Shareholder’s patience must be wearing as thin as the tread on an old tire over CEO compensation at The Goodyear Tire and Rubber Company. As our ratings analyst Hoang Nguyen quips in his ratings commentary, “it was a ’good year’ for CEO Robert J. Keegan” whose non-equity incentive plan compensation almost doubled (in a year when they went from net income to a net loss) to over $9.5 million.
I gotta say that one of the prime reasons why Goodyear would never appear in our Pay for Success report is that one of the hallmarks of a Pay for Success company is simplicity in pay practices, and, boy, compensation at Goodyear is anything but simple. So-called long-term incentives that actually measure performance over successive one-year performance periods, awarding some now, some later, some in cash, some in stock, it’s just preposterously complicated.
In addition to an overgenerous base salary, there are overgenerous perquisites such as club memberships, personal use of corporate aircraft, and security services, with a special gold-plated hub cap of additional years of credited services under the supplementary pension plan.
It might be worth mentioning that the 2009 net income target for Mr. Keegan’s performance shares – which were earned at maximum – was negative. Now, in my book, negative net income is better known as a net loss. Now I could be described as being semantically pedantic, but I’m not sure that shareholders would be much amused by a maximum payout for a net loss. In fact they could be getting a bit worn down about it. I don’t care if management did manage to lose NOT AS MUCH MONEY as it might have done, it still lost money.
Not only that, but Mr. Keegan received four separate stock option grants. The largest of the four market-priced grants, almost 500,000 of them, was at $4.81. Less than six months later he’d made $6.23 million worth of notional profit on that. This is just irresponsible, and it’s taking advantage of a super-low stock price to grant any stock options at all in such circumstances. It’s virtually impossible NOT to make money in such a situation.
Someone needs to puncture this policy and bring it more into alignment with shareholder interests. Come on shareholders, surely you must feel pumped up about this one. Annual meeting’s tomorrow. April 13th. More details in our governance risk profile of the company.
Is it time to put some pressure on those compensation committee members? It might even be time to vote against Denise Morrison, Rodney O’Neal, Craig Sullivan and Thomas Weidemeyer.
Paul Hodgson - Senior Research Associate
