Compensation Analyst Ashley Kotzur has been busy this week, but this could not go unmissed from Universal Corporation’s 2010 proxy statement.
D. Change of Control Agreements
We do not offer severance agreements to our named executive officers, nor have we offered them agreements for employment or retention with our company. However, to ensure that we will have the continued dedicated service of certain executives (including some of our named executive officers) notwithstanding the possibility, threat, or occurrence of a change of control, we have change of control agreements, which we call Change of Control Agreements.
Universal Corporation? I hear you cry. What the heck do they do? Well, we also entered them in the “Completely Anonymous Company Name Competition”, because they are up there with the best of them. Leaf tobacco. That’s what they produce. That’s why the anonymous name. On the evidence of this proxy, it sounds like they’ve been smoking a bit too much of it.
So, in case you missed it, they have change of control agreements, which they call Change of Control Agreements.
Ashley again, found this mind boggling exercise in self-delusion in Limited Brands 2010 proxy statement. This is how they describe the performance metrics for their annual bonus:
Operating Income Spring & Fall six-month seasons:
Victoria's Secret (Weight: 52%, Target: $208 million & $292 million)
Bath & Body Works (Weight: 20%, Target: $8 million & $200 million)
LaSenza and Mast (Weight: 8%, Target: $51 million & $91 million)
Total Limited Brands (Weight: 20%, Target: $145 million & $445 million)
OK. So they use operating income to determine the annual bonus.
And this is how they award long term incentive pay:
The operating income performance target required for our executive officers to earn the performance-based restricted stock targets granted to our executive officers was achievement of positive operating income for the 2009 fiscal year. Once earned, the restricted stock awards vest on the third anniversary of the grant date, subject to continued employment.
This performance metric is a change from what was used in 2008. The Compensation Committee approved the change to de-couple the payout of restricted stock with the achievement of the performance goals for our short-term cash incentive compensation to mitigate the risk of using a single performance metric for both our short-term cash incentive compensation and our long-term performance-based restricted stock while maintaining the program’s tax efficiency and retentive value of the program.
OK. So they use operating income to determine the payout of performance-restricted stock. And this is supposed to somehow decouple the annual bonus from the stock bonus and mitigate the risk of using a single performance metric. Wait, I’m not following this. Using the same metric mitigates the risk of using the same metric how, exactly?
Well, as Ashley said: “It’s the same metric, only… (FX: drum roll)… EASIER!” And that makes it different? I tell you what it does do. It decouples the performance-restricted stock from performance and mitigates any possibility of the executives actually not receiving the stock.
And in another sign of the times, Events Analyst Dovid Muyderman found in its 2010 proxy statement that SUPERVALU has discarded any expectation that the company is going to make more money than it did in previous years.
The threshold performance level for Corporate Net Earnings for fiscal 2010 was based on the Company’s fiscal 2010 budget, not year-over-year growth as in past years.
Now, I’m not saying that this has anything to do with the fact that they haven’t met the earnings threshold in either of the last two years. I’m not saying that. Like, it’s not as if it’s stopped them earning bonuses. They got bonuses. Just based on something else, diversity, or something, but, since the CEO’s target compensation for 2010 was over $6 million, I think shareholders might not be being unreasonable in expecting that the company was making more money than in previous years for him to earn it.
Dubbed, and with some justification, the “Dumbest Graph Design Ever” by Dovid, this designers’ nightmare was found in the company’s 2010 proxy statement. I mean, what were they thinking? It looks like someone spilled ink. Maybe it was designed by Hermann Rorschach. Close your eyes and stare really hard at it, and it looks like… a stupid graph design.
The primary objectives for each type of equity awarded are shown below. The size of the circles in the chart indicates how closely each equity type aligns with each objective.
Hmmm… the size of the circles indicates how closely each equity type aligns with each objective… brilliant.
Paul Hodgson – Senior Research Associate