Monday, April 09, 2007

Later, Dude!

Maybe you saw the piece in Sunday's Times sizing up compensation disclosure under the new SEC rules. OK, so it was, like, 10,000 words and you had something better to do. We did not, so we can offer this synopsis: CD&As are mostly long, boring and a total pain in the ass to understand.

According to the article, a firm called Clarity Communications subjected 40 companies’ CD&As to something called the Juicy Studio Readability Test. Predictably, the results weren’t so good. We had no idea this test existed, so we’ve been relying on the Proxyland Corporate Prose Rating System, which is subjective in nature and ranges from 10 (“not that much worse than reading The Economist”) to 1 (“I’d rather work at Taco Bell than read one more word of this proxy”).

Speaking of Taco Bell, the company that runs those joints - the optimistically named Yum! Brands, Inc. (YUM) - filed its proxy last week. We give it a 3. It’s hard enough having to stop and exclaim! every time the company’s name! appears without also having to deal with sentences like this:

"As discussed in more detail beginning on page 61, under the EID Program, an executive is permitted to acquire phantom shares (referred to as RSUs) at a 25% discount (these RSUs are forfeited if the executive voluntarily leaves the Company within two years of the date the annual incentive is awarded; however, in Mr. Novak’s case, under the terms of the EID Program, since he will attain age 55 with at least 10 years of service in October of 2007, he will become vested in approximately 90% of his account when he attains age 55 and will become 100% vested upon the one year anniversary of the deferral)."

We feel sick admitting it, but we sort of understand what they’re saying, and it provides an excuse to remark on the strange but common phenomenon of deferred compensation. “EID” here stands for “Executive Income Deferral.” Four of the five highest-paid officers, including Chairman/CEO David Novak, politely declined to receive their 2006 bonuses, choosing instead to roll them into one of five phantom “funds.” Mr. Novak, for example, "deferred" his entire bonus of $3,347,680 into phantom Yum! stock, priced at a discount, and by doing so picked up another $1.1 million.

Mr. Novak’s bonus came on top of $1.2 million in salary and $4.4 million in stock appreciation rights. Perhaps we’re being simple-minded here, but if you give someone a $3 million bonus and he says “hey thanks, that’s really nice of you, but please take it away and invest it for me until retirement,” maybe he doesn’t need it that badly. Especially when he’s already got lots of options at low exercise prices, $15 million in pension money and a good amount of phantom stock from all the bonuses he similarly batted away in past years.

We expect some credit for mentioning Taco Bell without referring either to E. coli or large rodents.

Note: This post has been corrected. Yum! Brands owns Taco Bell, not that other fine eating establishment known as Jack in the Box. This was a stupid error and we are filled with remorse, but not enough to make amends by patronizing either one.