Auto parts manufacturer BorgWarner is putting the turbocharge into executives’ bank accounts. Most notably, CEO Timothy M. Manganello saw his non-equity incentive compensation increase from $0 in fiscal 2008 to $2,997,412 in fiscal 2009. One reason for this drastic change is that the company changed the performance measures used to determine 2009 annual incentives so that instead of using economic value (EV) it used cash flow and relative profitability targets. Furthermore, cash flow targets were so soft that a target bonus was achievable at negative $50 million and a maximum bonus achievable for any positive cash flow, even $.01. Also, long-term equity still partly consists of time-based restricted stock. We believe all equity should be performance based. Furthermore, performance shares pay out on sub-median TSR performance as compared to company peers and performance periods are only three years in length. Lastly, we note low shareholding requirements (three times base salary) for the CEO that can be achieved in less than one fiscal year and generous perks such as personal use of corporate aircraft and club memberships.
For more details, purchase BorgWarner's corporate governance profile from The Corporate Library's online store.
Damion Rallis - Ratings Analyst
