Kozlowski Writes To Thain: A Haiku

My trash can beats yours.
Cost eight hundred bucks more, man.
Gold-plated, too! Sweet.




p.s.: I've made a factual correction to this haiku. (Has that sentence ever been written before?) Press reports differ on the price of Mr. Thain's wastebasket ($1200 versus $1400), but I'm now going with the higher number. Dennis Kozlowski reportedly paid $2200 for his exceptional receptacle.


Image source: allposters.com

Logical Choices

I’ve been lackadaisically browsing the testimony from Friday's executive compensation hearings just in case California Congressman Henry Waxman unearthed anything that we in the left-wing antibusiness press (bugbear of Countrywide CEO Angelo Mozilo) didn’t already know about. BTW, you can’t imagine how excited I am to be part of a vast pinko conspiracy I didn’t realize existed; I suddenly feel like a heroine in some pious movie about the McCarthy hearings who's played by Hilary Swank, or maybe Charlize Theron in one of her uglified star turns, and gets to face down Senator Joe and even take the Fifth.

It was fun to read Mozilo’s inexplicably illegible e-mails, especially the one where he complained that the chintzy bastards at Countrywide had picked up his wife’s travel expenses but were expecting him to pay his own taxes on that perk. But this mode of thinking, which you might call Mozilogic, is nothing new.

For example, years ago I worked with a senior executive who made a rare foray from his C-suite office up to the humble accounting floor to address an urgent perk-related matter. You see, he'd driven his own car to a company golf outing where he’d played 18 holes with some clients, followed by drinks and dinner, then returned to the club parking lot to find that tree sap had dripped on his hood. This, he asserted, necessitated the intervention of an auto care professional. (In keeping with my newfound radical identity, I’m now pretending I drive a dusty VW bus, so don't ask me to opine on the fine points of sedan sap removal.) Being an early adopter of Mozilogic, this exec demanded that the company pick up his sap cleaning costs. I actually think someone found the courage to tell him no, but perhaps I’m just remembering the incident with a kind of slo-mo, Vaseline-on-the-camera-lens nostalgia.

This whole reminiscence has also triggered in me a slo-mo, Vaseline-on-the-camera-lens nostalgia for this post I wrote over a year ago, long before Countrywide became a mascot for the subprime crisis. At that time, I noted Mr. Mozilo’s presence on the Home Depot compensation committee, which had handed over $210 million in severance to resigning CEO Bob Nardelli. But if you believe Mozilogic played a role in the Nardelli story, you're obviously utilizing Leftwingloonybinlogic.

Story Hour

John White, head of the SEC’s Division of Corporate Finance, says the new Compensation Discussion and Analysis (CD&A) is the place for companies to “tell their compensation stories.”

Make that a bedtime story. We have seen the CD&A and it is...long. Take the one in the proxy that SunTrust Banks, Inc. (STI) filed Friday. It just goes on and on. And on. For ten pages.

Thanks to the CD&A, we can now appreciate the deep thinking behind some compensation decisions. For example, Suntrust tells us why it provides senior executives with free financial planning, which cost $10,650 last year for CEO L. Phillip Humann (retired as of January 1), a guy whose total compensation nudged $8 million:

“We believe that good financial planning by experts reduces the amount of time and attention that senior management must spend on that topic and maximizes the net financial reward to the employee of compensation received from SunTrust. Such planning also helps ensure that the objectives of our compensation programs are met and not frustrated by unexpected tax or other consequences.”

OK, fine. No one wants the CEO to be running Quicken Deluxe when he should be running the bank, and we will even refrain from snidely pointing out that if you paid him fewer truckloads of cash his financial decisionmaking would be less burdensome.

We will not, however, refrain from noting that SunTrust's explanation explains absolutely nothing. Sure, someone earning 8 million bucks probably could use financial advice, but that doesn't mean shareholders must pay for it. The same benefits would accrue if Humann just peeled $10,650 off the roll of bills SunTrust gave him and handed them to his accountant, the way I might toss some coins in the tip jar at Starbucks while they make me that nonfat half-caf triple grande quarter sweet sugar free vanilla nonfat lactaid extra hot extra foamy caramel macchiato.

Oh,wait. Sorry, kid, forget the half-caf part. I have more CD&As to read.

Danger Signs

Poor Robert Iger. Being CEO of The Walt Disney Company (DIS) sounds like fun, but it can’t be nice to have so many enemies that your company spent nearly $600,000 on security for you last year. Your proxy statement, filed last Friday, doesn't disclose who's out to get you. I'm guessing it’s either Michael Eisner, still mad that you have his job, or some young parents who’ve been forced by their toddler to watch The Lion King movie sixteen times in one week and feel that in your case the “Circle of Life” should look more like a period.

Either way, the security perk attracted a fair amount of notice in the press. But here at Proxyland we are instead transfixed by a tiny nit in the company's Amended and Restated 2005 Stock Incentive Plan. (The plan was attached to the proxy because after two years Disney feels constrained by the limit on how much stock it can use and wants to more than double the number.)

As adopted in 2005 – before options "misdating" became as tiresome as Gilbert Gottfried playing that godawful Iago Parrot in Aladdin – the plan says:

"Date of Grant" means the date on which an Award under the Plan is granted by the Committee, or such later date as the Committee may specify to be the effective date of an Award.

At this point I’m a little creeped out by any clause in a stock option plan that defines a date as either (1) the date something really happened or (2) some other date we like. There’s a perfectly innocuous explanation for this definition, which is that it’s there for administrative convenience so the Compensation Committee can meet on a day that doesn't conflict with their golf schedules and award options that will be effective on some future date. This could even be a good thing; locking yourself into a future grant date, as we have pointed out, pretty much makes you a Boy Scout. If that's what they wanted to accomplish, however, they should smack their expensive lawyers around for bad drafting.

In the wrong hands the definition provides a possible loophole: The Committee could grant options today and then, if sales of Aladdin’s Math Quest plummet and the stock price falls, decide they granted them later. It's nice to read in the proxy that "the price of any stock option granted may not be less than the fair market value of the Disney common stock on the date the option is granted," but maybe they should also tell us what the meaning of "date" is.

For now we’ll just have to keep our fingers crossed and hope that evil Iago Parrot stays away from Disney Comp Committee meetings. Though if he flies into Mr. Iger's yard, he'll no doubt be shot on sight.

Dog's Breakfast

Inspired by those overplayed "you might be a redneck if..." jokes and all this fuss over the $210 million in severance for deposed Home Depot (HD) CEO Robert Nardelli, we will embark on a tour of the company's last proxy statement. Jeff Foxworthy, please forgive us.

You might be the kind of company that gives its booted CEO a 210-million dollar severance package if:

Ken Langone, former board buddy of the NYSE’s Dick Grasso, is your lead director.

You’ve given your compensation committee an exalted name like "Leadership Development and Compensation Committee."

You used not one, but two compensation consultants.

Of your four most highly paid officers after the CEO, only one is involved in actual operations and the other three are the CFO, the general counsel and the head of HR. (In a real business no one wants to sit with these guys in the cafeteria, but since your priority is obviously to keep a big and complicated compensation machine running smoothly, come to think of it dweebs with glasses are pretty cool. You even let the CFO and the general counsel use your private jet despite knowing they’d probably invite their lame lawyer and accountant friends to fly with them.)

Your compensation committee includes Countrywide Financial's Angelo Mozilo,the tenth highest paid CEO this year according to Forbes ($69 million).

Your last proxy statement included eight shareholder proposals, half of which mention excessive compensation, and you were too stubborn to give in on a single one of them, not even the majority voting proposal. For God's sake, even Marty Lipton is telling clients it’s time to cave on that one.

You made huge loans to your CEO, forgave them, and then paid his tax bill when the IRS later treated those loans as compensation.

You paid above-market interest on everyone’s deferred compensation because, well, why not?

The Executive Compensation Table in your last proxy statement contained twenty-two footnotes.

Your SERP (which stands for Unfunded Excess Gimme Retirement Plan for Already Wealthy Executives) has a cute name like "FutureBuilder Restoration Plan."

Your executive employment contracts set a floor on bonuses.

You like your head of HR so much that when you asked him to move, you lent him 3 million dollars and later forgave the interest.

One of your directors is former Secretary of Homeland Security Tom ("what color is my alert?") Ridge. (We’re not sure why you invited him to join the board, but please tell us it wasn’t because he’s said to have a hearing problem.)

In explaining why you absolutely must pay your CEO so much, you used the word "vision."

Here’s our favorite redneck joke: "You might be a redneck if your front porch collapses and more than six dogs are killed." No, we can't tell you why we like it. And yes, we love dogs.

Sky High

I was so tickled by the employment contract of William Furman, President/CEO of The Greenbrier Companies (GBX) (discussed here and here), that I checked out the company's recent proxy statement to see what else might turn up. Two things did. First, Furman recently became proud partial owner of "a fleet of private aircraft." And everyone being such good friends and all, the company says it might occasionally charter one of these babies.

OK, so it’s disclosed, and assuming Greenbrier keeps its promise not to pay more than market rates when its employees fly Furman, there’s nothing illegal here. But why does a CEO insist on doing something so tacky?

The answer, presumably, is that old favorite: Because he can. An exec who gets into a sideline business and blithely takes on the public company he's running as a customer is feeling quite at home in his position. Given what it takes to fire Furman under his contract, I wouldn't be surprised if he's lounging around the office in PJs and bunny slippers.

The other thing I noticed in Greenbrier’s proxy is that in fiscal year 2006, as in the two prior years, Furman’s “other compensation” included over $400,000 for "executive life insurance." (By way of comparison, the guy’s combined salary and bonus for 2006 is only about 1.4 million.) Wow. I’ve don’t think I’ve ever seen such huge insurance premiums in a compensation table.

Exactly what is Furman getting here? They’re not telling us. In simple terms, a fact is legally material if an investor would reasonably want to know it, and if I owned Greenbrier stock I might like more detail on what those generous insurance premiums are buying. The other thing I'd like to know is whether the guy with the new fleet of jets and that whopper of a life insurance policy is planning to take flying lessons.

Stringy Stuff

I understand the science of marketing about as well as I understand string theory, which - despite wading through two popular books that swore to make it a breeze for us regular folks - I understand not at all, especially the part about the ten dimensions.

So if anyone cares to explain to me why Adams Respiratory Therapeutics, Inc. (ARXT) chose to display on the cover of a recent presentation what appears to be a frog wearing a wifebeater that says "Mucus Rules," I’m eager to learn. I’m thinking maybe it’s a marketing technique that makes perfect sense in the seventh or eighth dimension.

Since I desperately needed an excuse to link to that picture, I was thrilled to find something to post about in the company’s proxy statement filed on Friday afternoon. Two senior officers – John Thievon, Executive VP for Sales and Business Development, and David Becker, Chief Financial and Administrative Officer and Treasurer - have been making like nomads recently. Just last year they relocated from the firm's manufacturing center in Fort Worth, Texas to its headquarters in Chester, New Jersey, with the company picking up moving expenses of $53,771 for Thievon and $146,914 for Becker. But this year both execs turned around and headed right back to Fort Worth, at a cost to shareholders of $168,782 (Thievon) and $75,520 (Becker). Apparently it took the boys only one New Jersey winter to realize that “Mucus Rules” is more than just a clever marketing slogan.

Correction: He is not a frog. His name is Mr. Mucus, and here he is with the missus.

Suffer the Little Children, and Their Tuition

I hate to pick on Elizabeth Arden, Inc. Its CEO only made 1.2 million in salary and bonus last year. For God's sake, I know lawyers who make that much. Still, I'm compelled to report that the proxy mentions some amusing perks. Executive Vice President Jacobus Steffens, who earned about $600,000 in salary and bonus for the last fiscal year, is a lucky man: the company paid his children's secondary school tuition (about $48,000) and also gave him a car allowance of about $16,000. It looks like he got this stuff the year before, too.

The proxy doesn't explain why Mr. Steffens got the royal treatment, or whether he's the only one. Perhaps the other executives' kids attend less expensive schools, thus allowing their tuition payments to fall below the disclosure threshold for perks.

Personally, I don't think there should be any disclosure threshold for things like this: If a company buys an executive's kid even one rubber duckie, they should have to tell the shareholders about it, and maybe put a picture of Kid, with Duckie, in the annual report.