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"Those are pretty nice jobs, aren't they?" quips Don Hodges, the president of the Hodges Fund (HDPMX), who credits his fund's superior performance in part to the fact that he avoids companies handing out excessive compensation to execs.
"When they start excluding losses from certain sectors when calculating bonuses, it looks like the board thinks officers are there to manage part of the business but not all if it. It would be nice if shareholders could do that, too. It's a further example of boards who are more concerned about their friends in management than they are the shareholders."
Washington Mutual says the fact that executives sacrificed so much bonus pay last year shows the company is committed to pay for performance. Execs lost two-thirds of their 2007 restricted shares due to poor results, and all stock options issued before the end of last year are out of the money. Executives got only about a third of their expected cash bonus, and Killinger declined to accept whatever he might have gotten.
Going forward, the company says, at least half of total direct compensation -- 70% for Killinger -- comes in the form of stock options that won't reward execs unless the stock goes up considerably. Killinger, for example, can cash out half of his options only after the stock trades above $26 a share and the other half when the stock goes above $35, and he has to wait three to four years to do so. The stock recently was trading for about $10.
Though Washington Mutual will exclude real-estate-loan losses and expenses related to foreclosures when calculating bonuses, the board may override those measures and penalize execs if they do a poor job of managing those two costs, bank spokesman Aney says.
Washington Mutual isn't the only company moving up the goal posts on executive bonuses as the mortgage mess unwinds. It's part of an emerging trend that pay experts such as Patrick McGurn of Institutional Shareholder Services think will continue. Here's a look at three others:
Toll Bros.
Shareholders of home builder Toll Bros. (TOL, news, msgs) last week voted to jettison its old bonus plan for CEO and co-founder Robert Toll. It's easy to guess why shareholders voted to get rid of the plan: Insiders hold about 25% of the stock; Toll himself owns 17%.The rules they threw out prevented Toll from getting a bonus last year for the first time since 1991, as the company struggled. Revenue fell 24%, and the company had big inventory write-offs.
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Under the new bonus plan, Toll gets bonus pay based on improvements in a long list of soft concepts ranging from employee morale and the company's "visibility" and "reputation" to customer satisfaction. The company will also use traditional measures such as revenue growth and profitability. Toll will also get 2% of the company's income before taxes and bonus.
But here's the sneaky part: The board's compensation committee can now change the mix of bonus yardsticks used each year, giving it the freedom to select any measures it wants without asking shareholders. Toll Bros. won't even reveal which yardsticks it is using, so shareholders won't even be able to judge if the company is picking easy targets.
You know where this is going.
The company says that if its new set of yardsticks had been in place last year, Toll would have gotten as much as $6.5 million in bonus pay, instead of zero.
"It doesn't seem like that bonus is tied to company performance at all because the stock was down over 35% last year," says Jacob Hay of the Laborers' International Union of North America, which owns shares of Toll Bros. "It just gives him a bonus for being a CEO, basically," Hay says. Toll's $6.5 million bonus last year would have been on top of $8.4 million in total pay for 2007.
The company declined to respond. But in filings, it denies it had wanted to revise the bonus plan because Toll got no bonus last year. Instead, it says the change was needed to ensure Toll's compensation could be linked to positive steps taken even in a weak market, like cost cutting or debt reduction. The continuing flexibility means the committee is "better able to tailor the performance component annually to address current issues," which is important because "no two years present the same challenges for the company or the CEO," company filings say.
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