO Andrew J. Littlefair, and between $9,702 and $21,630 for the other four top officers. They’re still getting taxes paid on the free fuel, a payment “intended to make our named executive officers whole for the taxes they must pay due to their receipt of the company-provided natural gas vehicle fuel.”

Of course, the federal government has its own modest efforts in place to encourage Americans to drive natural-gas and other less-polluting vehicles. But with perhaps a couple hundred-thousand natural-gas vehicles among the country’s 254 million or so highway-registered vehicles, maybe the Obama Administration could take a leaf from Clean Energy Fuels and just give them away.

Image source: Honda Civic GX Web site

Congratulations, MF Global (MF) shareholders! You have snared a smart, high-profile and accomplished (if pricey) chief executive. Or part of one, anyway.

As has been widely reported, MF Global on Wednesday named as its new chairman and CEO Jon S. Corzine — the onetime Goldman Sachs co-head who went on to represent New Jersey in the U.S. Senate and then governor, losing his bid last year for re-election as chief executive of the Garden State.

At the same time, Corzine will be a visiting professor at Princeton University’s Woodrow Wilson School. And he’ll also be an operating partner at private-equity firm J.C. Flowers & Co. (Flowers owns about 10% of MF Global, but both firms are very clear that Corzine isn’t at MF Global to represent Flowers.)

And that may turn out to be the rub for MF Global’s shareholders. On the one hand, Corzine “is expected to spend substantially all of his business time and attention” on his day job at MF Global, according to his agreement with the company; he can only spend time on Flowers “so long as the activities … do not significantly interfere with your performance of your responsibilities under this Agreement” to serve as CEO. (Emphasis is in the original.)

And yet, when it comes to “corporate opportunities” — read, potential investments for MF Global — Corzine must split his attention: He’s under no obligation to tell MF Global about even the best opportunities if he finds out about them through JC Flowers. His agreement with MF Global even says the company

“renounces any interest or expectancy of the MF Global Group in … business opportunities that are from time to time presented to you by [JC Flowers] … or in which you acquire knowledge through your association with JCF.”

But the company goes further still: It tries to give Corzine the blessing of its shareholders as well:

“(A) you shall have no duty to communicate or present such business opportunity to the MF Global Group and (B) you shall not be liable to the MF Global Group or, to the maximum extent permitted from time to time under the law of the State of Delaware, its stockholders for failing to present such corporate opportunity to the MF Global Group, whether under a breach of any fiduciary duty theory, by reason of the fact that JCF pursues or acquires such corporate opportunity for itself or otherwise.”

With luck, Corzine, the company and their shareholders won’t ever have to put that one to the test in court.

Juggling these three jobs may be part of the reason Corzine and MF Global are signing up for what appears to be a test drive. The contract runs about 53 weeks, until March 31, 2011, but MF Global has to notify Corzine on Dec. 31 whether it intends to keep him on. Cutting him loose before April next year could prove costly: His salary is $1.5 million and he has a guaranteed bonus of at least $2 million for the next fiscal year — but severance would be based on a higher $3 million “target” bonus. All told, his payout for dismissal would be $9 million, cash on the barrelhead, plus more to make up for any federal excise tax on “golden parachute” payments. (His options would also vest immediately, and he would get up to two years of company-paid health-care benefits.)

Curiously, Corzine only has a three-month non-compete period if he does part ways with MF Global, though he couldn’t approach the company’s clients or employees for a year. By contrast, his open-ended agreement with Flowers (there’s no end date specified) spells out a 12-month non-compete.

Other details we found interesting from Corzine’s deals with the two companies:

• Just for signing on with MF Global, he’s getting not only a $1.5 million signing bonus within the next month, but also an option for 2.5 million shares that vests if he makes it through March 31 next year. The option’s strike price will be set April 7, but at Tuesday’s close it would have been worth $18.3 million.
• His base salary can’t fall below the initial $1.5 million, but it can be increased — and once it is, it can’t fall again.
• It takes money to manage all that money, so MF Global will pay up to $200,000 toward Corzine’s tax and financial-planning expenses.
• JC Flowers isn’t paying Corzine any salary while he works for MF Global, but he won’t be working for nothing: Under his letter agreement with founder J. Christopher Flowers, he gets a 3.5% “carry percentage” — or cut of the firm’s profits beyond whatever he invested — from any of several funds or related vehicles.

As a fellow alumnus of the University of Illinois at Urbana-Champaign, I can’t help but wish Corzine all the best in each of his new gigs. But for the sake of MF Global’s shareholders, I hope he’s better at juggling jobs than he is at winning re-election.

Image source: Tony the Misfit via Flickr

With the average 401K at just five digits, retirees are increasingly picking up part-time work to help make ends meet. Maybe some of them can find gigs like the ones landed by retirees Timothy P. Horne, King P. Kirchner and John G. Nikkel.

Horne, 72, retired from industrial and residential valve-maker Watts Water Technologies (WTS) at the end of 2002, after he had served as CEO of the North Andover, Massachusetts, company for 24 years and chairman for 16. Under his contract at the time, the company’s latest proxy tells us, he was on the hook to provide 300 to 500 hours of consulting to Watts Water “so long as he is physically able,” in return for a minimum of $400,000 a year. He is also eligible for secretarial services, an office at headquarters, retiree health-care, financial-planning services, auto-maintenance expenses and a club membership on the corporate dime. (He didn’t collect the car-care benefit.)

More than seven years on, that arrangement still stands, and last year the company paid him $495,564 — if you’re keeping score at home, that’s between $991.13 and hour and $1,651.88 an hour. (It’s also on top of his actual company pension, which paid $146,154 last year.)

In fact, the arrangement with Horne is to last “until the date of his death, subject to certain cost-of-living increases each year,” the company notes:

Our obligations to make the above-described payments to Mr. Horne and to provide the above-described benefits will not be affected or limited by Mr. Horne’s physical inability to provide consulting services to us if such disability should occur.

Should control of Watts Water change significantly, Horne needn’t rely on the good graces of the new bosses to stay gainfully employed. He can choose to take a lump sum payout instead. Just how much he would get depends on his age and various assumptions under the company’s pension plans, but it’s supposed to work out to the equivalent of $23,650 a month for life. For a man of Horne’s age and using the company’s pension-plan assumptions, that could be worth just shy of $4 million, estimates Peter Katt, a fee-only adviser who evaluates life-insurance and annuity contracts.

Nikkel, 75, and Kirchner, 82, both retired from Unit Corp. (UNT), an energy exploration and production company in Tulsa, Oklahoma. Kirchner co-founded the company and retired in May 2001; he got $560,000 in the first two years, plus monthly checks of $25,000 from mid-2003 through June last year. The total, according to the latest proxy: $2.4 million. Nikkel retired on April Fool’s Day in 2005 with a $70,000 annual consulting agreement that he and Unit have agreed to renew each year since then. (Next re-up date: April 1 this year.) A month after he stepped down, the company’s board voted to give him another $750,000 over two years.

The bottom line: For much of last year, Unit was paying three current or former CEOs. But at least the consulting advice is getting cheaper.

Image source: rdmrtnz via Flickr

When CEOs retire, they often get a slew of perks beyond the pensions and deferred-compensation they have accumulated while at the helm — from  small (home office equipment, like computers and cell phones) to large (years’ worth of office space and secretarial support, and barely used luxury cars) to very large (free rides on the corporate jet for years to come).

It’s hard to put a dollar value on that kind of thing. Once the execs retire and cease being “named executive officers” under SEC reporting rules, the cost of those perks often fades out of the annual proxy. Now, however, the retirement of 67-year-old Nicholas D. Chabraja from General Dynamics (GD), after 12 years in the top job,  gives us a glimpse of the price-tag for those incidentals of the executive golden years: $8.9 million, according to the proxy it filed on Friday.

That’s because General Dynamics shelled out the value of Chabraja’s perks in advance: office support, administrative support, reimbursement for moving expenses, and “applicable tax gross-up to which he was entitled under his amended and restated employment agreement dated June 7, 2007″ — and, of course, “future use of corporate aircraft.”

Keep in mind, that’s the price-tag for the perks alone; Chabraja also got $1.59 million in pension and deferred-comp payouts last year (as well as $269,231 in unused vacation time), with another $18.6 million early this year. There was also a $3 million donation to Northwestern University made in Chabraja’s name. And he got $5.2 million in salary and bonus for the six months he spent in the top spot, plus $700,000 in cash, stock and options for serving the second half of the year as non-executive chairman. Plus, restrictions expire on stock valued at $8.3 million.

Once the zeros start adding up, it’s hard to keep much perspective. Here’s a yardstick: $8.9 million is enough to pay the full premium for workplace health-insurance coverage for 665 families for a year.

It also happens to be enough for the $8.5 million contract Chabraja signed in January with General Dynamics’ Gulfstream Aerospace unit to buy his own “mid-sized pre-owned aircraft.”

Happy flying!

Some companies put together pay packages designed to keep top executives around until they retire. At newspaper chain Gannett (GCI), it’s almost like the board can’t wait for them to find the exit.

Proxies these days lay out just what companies will have to shell out in various circumstances when executives depart — everything from retirement to termination “for cause” (eg, felony conviction). The result: sprawling tables with multiple headings covering nearly every eventuality.

But you don’t often find big numbers in the column labeled “Potential Payment Obligation Upon Retirement/Voluntary Termination.” At Gannett, however, simply walking out the door would bring Chairman and CEO Craig A. Dubow a cool $19.3 million, as of Dec. 31. In last year’s proxy that number was a much more modest — if you can call this modest — $7.5 million for Dubow.

To be fair, nearly half of that ($9.5 million) is his pension. But much of the rest comes courtesy of a feature triggered just this year: All stock options and restricted-stock units granted since mid-2005 vest and become his the day he walks out the door for the last time, as long as he isn’t fired for “good cause” (specifics include misappropriation of funds, persistent neglect of duties or a felony conviction). His options then remain exercisable for as long as four years. The value of those options was listed at $5.9 million, compared to zero in the 2009 proxy.

Gracia C. Martore, Gannett’s president, COO and CFO, gets a similar deal, with equity grants since early 2005 vesting on departure and options remaining exercisable for as long as three years. Her take: $10 million.

Both executives also get some nice perks in retirement: legal and financial counseling, up to $25,000 a year in medical coverage for the executive and their family and $75,000 over five years to charities of their choice. On top of that, Dubow gets lifetime Medigap coverage once he hits 65, three years on the company airplane (albeit at his own expense), title to his home-office equipment, and an outside office and secretarial assistance for three years. He even gets three years’ of “home computer assistance” — presumably calling the Geek Squad when the laptop doesn’t boot up properly. Altogether, the company values Dubow’s perks at more than $90,000, Martore’s run about half as much in the first year.

Sure, getting fired, at least after a change in control, would be more remunerative: $39 million if Dubow is fired within two years of a deal — or if he quits during a special 30-day window at the one-year anniversary. Dying would be more lucrative, too, at $31 million. Still, we’re sure execs don’t see much incentive there.

But millions just to hit the links for executives who haven’t exactly been careful stewards of shareholder assets and have basically managed earnings through massive job cuts seems like a very poorly designed reward.

Three cheers for performance-based incentive awards! That’s the bedrock of American-style executive compensation, right? Pay for performance: It’s good for shareholders, the tax code encourages it, and such (we imagine) is the stuff of Pay Czar Ken Feinberg’s dreams.

Take AOL (AOL) and the proxy it filed Tuesday:

In general, the elements of compensation reflect a focus on performance-driven compensation, a balance between short-term and long-term compensation and a combination of cash and equity-based compensation.

But look closer at the company’s cash incentive plans, and you find a few oddities.

The Global Bonus Plan is a one-year deal, implemented because the usual plan had been suspended “in light of the uncertainty with respect to potential transactions.” The first half, with targets set as a percentage of base salary, “was paid to employees who performed at a satisfactory level and were still active employees on July 15, 2009″ — in other words, bonus to you if you stuck around and did your job. After all, AOL was about to be spun off from Time Warner (TWX). Top execs collected between $119,000 and $206,250 for the first half.

The second half of the year hinged on performance, including meeting targets for free cash flow and “OIBDA,” or operating income before depreciation and amortization. But in the end, none of the convoluted details mattered. That’s because the board gave Chairman and CEO Tim Armstrong “discretion to award additional amounts based on individual performance or to otherwise modify awards regardless of the actual levels of OIBDA and Free Cash Flow achievement.”

And that’s just what he and a board committee did in January, the proxy notes:

Although our actual OIBDA and Free Cash Flow results would not have triggered a payout for the second bonus period under the GBP, upon the exercise of Mr. Armstrong’s discretion pursuant to the terms of the GBP, Mr. Armstrong recommended, and the Compensation Committee approved, a 110% bonus payout for the second bonus period under the GBP.

In other words: do-over! Three top executives did even better. Chief Financial Officer Arthur Minson, who was guaranteed at least $1 million under his employment contract, wound up getting $1.7 million instead, or 110% of his $1.5 million target plus $60,000 “on a discretionary basis in recognition of individual performance” during AOL’s spin-off from Time Warner. Two other execs got $40,000 added to their 110% for the same reason. (Armstrong wasn’t covered by the plan.)

Why this departure from the conditions and targets originally laid out? Among the reasons listed in the proxy: “Our executives did not receive merit-based salary increases in 2009″; bonus targets had fallen from 2008 levels, so even 110% didn’t reach 2008 targets; and “the original 2009 budget was prepared by the prior management and included a number of aggressive assumptions, including growth in advertising revenue …”

AOL’s Annual Incentive Plan for Executive Officers also departs from a tight link between performance and pay. To start with, it uses a performance measure that seems to have been cooked up in some accounting test-kitchen: “Adjusted Net Income,” defined not just as income or loss from continuing operations — thus stripping any foundering lines of business a management team might manage to shed before year’s end — but also excluding some M&A costs, non-cash impairments, gains and losses on sale of operating assets, restructuring charges over $3 million, litigation and tax-audit reserves of more than $3 million, any amount “related to securities litigation and government investigations” and more.

If that crazy-quilt measure of income is negative, no bonus. Good enough. But if the figure is positive, the bonus defaults to the maximum payout allowable: $4 million or 4% of this Adjusted Net Income figure, whichever is less. The board’s compensation committee has to step in to reduce it. (Curiously, the summary of the program  in the proxy doesn’t mention this detail. It just says any award “may not exceed” $4 million or 4%.) It’s not clear what ANI would have been in prior years, so there’s no way of knowing how 4% stacks up to $4 million.

No doubt, it can make sense for some pay to stay separate from immediate performance. That’s what salary is for, after all. But why go to all the trouble of establishing performance measures and bonus targets if you don’t intend to use them?

Image source: RogueSun Media via Flickr

One key principle here at footnoted is that the small stuff does matter. Look no further than Vinod Gupta, who, yesterday evening, became the Securities and Exchange Commission’s poster child for perks run amok.

Of course, in Gupta’s case, the little stuff turned out not to be so little, as the SEC tells it. We’ll spoil the ending: Gupta, infoGroup Inc.’s (IUSA) former chairman and CEO, was formally accused yesterday of fraudulently using nearly $9.5 million in corporate funds “to support his lavish lifestyle,” while hiding another $9.3 million of transactions with companies that he owned at least in part. Two other former executives and a former director of the Omaha-based database and mailing-list vendor were also charged in the case.

Without admitting or denying wrongdoing, Gupta agreed to pay $7.4 million in penalties, interest and disgorgement, and will be banned from serving as a corporate director or officer for life. An attorney for Gupta didn’t return a call seeking comment.

If you’re feeling a little déjà vu, loyal readers, there’s a reason: Gupta’s a frequent flyer here at footnoted — he appeared in August 2008 when the company agreed to pay him $10 million to go away while requiring him to repay $9 million. Then, last year, Gupta and infoGROUP made the 2009 short list for footnoted’s worst footnote of the year contest after the company said that Gupta’s personal use of the company yacht in 2008 totaled more than $870,000 — not the zero previously reported.

But that turns out to have been the tip of the iceberg, by the SEC’s account. Indeed, the agency’s allegations read like a primer on proxy-filing red flags:

“Gupta improperly used corporate funds for more than $3 million worth of personal jet travel for himself, family, and friends to such destinations as South Africa, Italy, and Cancun.  He also used investor money to pay $2.8 million in expenses related to his yacht; $1.3 million in personal credit card expenses; and other costs associated with 28 club memberships, 20 automobiles, homes around the country, and three personal life insurance policies.”

Granted, those totals span 2003 to 2007, but they’re still eye-opening.

The SEC argues that Gupta had plenty of assistance when it came to shielding the largess from prying eyes. Former director Vasant H. Raval, a Creighton University accounting professor who once headed infoGroup’s audit committee, was accused of having omitted “critical facts in a report to the board” about the matter, and of failing to “respond appropriately to various red flags,” even after two internal auditors questioned whether Gupta was seeking reimbursement for personal spending. He has agreed to pay $50,000 to settle the charges against him, without admitting or denying wrongdoing, and will also be banned from serving as a public-company officer or director for five years, the SEC said. His attorney didn’t return a call seeking comment. (A spokeswoman for infoGROUP declined to comment.)

Two former infoGROUP CFOs are also accused of signing off on phony expenses without “sufficient explanation of business purpose.” Neither former CFO has settled as yet. Attorneys for Gupta and former CFO Rajnish K. Das didn’t return calls seeking comment. David Zisser, who represents ex-CFO Stormy Dean, called the SEC “wrong on both the law and the facts.”

“There are a lot of issues about what constitutes a perk and what constitutes a related-party transaction,” Zisser said. “There was a lot of information regarding the things supposedly hidden that shows they weren’t hidden at all.”

However things shake out in court, it looks like the curtain is falling on this chapter of the infoGROUP’s perks saga: Last week, Gupta resigned from the board, and the company announced it would be taken private by CCMP Capital. Once private, they can throw around whatever perks they might want, and we aren’t likely to find out (at least, until CCMP takes the company public again).

In the meantime, when you hear that even lavish perks are a small price to keep a good executive, think back to the long, strange tale of Vinod Gupta, infoGROUP and the corporate yacht that turned out to be more of a pleasure boat than the filings initially let on.

Sometimes, it turns out, the little things aren’t. And if you don’t take a good hard look, you might find out too late.

Here’s one reason companies might want to work extra hard to disclose employment contracts sooner rather than later: Delays can raise more and thornier questions.

Consider Coventry Health Care Inc. (CVH), the $3.5 billion managed-care company based in Bethesda. It filed its 10-K on Feb. 26 — and then had to file an amendment on Friday because of “inadvertent omissions with respect to the initial filing.” What did it forget to file? An employment agreement with one Harvey C. DeMovick, as well as its 2010 Executive Management Incentive Plan.

This is DeMovick’s second time in the door at Coventry. He retired in 2007 as an executive vice-president and chief information officer who also oversaw customer service. He came back last year after two years as a private investor. He’s back as executive vice-president for customer service, IT and Medicare.

Here at footnoted, we perk up when we see phrases like “omission,” inadvertent or otherwise — especially when it comes to executive pay. Even more intriguing at Coventry: That employment agreement for DeMovick was dated May 17, 2009, and was effective three months before that, on Feb. 2.

In other words, it was signed 10 months ago, and has technically been in effect, though undisclosed, for more than a year. (The 10-K Coventry filed on Feb. 26 of this year listed the contract as an exhibit, but didn’t actually include the document itself.)

Digging a little deeper, we found another curious detail: While the contract was dated May 17, the $8 million “new hire equity award” that DeMovick got for signing on was valued as of March 24, 2009 — more than seven weeks weeks before the document was executed. And wouldn’t you know it, the share price had a nice run up between those dates, rising $6.91, or nearly 57%. So DeMovick appears to have gotten the contractual right to a chunk of options and performance shares on May 17, priced at a discount. While two thirds of those options and shares vest this month and next year, a third of it vested retroactively, on March 24 last year. Not too shabby.

Now, the securities rules are pretty clear on the matter of pay agreements: Companies must disclose material contracts — and compensation contracts are by definition material for “any director or any of the named executive officers of the registrant.” (That’s typically the CEO and next four highest paid executives). Even for others, “any other management contract or any other compensatory plan, contract, or arrangement … shall be filed unless immaterial in amount or significance.”

Moreover, those contracts “shall be filed as an exhibit to the Form 10–Q or Form 10–K filed for the corresponding period” — which would seem to imply by the 10-Q filed in the second quarter of 2009, if not (given the February effective date) some time in the first quarter. But here’s the rub: If the executive doesn’t become one of those “named executive officers of the registrant” until well after the contract is signed, then the delay may not be a problem if the contract isn’t material on its own. (For the full details, see language on material contracts throughout Title 17 § 229.601 (Item 601) Exhibits.)

DeMovick wasn’t in last year’s proxy. If he didn’t become a named executive officer until the fourth quarter 2009 or later, Coventry might have decided it didn’t have to disclose his contract until the 10-K, as long as the contract wasn’t material in its own right. At as much as $11 million or more over three years, we’ll let you be the judge (The math: $600,000 annual salary, 75% bonus target and a total of $8 million in restricted shares and options.) But given Coventry’s net income last year of $242 million, it works out to something like 1.5% of that figure a year.

For what it’s worth, this isn’t the most delayed executive contract we’ve seen here at footnoted. Earlier this month, Hess Corp. (HES) filed an employment letter for Timothy Goodell dated Sept. 19, 2008. And in November 2009, on the same day that its acquisition by Peet’s Coffee & Tea (PEET) was announced, Diedrich’s Coffee (DDRX) disclosed a 17-month-old compensation agreement with its CEO.

Needless to say, long disclosure delays can raise red flags. And even apart from disclosure omissions, DeMovick seems to have gotten a nice price on that new-hire equity award.

Image source: el clinto via Flickr

UPDATE 3/16: We heard this afternoon from Thomas Zielinski, Coventry Health’s executive vice-president and general counsel. He clarified that DeMovick’s equity award didn’t begin vesting on March 24, 2009, as we understood from the employment agreement, but rather will do so beginning this coming March 24. (The employment agreement was phrased somewhat ambiguously, saying that “The options and restricted shares will vest in equal thirds over a three (3) year period, commencing on March 24, 2009″.

Zielinski also took issue with the questions we raised about the timing of the contract. “Mr. DeMovick’s exact role within the company and the terms of his compensation were negotiated during the initial weeks of his return to the company,” Zielinski wrote to us. The company didn’t know DeMovick would qualify as a named executive officer until this year, he added, so “his employment contract was otherwise at the time of signing immaterial for SEC disclosure purposes.”

We are happy to provide additional context from Mr. Zielinski, but we stand by the original post.

———

Note from Michelle: I want to officially welcome Theo Francis to footnoted.org. Theo joined the site last week from Bloomberg and, earlier, BusinessWeek and the WSJ and Sonya and I are very excited to have him involved in the hunt for interesting tidbits in SEC filings. Now that Sonya and Theo are on board full-time, they’ll be posting here more frequently, so be sure to check back often. I also want to wish intern Kristen Scholer good luck as she heads off for a semester in South Africa and welcome Mavis Tan, an intern at Morningstar who will be helping out on footnoted. Mavis is a recent accounting graduate from the University of Illinois at Chicago and is currently working on her CPA.

It’s a rare day when corporate America cites the Internal Revenue Service as a bastion of restraint and sober perspective — especially when it comes to personal income.

Yet there on page 35 of the proxy filed by consumer-products conglomerate Fortune Brands Inc. (FO) is a table laying out the Form W-2 Box 1 income for its top five officers. “We are providing this supplemental table,” the proxy notes, “to highlight the difference between compensation reported under the SEC rules and compensation amounts realized and reports as taxable income on Forms W-2.”

Just how big are those differences? For Bruce A. Carbonari — chairman and chief executive of the company that markets Jim Beam bourbon, Titleist golf balls and Master Lock padlocks — it comes to as much as $9.5 million in 2009, with SEC-reported total compensation of $10.7 million and IRS reported “wages, tips and other compensation” of $1.3 million. For Craig P. Omtvedt, senior vice-president and chief financial officer, there’s a $3.9 million gap.

Of course, in many ways, the comparison is apples and oranges. The IRS looks at what taxpayers actually collect in a year, and Fortune Brands’ executives, like most, get a lot of pay that won’t necessarily land in their pockets for months or years. Cabonari’s compensation last year included $6 million in stock awards and $1.5 million in stock options, valued under SEC reporting rules, as well as $432,468 in gains on pension and deferred-comp plans. Stock options are generally taxed when exercised, and pension and other deferred compensation aren’t usually taxed until they are paid out.

One factor at Fortune Brands may actually have pushed up the taxable income some executives reported: paying out certain retirement benefits in advance, into trusts set up for the executives’ exclusive benefit. Ordinarily, executive pensions are merely IOUs from the company to the individual, payable at retirement. But that leaves executives at risk of losing their pensionsif the company fails — they have to get in line like other creditors in bankruptcy. The special trusts for some of Fortune’s top officers protect them against that, at the expense of paying taxes now instead of later. To ease that burden, Fortune Brands grosses up the payments to cover taxes on the trusts’ earnings each year — some $29,846 in 2009.

We’ll just have to wait and see whether other companies begin pointing to IRS pay figures to contrast with the SEC’s disclosure rules. In the meantime, we’re pretty sure Carbonari and his colleagues got some value out of the pay that hasn’t yet appeared on their W-2s.

<em>Image source: adonis hunter / ahptical via Flickr

It’s been a rocky couple of years for the car industry, which still employs hundreds of thousands of Americans, and now the public owns hefty chunks of General Motors and Chrysler. So we wouldn’t be surprised if more than a few corporate boards see it as patriotic to support automakers.

But pay $87,378 for automotive transportation for one executive in a year? That’s the value Sonic Automotive Inc. (SAH) pegged in its recent proxy for the personal use of company vehicles last year by Chairman and Chief Executive O. Bruton Smith, the founder of the dealership chain. For President and Chief Strategic Officer B. Scott Smith (Bruton’s son), the Charlotte, N.C. company valued the perk at $35,427. But for three other executives, “the incremental cost of demo vehicles is not calculable because those vehicles are provided to the executive by our dealership subsidiaries.” (Do dealerships really have that much trouble putting values on their inventory?)

Just for the record, with that kind of cash, Bruton could pick up a 2010 Jaguar XK Coupe outright, with a little left over for vanity plates and a pair of fuzzy dice — or as many as five of the 2010 Honda Civic VP Sedans it’s offering through its Honda dealership in Tyson’s Corner, Va.

In its filing, Sonic Automotive calls personal use of company vehicles “a common competitive perquisite afforded to executives in the automobile dealership industry.”

Sonic Automotive isn’t the only company getting personal with automotive perks. Home BancShares Inc., a Conway, Ark., bank holding company that got $50 million in federal bank-bailout funds in January 2009, pays to fill up the tanks of executives’ personal vehicles. Chairman John W. Allison got $2,117 in gas last year, according to its latest proxy. At last year’s average price in Arkansas, it works out to more than 800 gallons. And that’s on top of an $18,000 “auto allowance” and $16,500 in personal flight services from the pilot who flies the plane Sonic leases — from a firm owned by Allison.

Image source: macieklew via Flickr