Monday, May 07, 2007

Play Money

We try not to joke about people’s names here. It’s childish, plus we have a slight glass house problem. But we’re making an exception for the members of the Compensation Committee at The Gymboree Corporation (GYMB), maker of cute stuff for toddlers. This fearsome trio is known as Heil, Pound and Rambo.

Tough as they sound, these guys seem quite soft-hearted when it comes to bonuses. For one thing, the CD&A in last week's Gymboree proxy leaves the distinct impression that they interpret the words "bonus plan" rather loosely.

Storytime, children:

Once upon a time there was a very nice company called The Gymboree Corporation. In February 2006, the company put in place a brand-new 2006 Bonus Plan for full-time employees. The Compensation Committee earnestly studied the CEO’s business plan, set detailed earnings goals and promised to pay bonuses ranging from 25% to 150% of target amounts, depending on how things panned out in Gymboreeland.

As it happened, the company made lots of money through the first three quarters of 2006 and everyone was very very happy. So happy, in fact, that in October the Committee suddenly invented a brand new extra-fun bonus plan, the 2006 Fourth Quarter Bonus Plan, just “to provide further incentive” for four very special friends – the CEO and three other executive officers. When the year ended, everyone had earned bonuses under the orginal plan at the highest (150%) level. This came to $967,500 for Chairman/CEO Matthew K. McCauley, who then got another $322,500 under the Fourth Quarter Plan, bringing his total bonus to nearly $1.3 million. (Not to mention stock grants valued at nearly $4 million, but that's another story.)

Then the Committee got even happier, so they said that while “we believe that our executives should generally earn bonuses under incentive plans with specific performance goals, such as the 2006 Bonus Plan and the 2006 Fourth Quarter Bonus Plan… we awarded discretionary cash bonuses in several situations.” And so some senior managers, including one named officer, got even more bonus money. Hooray!

OK, the cash paid here was modest by Proxyland standards and the company is performing well. Still, if you adopt a bonus plan loaded with all sorts of fancy-sounding formulas supposedly sufficient to "incentivize" everyone, then later find excuses to toss out money over and above the plan just because you feel like it, it begins to sound less like a plan and more like some impulsive 3-year-olds banging on a toy cash register. And boy, can that get on your nerves.