The GMI Blog

Small Print

By Paul Hodgson - CCO and Senior Research Associate

Corporate governance checkmate - Queen Takes Knight

Events Team Leader Mark Magee had already spotted this when I found it in the FT, but we’re doing it again because he came up with a great headline and for no other reason.

This is about the former CEO of RBS being stripped of his knighthood.

What else do you need to say?

Strictly a need to know basis and... you don't need to know

Events Analyst Dovid Muyderman called this blockage out from a January 31^st 8-K from Polypore International.

Polypore International, Inc. (NYSE: PPO) issued the following statement from Robert B. Toth, President and Chief Executive Officer:

“Typically, the company does not comment on industry news. Polypore has no new news to report. We remain confident in the premises used to justify the lithium battery separator capacity expansions associated with accelerating industry demand for electric drive vehicles.”

Does anyone even know what that means?

Executive Title of the Week Award

Compensation Analyst Ashley Kotzur found this in Maximus’ 2011 proxy statement.

Chief of Human Capital and President Tax and Employer Services -- Mark S. Andrekovich

“What do you do, again?”

“I’m Chief of Human Capital and President Tax and Employer Services at Maximus.”

“And what was it you did, again?”

Slime and Salmonella

As Mark says, to more reasons to avoid fast food entirely.

Pink slime removed from McDonald’s burgers — but other food additives remain. On Wednesday, McDonald’s announced the product was no longer used in their burgers, Time reports. “This decision was a result of our efforts to align our global standards for how we source beef around the world,” Todd Bacon, senior director of quality systems for McDonald's, said in a statement.

Wow, discarded beef treated with ammonium hydroxide is called pink slime and they used – until very recently – to put it in McDonald’s hamburgers. How gross is that. My wife, who’s American, used to sing this song about the ingredients in McDonald’s with her buddies. They all seemed to know it. Something about blah blah blah in a sesame seed bun. Clearly they were unaware of the actual ingredients. Or was this some McDonald’s advertisement song? I neither know, nor care.

Yum Brand Inc's Taco Bell chain has been linked to a salmonella outbreak that sickened 68 people in 10 states late last year.

To be fair to Taco Bell, some people got salmonella from LETTUCE in 2011, never mind tacos. But, still.

Death Has Many Names

And Dovid found this in a January 31^st 8-K from PartnerRe.

PartnerRe Ltd. (NYSE, Euronext: PRE) today announced that during the January 1, 2012 treaty renewal season it expects to write and bind approximately $1.9 billion of Non-Life treaty premium. On a constant foreign exchange basis, this represents an increase of 2% from the renewable premium base.

Non-life, I ask you. And shouldn’t that be premia? Don’t these people know Latin?

Small Print

By Paul Hodgson - CCO and Senior Research Associate

Trouble Designing an Effective CEO Pay Plan? There’s an App for That

Thanks to Research Associate Michelle Lamb for this little dream of an app and for the headline. Meridian Compensation Partners have come up with a new iPad app for compensation committee members. I guess it was only a matter of time, but congratulations to Meridian for being the first there. It gets our award as iConsultant.

The one-of-a-kind application, which can be downloaded for free at the iTunes Store(R) or from Meridian's website ( www.meridiancp.com/app), features: a library of executive compensation primers on plan design, benchmarking, governance, disclosure, taxes and accounting treatment; direct access to proxies and relevant 8K disclosures for public companies; alerts to the latest regulatory and legislative news; and the ability to ask questions of Meridian's consulting experts. Users can follow up to ten of their favorite companies through a personalized app feature that provides them with a quick link to important disclosure data for those companies.

Actually… that does sound quite useful.

CEO Quotation of the Week

Events Team Leader Mark Magee nailed down this one. James Gorman, CEO of Morgan Stanley, is
the clear winner of this week’s CEO Quotation of the Week.

Morgan Stanley Chairman and Chief Executive Officer James Gorman said employees understand why the investment bank had to cut pay, and those who don’t grasp the reasoning need to adjust their attitude.

“You’re naive, read the newspaper, No. 1,” Gorman said he would tell miffed employees, speaking in an interview on Bloomberg Television. “No. 2, if you put your compensation in a one-year context to define your overall level of happiness, you have a problem which is much bigger than the job. And No. 3, if you’re really unhappy, just leave. I mean, life’s too short.”

Pretty blunt. Calling them naïve is one thing. Calling them a sad sack is totally something else. And then he tells them to get lost. Pay is going down by an average of 20 to 30 percent for senior bankers and traders, so his better be going down by more or he’ll have to adjust his own attitude.

Not exactly George C. Scott's opening speech in Patton...

New Yahoo CEO says company needs to "do better"? Mark also found this on January 25^th. And to be honest, this – had it been ruder – would have been in contention for the CEO Quotation of the Week
competition, but Gorman had it already. Close second though. I mean, listen to this:

"When it comes to making decisions, I make them quickly and then push to move fast, fast, fast," he said.

"We will get speed back into the equation and move aggressively. To me that's how we get to playing offense rather than defense."

Talk about mixing your metaphors. And not just fast, but fast fast fast. Is that like fast cubed?

Retail Cyber Bullying

Mark also found this from “Tarjay” on January 23^rd. Like, is everyone else on holiday or something?

Last week, in an urgent letter to vendors, the Minneapolis-based chain suggested that suppliers create special products that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones. Where special products aren't possible, Target asked the suppliers to help it match rivals' prices. It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise.

An “urgent” letter to vendors, no less. “Exclusive to Tarjay”, a new line. Wait, hold on, you can get those at bizrate, NexTag and Shopzilla for half that price….

Lowering the Bar

Compensation Analyst Manager Scott Patterson – yeah, s’OK, Mark’s not alone in the office found this in Applied Materials 2012 proxy statement. Brace yourself, this is compensationspeak.

The minimum threshold was reduced to the 40th percentile for fiscal 2011 from the 50th percentile for fiscal 2010, and corresponding downward adjustments were made to the other percentile levels for fiscal 2011. These changes were intended to: (i) motivate our NEOs to achieve excellent financial results in a dynamic, challenging economic environment, (ii) increase the retention value of equity awards for our NEOs and (iii) align our targets with the changes in Applied’s product mix related to EES that are intended to enhance the Company’s long-term growth opportunities. The Committee believed these revised requirements for vesting remained challenging and that the likelihood of achievement was generally consistent with the prior requirements.

As Scott comments: “A lowering of standards is the way to motivate your employees? If we could all be so lucky.” Yeah, right, pay for performance. You know, Allied Materials was one of about three companies that actually passed our test – in GMI’s Executive Pay Scorecard – that required that incentives only be paid out for ABOVE median performance. And now… they’re gonna FAIL.

"Oh, alright then, I'll take the job if you insist."

And this is from Events Analyst Dovid Muyderman – OK, OK, so they’re all there. A January 23^rd 8-K from Hillenbrand.

Effective January 30, 2012, Scott P. George, age 57, has agreed with Hillenbrand, Inc. (the “Company”)(NYSE:HI) to become the Senior Vice President, Corporate Development.

Those little turns of phrase that just make no sense. Don’t you love them? Another George Scott reference too. No, wait, this is Scott George.

"Type I subsequent event as defined in the Subsequent Events topic of the FASB Codification" say what?

And Dovid pulled this from a January 19^th 8-K from Stryker Corporation.

Stryker Corporation (NYSE:SYK) announced today that Stryker Biotech has reached a settlement with the U.S. Attorney’s Office for the District of Massachusetts. As part of the settlement, Stryker has agreed to plead to one misdemeanor charge and pay a non-tax deductible fine of $15 million. As a result of this resolution, the Department of Justice has agreed to dismiss all thirteen felony charges against Stryker Biotech contained in a 2009 federal grand jury indictment. Stryker had previously disclosed in March 2009 that its Biotech division was the target of a federal grand jury investigation being conducted by the U.S. Attorney's Office for the District of Massachusetts. With today’s announcement, Stryker believes it has realized its goal of obtaining an appropriate resolution of this matter.

From a financial standpoint, the settlement represents a Type I subsequent event as defined in the Subsequent Events topic of the FASB Codification and accordingly, the incremental charge to earnings of approximately $0.03 per diluted share will be recorded in the Company’s fourth quarter 2011 results. As a result of the settlement which was not factored into previously announced guidance, Stryker now expects to report 2011 adjusted diluted net earnings per share at the low end of its current range of $3.72 to $3.74, an increase of 12% over adjusted diluted net earnings per share of $3.33 in the prior year and at the high end of the adjusted diluted net earnings per share range stated at the start of 2011 of $3.65 to $3.73.

Look what is this about, earnings per share adjustments or the fact that this company appears to be crooked or, at the very least, dodgy. So one misdemeanor and a $15 million charge (that actually punishes sharholders rather than the guilty parties) is equivalent to thirteen, THIRTEEN, felony charges. How is that right?

Small Print

A hack's admission of "what the hack"

Compensation Analyst Ashley Kotzur found this News Corp story on Reuters.

“News Group has agreed to compensation being assessed on the basis that senior employees and directors of NGN knew about the wrongdoing and sought to conceal it by deliberately deceiving investigators and destroying evidence," the statement said.

Only NGN, then, not News Corp, and definitely no one called Murdoch, or any of his relations. Or friends. Or business associates. Or anyone who stood near him at any official or unofficial function.

Pootonium

Events Team Leader Mark Magee found this other Reuters piece on Bed Bath and Beyond and was all worried about using the brilliant headline he’d come up with: Pootonium. Why would I worry about it being beneath us? When you have an opportunity for good, clean, toilet humor, you should take it every time.

U.S. home merchandise retailer Bed Bath and Beyond Inc. is recalling tissue holders because one of its materials emits low levels of radiation, the company said on Friday.

According to the Nuclear Regulatory Commission (NRD), there is no health threat from the item, the Dual Ridge Metal boutique tissue holder, the company said in a statement.

The holder has been sold since July in about 200 of Bed Bath and Beyond's 1,000 stores in the United States and Canada and through its website, it said.

The holder "contains a material which emits low levels of radiation," the company said.

"The NRC has also informed us that the material is believed to be in the tissue holder itself and cannot be inhaled, nor can it contaminate other objects (such as tissues)."

The item has been pulled from the stores and from the website.

The statement did not identify the radioactive material.

Who knew going to the bathroom could be so dangerous? Such a relief to know that it cannot contaminate your toilet paper though. That’s a big phew. But you shouldn’t have to take a Geiger counter with you when you’re going to the toilet. It’s the one place you can usually get away from everything.

Corporate Big Bang

Events Analyst Dovid Muyderman (sun)spotted this in an 8-K on January 11^th from NJR Clean Energy Ventures.

On January 11, 2012, NJR Clean Energy Ventures (“NJRCEV”), a subsidiary of NJR, announced the completion of a 14.1 megawatt solar system on McGraw-Hill Corporation’s East Windsor, N.J. campus and also announced that several of its other solar projects were placed into service during the first quarter of fiscal year 2012 as well.

Talk about Masters of the Universe. I thought it was only God who could complete solar systems.

Sounds like an admission of guilt to me

As Mark Magee commented when he sent it to me, this is not definite yet, but, whether it’s definite or not, it’s more than BP was thinking of paying, more than it set aside, and quite a lot of money. Enough? Probably not.

Jan. 19 (Bloomberg) -- BP Plc, the operator of the Macondo well that caused the worst U.S. oil spill in the Gulf of Mexico in 2010, may reach a settlement with the U.S. for as much as $25 billion, Morgan Stanley said.

The company and the Department of Justice will probably agree on a sum of $20 billion to $25 billion before the trial scheduled to start on Feb. 27, analyst Martijn Rats said in a note published today. The figure, which includes civil charges, criminal penalties and fines under the Clean Water Act, exceeds the $12 billion that BP set aside for these costs, he said.

And another in the series Small Print is not just about the nasty...

Thanks to Mark again for this.

BlackRock (BLK) Inc., the world’s biggest money manager, is looking to leverage its $3.5 trillion of client assets by embarking on an unprecedented campaign urging corporations to adopt shareholder-friendly practices.

That’s a lot of votes. A really, really large number of votes. So that means that if you have BlackRock in your list of top 10 shareholders you better make up your mind not just to talk the governance talk but also to walk the governance walk. Otherwise those votes are going to be against you.

Small Print

By Paul Hodgson - CCO and Senior Research Associate
You'd think it was April Fools' Day

You know, when Pepsico defends itself against a damages case brought by a consumer who claims that a small mouse popped out of his can of Mountain Dew by saying that it is impossible because the contents of the can would have dissolved the mouse into a kind of jelly, you have to:

1. wonder why anyone would then want to drink the stuff
2. question the wisdom of such a defense in terms of branding and PR


This isn’t the mouse. The mouse in the can of Mountain Dew looked like this.

“I’m melting, I’m melting….”

Ding Dong, the Twinkie's Dead

The news that Hostess Foods is filing for bankruptcy will not disturb Twinkies fans, because they know that even if the company ceases production for a while, the cake has a shelf life of almost forty years, so supplies will last.

Pay con at Foxconn leads to threatened plunge

Thanks to Events Analyst Dovid Muyderman for the find, and Compensation Analyst Ashley Kotzur for the headline.

According to the anti-Chinese government website China Jasmine Revolution, about 300 employees at Foxconn Technology Park in Wuhan, the capital of Hubei province in central China, threatened to kill themselves by jumping from the top of a building in the park.

On Jan. 2, about 300 employees at the plant belonging to Taiwan-based Foxconn — the world's largest contract electronics manufacturer — asked their employer for a raise. They were told in response to either quit their positions and receive compensation or keep their jobs and receive no additional payment. Most of the employees took the first option but the company terminated the agreement and none of them were given the money they were promised.

And we think the U.S. has labor problems? Wait, isn’t this supposed to be a communist country where the working class is king? Something’s up, here. And it could be something to do with the fact that China’s regime and economy has about as much in common with Das Kapital as ours does.

Game Over

Thanks to Compensation Analyst Manager Scott Patterson for this nice doublespeak from Multimedia Games Holding Company 2011 proxy statement. This is what is says under the notes for All Other Compensation for CEO Patrick Ramsey:

Amounts disclosed in the “All Other Compensation” column for Mr. Ramsey in fiscal year 2011 include Company contributions to the 401(k) Plan account of $4,900; Company contributions for group term life insurance for Mr. Ramsey of $351; automobile reimbursement of $4,140; $532 for airfare for Mr. Ramsey’s spouse to attend a customer event; and $2,500 in expenses related to his spouse’s travel.  Also included is a $242,832 cash payment to Mr. Ramsey for the unwinding of a grant of an option for 120,000 shares. Mr. Ramsey originally received 700,000 options pursuant to his amended employment agreement; however, this option grant inadvertently exceeded the maximum grant permitted under the Company’s Consolidated Equity Incentive Plan by approximately 120,000 shares. As a result, on September 22, 2011, the Compensation Committee approved a cash payment of $242,832 to Mr. Ramsey in order to compensate Mr. Ramsey for the unwinding of the grant of an option for 120,000 shares, which represents the Black-Scholes value of such shares on the date of grant.  Mr. Ramsey’s total grant as of September 19, 2010 is 580,000 shares, which is below the maximum grant permitted under the plan.

OK. So the company made a mistake in the CEO’s favor. But they didn’t correct it. They just enshrined it. And who approved the award anyway? The compensation committee? You’d think that particular body would be the ones to know the rules of the plan they put to shareholders to approve. I mean, we’re talking 120,000 shares here, not one or two. So, who’s on this compensation committee? Neil E. Jenkins, Justin Orlando, Timothy Stanley. Read the rules, chaps.

Murdoch on Twitter

Events Team Manager Mark Magee spotted the fact that Rupert Murdoch has started to write Tweets on the 2^nd January. My first reaction was: who cares. Any sane person’s reaction would be: who cares. Then I heard he did his first tweet from a yacht. The comedians on NPR’s Wait, Wait, Don’t Tell Me decided that tweeting from a yacht was different… and should be called “twachting”.

Sarcastic, or just stating the obvious?

Events Analyst Marge Schwietering spotted this in a December 13^th 8K from LaSalle Hotel Properties.

Pursuant to notice given December 8, 2011, Kelly L. Kuhn resigned as a trustee of LaSalle Hotel Properties [NYSE: LHO] effective Monday, December 12, 2011. Ms. Kuhn resigned due to her recent promotion at Carlson Wagonlit Travel and relocation to Singapore, which would have made her regular attendance at company board of trustees meetings difficult.

Difficult? Oh, come on. Short flight from Singapore and it’s not as if they have to worry about hotel accommodation. And even without that, haven’t they heard of Skype?

How convenient....

Events Team Leader Mark Magee found this absolute chin-on-the-ground-for-sheer-cheek in a December 21^st report from Reuters.

Financier Allen Stanford is suffering from brain injury and memory loss, witnesses said on Wednesday at a hearing on whether the accused swindler can stand trial.

Stanford is accused of defrauding his investors with a $7 billion Ponzi scheme. His lawyers argue he is not competent to go to trial because a jailhouse fight has left him with severe memory loss.

On Tuesday, prison psychologist Robert Cochrane, testifying for the government, said Stanford was competent to stand trial. Cochrane said it would be "incredibly rare" for a person to suffer memory loss that would prevent him from recalling key events from his life before the 2009 fight.

Wow. You have to hand it to those lawyers. That’s more than clever, it’s imaginative. Clearly the client had a hand in that one too. For anyone with the kind of derring-do necessary to pull off a Ponzi scheme, this kind of fraud is child’s play.

In the spirit of the season

Mark also grabbed this piece of altruism from a December 20^th Bloomberg report.

Jefferies Group Inc. (JEF) Chief Executive Officer Richard Handler said he is among senior managers who declined bonuses for fiscal 2011 after the firm’s stock dropped more than 50 percent this year.

“We’ve given back our entire bonus,” Handler, 50, said today on a conference call to discuss fourth-quarter earnings, referring to himself and Brian Friedman, chairman of the executive committee. “We recognize our shareholders had a tough year -- we’re shareholders, and we’re getting zero bonus.”

Handler, who receives a $1 million salary, didn’t say how much money they turned down. His annual bonus can range from zero to $12 million depending on performance, plus an incentive equity award of as much as $13 million, according to a description of the compensation program that the New York-based firm filed with U.S. regulators in January.

OK, so it’s great that they turned down their bonus plans but what the heck kind of plan do they have that can generate a payout in a year when the stock price has dropped by 50 percent? I wish they ran that kind of bonus scheme (and I use the word scheme advisedly here) at GMI!

Small Print

By Paul Hodgson - CCO and Senior Research Associate

This week's winner in our CEO Quotation of the Week Competition

No competition here with this web release that Events Team Leader Mark Magee found.

"It can do certain things and not other things," Time Warner CEO Jeff Bewkes said of Netflix. "It can fly, it's not a submarine. Don't turn a hamburger into a cow."

That is a staggeringly quotation. You can just imagine the faces of the people in the audience. First the polite laugh and then the dawning realization that you didn’t really understand what he just said, then a little cock of the head as you try to figure it out, then the head shakes followed by the final realization that he doesn’t know what he just said either because if he did then he would, well….

Who needs an LTIP with a contract like this?

Compensation Analyst Manager Scott Patterson spotted this in Signet Jewelers' proxy statement. It’s a nice little story of, fundamentally, a jewel heist. Terry Burman, the CEO, received:

a retention bonus (the "Retention Bonus") equal to $6,547,709, in lieu of the grant of any award under the Signet Jewelers Limited Long-Term Incentive Plan 2008 (the "LTIP 2008") and the Signet Jewelers Limited US Stock Option Plan 2008 (the "SOP 2008") in fiscal years ending in 2010 and 2011. The Retention Bonus shall be paid, subject to Section 21, in a cash lump sum on January 31, 2011, subject to the Executive’s continued employment hereunder through January 29, 2011;

Now you might think, well, OK, people get retention bonuses, and, OK, this one is not exactly retaining him for that long, but, you know…. The thing is, Scott has a sneaking suspicion that they ditched the LTIP because it kept not paying out. That 2008 award, for example, didn’t pay out. That can get annoying. Oh, I know he failed all the targets and all that but since when has that been a reason not to pay out a bonus? And one last thing, Mr. Burman left the company right after the 2011 fiscal year ended on 1/29/2011 with $6.5 million in severance.

Who needs to worry about foreclosure with a contract like this?

The second of our two new entries in the “who needs a “blank” with a contract like this?" series. As Scott tells the story: “Costas Miranthis, PartnerRe Limited’s CEO who started in fiscal year 2011, will cost shareholders $300,000 a year for putting a roof over his head.  Even if terminated without cause Mr. Miranthis won’t have to worry about moving out for half a year.  Perhaps Bermuda’s cost of living is just too high for someone with a $1 million salary.”

From September 1, 2010 the Company will pay a Housing Allowance of up to $25,000/month based on actual rent. If the Executive’s employment is terminated (for any reason other than for Cause) he will be entitled to six (6) months housing allowance in Bermuda, if housing is paid for by any other sources this benefit will cease.

Bermuda. It’s tough.

But what exactly is it?

Events Analyst Dovid Muyderman found this 8-K on November 30^th, and many thanks to him. It’s not often you get the opportunity to use the word pentachloronitrobenzene in polite conversation. American Vanguard Corporation (NYSE:AVD) today announced that the United States Environmental Protection Agency (USEPA) has approved certain registrations for the Company’s pentachloronitrobenzene (PCNB) product line for all major commercial uses. As a result, with today’s action the Company’s wholly-owned subsidiary, Amvac Chemical Corporation (Amvac) is once again permitted to sell PCNB into the golf course turf, potato, cotton, ornamental bulb and cole crop markets domestically. Amvac continues to work with the EPA on labeling for other uses.

PCNB, a fungicide manufactured, marketed and sold by Amvac, was the subject of a Stop Sale, Use or Removal Order (SSURO) issued by USEPA in August 2010. On August 17, 2011, the Chief Judge of the U.S. District Court granted the Company’s motion for summary judgment and vacated the SSURO. Since the court’s order was issued, the Company has worked with the Agency to amend product registrations to ensure they continue to meet EPA requirements.

Eric Wintemute, Chairman and Chief Executive Officer of the Company commented: “Our technical, legal and customer service teams have worked tirelessly for over a year to ensure our PCNB product line meets EPA’s standards to re-enter the market. We are pleased by today’s actions as it restores this highly effective product to a marketplace that truly values its importance.”

Mr. Wintemute concluded, “American Vanguard always has and always will place great importance on assuring product safety, quality manufacturing and responsible application stewardship for all the offerings in its portfolio. Once again, we thank our customers for their support and patience throughout this process and now are happy to announce that we are ready, willing and able to meet the needs of PCNB customers.”

I can just imagine their marketing slogan: “Pentachloronitrobenzene, just one more reason to eat organic!”

Small Print

It's Black Letter Law

Events Analyst Dovid Muyderman found this beauty in a November 18^th 8-K from Santarus. You have to hand it to those lawyers, every now and then they just say it like it is instead of binding it up in a big pile of legalese.

On November 15, 2011, Santarus, Inc. (“Santarus”) received a Paragraph IV Certification Notice from Zydus Pharmaceuticals USA, Inc. (“Zydus”) advising of the submission to the U.S. Food and Drug Administration (“FDA”) of an Abbreviated New Drug Application (“ANDA”) for the prescription product omeprazole and sodium bicarbonate capsules, 20 mg/1100 mg and 40 mg/1100 mg. Also on November 15, 2011, MSD Consumer Products, Inc., a subsidiary of Merck & Co., Inc. (“Merck”), received a Paragraph IV Certification Notice from Zydus advising of the submission to the FDA of an ANDA for the over-the-counter (“OTC”) product omeprazole and sodium bicarbonate capsules, 20 mg/1100 mg. Zydus’ notice letters allege that U.S. Patent Nos. 6,645,988; 6,489,346; 6,699,885; and 7,399,772; each of which is listed in the Orange Book for Zegerid® Capsules and Zegerid OTC®, are invalid and/or will not be infringed by Zydus’ manufacture, use, or sale of the products for which the ANDAs were submitted. In connection with ongoing litigation relating to Zegerid prescription products, the U.S. District Court for the District of Delaware ruled in April 2010 that these patents were invalid due to obviousness. Santarus filed an appeal of that decision in May 2010, and the appeal is pending. Santarus entered into an OTC license agreement with Merck in October 2006, granting Merck exclusive rights to develop, manufacture, market and sell Zegerid® brand omeprazole products for the OTC market in the U.S. and Canada. Santarus and Merck are evaluating their options in response to Zydus’ notice letters.

I had to highlight it because it’s reeeeeeally difficult going trying to get through all that, just an awful combo of chemistry/pharmacy/court stuff/patent nonsense. But really, wasting court time, naughty, naughty.

One for the Experience Preferred File

Dovid again with this November 18^th 8-K from Newport.

Newport Corporation (NASDAQ: NEWP) announced today that Christopher Cox has joined the company's Board of Directors. Cox, 59, is a partner in the Corporate Practice Group of Bingham McCutchen LLP, an international law firm, and is President of the firm's subsidiary Bingham Consulting LLC. He is a frequent lecturer worldwide on international business, capital markets and corporate governance matters.

Prior to joining Bingham, Cox served from August 2005 to January 2009 as the 28th Chairman of the Securities and Exchange Commission (SEC), where he made enforcement of the securities laws the agency's top priority, bringing groundbreaking cases against a variety of market abuses. He led the international effort to more closely integrate U.S. and overseas regulation to address the growth of global capital markets, and championed the transformation of the SEC's disclosure system to leverage the power of interactive data to give better information to investors. He also overhauled and strengthened the SEC's requirements for executive compensation disclosure, and reinvigorated the agency's focus on providing investors with information in straightforward, understandable language.

OK, OK, so he’s qualified. No need to go on about it.

What, like sharks with laser beams...?

Dovid again with a November 2^nd website release.

ATK (NYSE: ATK) announced today that it has received $10 million in orders to provide non-standard (non-NATO) ammunition for the Afghan Security Forces, under an existing three-year contract with the U.S. Army. Under the contract from the U.S. Army Contracting Command in Rock Island, Ill., ATK provides supply chain management, quality assurance and logistical expertise in the delivery of non-standard small, medium, and large caliber ammunition, as well as mortars and rockets, for use by allied security forces.

Non-standard, non-NATO ammunition? Yeah, like sharks with laser beams, monkeys with empty banana skins, pre-armed sheep, cows with armored udders, cat-o-nine-tails, Trident dolphins , wait, isn’t Afghanistan land-locked?

An example of how Eventing can be so Entertaining

Finally someone else gets a chance, Compensation Analyst Ashley Kotzur found this in a November 7^th website release from Savient Pharmaceuticals.

Savient Pharmaceuticals, Inc. (NASDAQ: SVNT) and Jim Belushi today announced the launch of a new educational campaign, "Check Out Your Gout," to raise awareness about gout and a severe form of the condition known as refractory chronic gout, or RCG. As an actor, singer and performer, Belushi's roles range from dramatic to light-hearted, but when it comes to his gout — he is nothing but serious. The "Check Out Your Gout" campaign aims to encourage people to get serious about gout and take action to learn more about the condition. Launched from Chicago, Belushi's hometown and location of the 2011 Annual Meeting of the American College of Rheumatology taking place this week, the campaign will feature broadcast and online videos, as well as an educational website, CheckOutYourGout.com.

I don’t care if Jim is serious about gout, I’m afraid it’s an inherently hilarious disease. Just turn to your workmate now and say the word “gout” and I bet it’ll bring at least a smile to their face, if not a fully-fledged guffaw. Or tell them you think you might have gout, that’ll definitely bring on a laughing fit. And it’s not going to make it serious by having the educational website called check out your gout, either. You can’t have it both ways.

Small Print

By Paul Hodgson - CCO and Senior Research Associate

New winner in our "CEO Quotation of the Week" Competition

Events Team Leader Mark Magee tracked this beauty down in a November 15^th article in the Wall Street Journal.

J.C. Penney Co.'s new chief executive, Ronald Johnson, said Monday that he is out to "re-imagine" the department store, using current operations as his starting point. In his first public comments since becoming Penney's CEO on Nov. 1, Mr. Johnson said he plans to foster an environment in which employees "think differently and work creatively" to turn the chain, which reported a loss for the fiscal third quarter, into a major innovative force. "I get more excited every day about the potential of J.C. Penney," the former retail chief of Apple Inc. told analysts on a conference call. Mr. Johnson said that in meetings with employees, he tells them, "I'm here to transform."

Isn’t “transform” a transitive verb? Doesn’t it need an object, normally? What’s he transforming? Himself? J.C. Penney? The employees? The meetings? Sounds good, though. Meaningless, but it sounds good.

I nearly said: “What a turkey!” in a cheap attempt to cash in on Thanksgiving, but I just avoided it. I mean, that’s just cheap.

Appropriate sacrifice

Events Analyst Dovid Muyderman sent this in with tongue firmly in cheek, from a November 15^th 8-K.

On November 9, 2011, the Compensation Committee of the Board of Directors of MF Global Holdings Ltd. (the "Company") and Mr. Abelow, the Company's President and Chief Operating Officer, agreed to reduce his annual base salary, effective November 15, 2011, from $1.5 million to $60,000. Mr. Abelow continues to work on the Company's Chapter 11 restructuring.

I bet he did, I bet he did. But just wait for the re-emergence bonus.

One of the many reasons Corporate Governance was invented

Corporate Data Analyst Darren MacDonald spotted this one in a Jyske Bank website release, commenting: “It’s one thing to shirk responsibility. It’s another to declare war upon it.”

Generally, Jyske Bank does not wish to be bound by charters or declarations on responsibility; nor has Jyske Bank implemented specific policies on social, ethical and environmental issues.

Darren added that he was surprised not also to find “Further, the bank wishes you would just leave us and our money-grubbing ways alone!”

He’s right. Come on, guys. Aren’t you Danes supposed to be responsible global citizens?

The quotation is from their “Report on corporate social responsibility 2010”. Why this report has to be so long, I don’t know. Why couldn’t they just have said: “We don't have any.”

And a new in series: Who Needs BLANK when you have a contract like this?

Inspired by Compensation Team Leader Scott Patterson, we have a new competition. This week’s BLANK is “Socialized Medicine”. In other words, this week’s winner in the “Who needs socialized medicine when you have a contract like this?" is Eric Krasnoff, former CEO of Pall Corporation. The following was disclosed as part of his retirement package in the company’s 2011 proxy statement:

Mr. Krasnoff is also entitled to lifetime medical coverage for himself and his dependents (estimated at a present value cost of $1,580,776 as of July 31, 2011).

Hey, what about his dependents’ dependents? And what about his dependents’ dependents’ dependents? It’s just not right cutting it off at a mere son and daughter level.

And Pall Corporation. Such a great name. That’s certainly cast a pall over the end of the week. Hahahahahahah! Little things….

Small Print

By Paul Hodgson – CCO and Senior Research Associate

Bank of America issues new bicycle that only pedals backwards

Remember Regretflix? Well, Events Team Leader Mark Magee spotted this November 1^st website release in a possible new competition – Back Peddling Release of the Week!

This one’s a clear winner.

In response to customer feedback and the changing competitive marketplace, Bank of America no longer intends to implement a debit usage fee.

"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," said David Darnell, co-chief operating officer. "Our customers' voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so."

Yeah. So, they’re not charging customers for getting access to their own money. Such a generous move. I mean, it costs so much more to have someone use a debit card in a shop than it does to employ a MOUNTAIN of bank clerks so that people can come in an cash their checks in an actual bank. [Pause for headshaking moment.]

We know a majority voted for a Say on Pay vote every year, but if we add the figures up differently, well, then they didn't. So there! (FX: Raspberry!)

And from Company Analyst Mike Thibeault comes this piece of Big Brother/Orwellian doublespeak. I tell you, the gall of some people. Commentary is within:

The results of the nonbinding vote of stockholders at the Company's Annual Meeting of Stockholders with respect to the frequency of advisory votes on executive compensation were as follows:

1 year 69,165,234

2 years 2,842,598

3 years 68,277,252

Multi-year 71,119,850

Multi-year? That’s taking rounding up to new extremes. If they do that to the annual accounts, forecasters and analysts beware. And by the way, 2 years is as close to 1 year as it is to 3 years. Well it is if you can count.

The Board has considered the appropriate frequency of future non-binding advisory votes regarding executive compensation. Among other things, the Board considered the voting results at the 2011 Annual Meeting with respect to this issue. The votes did not indicate an overwhelming preference for either of the alternatives and a majority of the stockholders indicated a preference for a multi-year frequency.

That depends….

Further, the board considered:

Our management team's active engagement with investors and our other Board communication mechanisms offer the opportunity for our investors to provide more meaningful input. These mechanisms are available at all times, not just at the Company's annual shareholder meeting, and are in our view better channels to provide clearer input on performance and compensation than the advisory say-on-pay vote which does not distinguish between compensation elements, individuals or other factors that would not be apparent from a for/against vote on pay.

So they can call up every day then?

The advantage of a longer term perspective that a triennial vote would bring, in light of the strong equity component of our compensation program with four year vesting, the value of which is directly linked to share performance. Further, a vote every three years provides a longer term compensation history and business performance track record to measure our management's strategic long term business decisions.

So you’re only MAKING equity grants every four years? No? You’re making them EVERY year? Well, doesn’t that mean….

The strong support for the Company's compensation program evidenced by the most recent advisory vote on compensation, the extremely high votes in favor of our board members and the defeat of two earlier stockholder resolutions on say-on-pay pre-dating the Dodd-Frank requirements.

So why worry about having the vote every year? Wouldn’t that mean you’d get more “strong support”?

The management resource consumption attendant upon more frequent say-on-pay votes that could more productively be focused on the Company's business given the strong support by investors of executive compensation.

Management resource consumption? What management resource consumption? You gotta put the vote on the proxy and count the votes. What management resource does that consume, exactly?

In light of all of these factors, the Board has decided to conduct future stockholder advisory votes on executive compensation every three years until the next required vote on the frequency of advisory votes on executive compensation.

All from tw telecom Inc.’s  2011 proxy. Thanks Mike. I got a new slogan for them: tw telecom – not about communication.

MF who? Never heard of them.

Thanks to Events Analyst Dovid Muyderman for finding this example of hand washing from MFA Financial’s October 31^st 8-K.

MFA Financial, Inc. is confirming in this report that it has no outstanding repurchase agreement balances with or other financial exposures to MF Global Holdings Ltd. or any of its subsidiaries.

Haven’t seen anything like that since all the recanters had to appear before McCarthy’s UnAmerican Activities Commission. Who, me? Communist Party? Never heard of it. A member? Not on your life. Oh, yeah, I was at a party once and someone said there was a communist there, but that doesn’t count surely.

Don't Ask, Don't Tell

And Dovid also found this in an October 27^th 8-K from Cree.

On October 25, 2011, the shareholders of the Company (Cree, Inc.) approved an amendment to Section 12(a) of the Company’s 2005 Employee Stock Purchase Plan (the “ESPP”) to increase the number of shares that may be issued under the ESPP by 1,000,000 shares.  Effective October 25, 2011, the Board of Directors (the “Board”) of the Company approved additional amendments to the ESPP that did not require shareholder approval.

They couldn’t have done it all at the same time? What amendments? And why not ask shareholders anyway?

Small Print

By Paul Hodgson - CCO and Senior Research Associate

Business as usual....

Events Team Leader Mark Magee included this shocker from an October 24^th 8-K.

Following its Annual Meeting of Stockholders today, News Corporation announced that all Directors were elected, the advisory vote was in favor of executive compensation, and the other management proposals were approved. The floor proposal regarding an independent Chair of the Board was not approved.

Surprise, surprise.

You say tomato, I say tomato

Mark “Eagle Eyes” Magee also spotted this slight change in wording between the SEC announcement and the website announcement released the same day from Ameren Corporation.

Ameren Corporation (NYSE: AEE) announced today a voluntary retirement offer is being extended to certain employees of Ameren Missouri, and Ameren Services Company, an Ameren Corporation subsidiary that provides support services. Eligible employees must be age 58 or over as of Dec. 31, 2011, and be full-time, regular employees. Management and employees, who are represented by unions that have agreed to participate, are eligible. The offer is not available to officers and certain management employees in key business areas, due to operational needs.

That was the October 21^st website release. And this is from the 8-K filed with the SEC on the same day.

On October 21, 2011, Ameren announced that, as part of its efforts to reduce its operations and maintenance expenses, it is extending a voluntary separation offer to approximately 715 management and labor union-represented employees who are 58 years of age or older as of December 31, 2011. This program is being offered to eligible employees at Ameren Missouri and at Ameren Services Company. Employees who accept the separation offer will receive benefits consistent with Ameren’s standard management severance benefits. Employees must decide whether to accept the separation offer by December 22, 2011, and those accepting are expected to leave their employment by December 31, 2011.

I’m sure the payoff is the same, but which is it? Retirement or separation? Nice, kind ‘retirement’ on the website for customers and other stakeholders. Hard-nosed, fiscally responsible ‘separation’ for Wall Street.

No wonder GMI is so damn good, when you have researchers who spot that finessed a difference. We're only as good as our staff, as I think someone may have said before.

The $135,000 Question

Compensation Team Leader Scott Patterson found this in the 2011 proxy statement for YRC Worldwide. As he says: “Their perquisite allowance seems to be kept secret.  The All Other Compensation table footnote (a) tells us to look at the compensation discussion & analysis section, but that paragraph (reproduced below the table) doesn’t help much.” And Mark’s comment: “I like that his name is Zollars but there’s a D not far from it….” Maybe there’s another executive or director at the company who’s called William Z. Dollars.

All other compensation for 2010 includes the following:                                     Name    Flexible Perquisite Allowance ($) (a)      Legal Expense Reimbursement ($) (b)      Annual Physical ($) (c)      Total  ($)   William D. Zollars      135,000         22,668         —           157,668    Michael J. Smid      22,500         —           —           22,500    Michael J. Naatz      18,000         —           2,279         20,279    Phil J. Gaines      22,500         —           2,080         24,580    James G. Kissinger      22,500         —           —           22,500    Sheila K. Taylor      22,500         —           —           22,500    Daniel J. Churay      20,625         —           —           20,625        (a) The Company provides each named executive officer with cash payments for perquisites, which are more fully described in Compensation Discussion and Analysis—Summary of Compensation Components—Perquisite Program.

Perquisite Program

The named executive officers participate in our executive perquisite program. In 2010, perquisite levels were maintained at 2009 levels, which had been reduced by 10% from 2008 levels, reflecting the 10% reduction in the named executive officers’ base salaries during 2009. There is no requirement that a named executive officer spend the perquisite payments on any particular item. Perquisites are limited to cash payments. Perquisite payments are subject to local, state and federal income taxation and withholding. Perquisite payments are included in the “All Other Compensation” column of the Summary Compensation Table.

It’s like a circle. First they tell you to look in the CD&A, then that tells you to look in the Summary Compensation Table then that refers you back to the CD&A which then refers…. I’m getting dizzy.

Historic Corporate Decision of the Week

Mark refers us to this October 25^th website release about the woman who was announced as the soon-to-be CEO of IBM. I had written “soon to be female CEO” but that doesn’t really make sense….

The IBM (NYSE: IBM) board of directors has elected Virginia M. Rometty president and chief executive officer of the company, effective January 1, 2012. She was also elected a member of the board of directors, effective at that time. Ms. Rometty is currently IBM senior vice president and group executive for sales, marketing and strategy.

I just checked, and Ms. Rometty will be running the largest public company by market capitalization of any female CEO in the country. Only three companies – Apple, Microsoft, and Exxon Mobil – are bigger. Quite a feather in the cap.

Small Print

By Paul Hodgson – CCO and Senior Research Associate

Winner of this Week's Louis "I'm shocked, shocked, to find that gambling is going on here" Renault Award

Events Team Leader Mark Magee found this gem in an October 14^th Reuters report.

Ads for General Mills fruit snacks mislead customers into thinking products like its Fruit Roll-Ups are healthy, when they actually lack significant amounts of real, natural fruit, according to a new lawsuit. The proposed class action complaint against General Mills was filed on Friday. General Mills fruit snacks are marketed as healthy, but their trans fat and added sugars make selling them "little better than giving candy to children," the lawsuit said. General Mills representative Kris Patton said the company had not yet been served with the lawsuit. "We stand behind our products - and we stand behind the accuracy of the labeling of those products," Patton said in an email. The suit against General Mills was filed on behalf of a California consumer on Friday by attorneys from nutrition advocacy group Center for Science in the Public Interest.

What do you mean there’s trans fats and added sugars, they’re all fruit, all fruit. It says so. On the packet. We all know that it’s perfectly possible to turn an apple into a long bit of rubbery stuff without adding anything to it.

Just leave it to me, all those pesky targets, don't worry about them

Events Analyst Dovid Muyderman pulled this exercise in discretion and potential pay for failure in an October 12^th 8-K from Oil Dri Corp of America.

The Chief Executive Officer may exercise discretion in determining the incentive bonus to be paid under the Plan to any employee, including the Named Executive Officers, except himself, as shown below: The Chief Executive Officer may increase or decrease any participant’s percent of cash corporate financial performance bonus earned by up to 25 percentage points, subject to limitations specified in the Plan. For example, if according to the corporate financial performance measure, 75% of the corporate financial performance bonus has been earned, the Chief Executive Officer may adjust an individual participant’s percent of corporate financial performance bonus earned to as little as 50% or as much as 100%. The Chief Executive Officer may adjust individual executive deferred bonus awards downward or upward, based on the participant’s individual performance and/or the performance of the participant’s department or division. The Chief Executive Officer may award a bonus of up to 25% of target bonus for exempt employees (and up to 100% of target bonus for non-exempt employees) if the Registrant fails to achieve the minimum performance otherwise required for payment of an award under the Plan for fiscal 2012.

Now, I know that a certain amount of discretion is necessary in certain situations, but if that’s the case, what’s the point of having minimum performance requirements and should it really be codified into the plan? That’s going a bit far.

Without admitting or denying the SEC’s allegations: Part 1

We had been calling this series “Consider it a donation”, but in the spirit of “Are you now or have you ever been a member of the communist party?” I like the above form of words a lot. Dovid found this in an October 14^th 8-K from  Watts Water.

On October 13, 2011, Watts Water Technologies, Inc. (the “Company”) entered into a settlement with the Securities and Exchange Commission (the SEC”) to resolve allegations concerning potential violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) at Watts Valve Changsha Co., Ltd., (“CWV”), a former indirect wholly-owned subsidiary of the Company in China.  Under the terms of the settlement, without admitting or denying the SEC’s allegations, the Company consented to entry of an administrative cease-and-desist order under the books and records and internal controls provisions of the FCPA.  The Company has also agreed to pay to the SEC $3.6 million in disgorgement and prejudgment interest, and $200,000 in penalties.

Concepts of fault and deniability seem to be somewhat random in corporate America.

Without admitting or denying the SEC's allegations: Part II

And Mark found this one in an October 19^th 8-K.

On October 19, 2011, Citigroup Inc. (Citi) issued a press release announcing that one of its U.S. broker-dealer affiliates, Citigroup Global Markets Inc. (CGMI), has agreed to a settlement with the U.S. Securities and Exchange Commission (SEC) resolving the SEC’s industry-wide investigation of certain collateralized debt obligations (CDOs).  The agreement is subject to court approval.  Citi is fully accrued for this matter as of September 30, 2011. Without admitting or denying the SEC’s allegations, CGMI will pay disgorgement, interest and penalties totaling $285 million related to the marketing and sale of notes issued by Class V Funding III in late 2006 and early 2007.  The Commission has not charged CGMI or any individuals with any intentional or reckless misconduct in connection with Citi’s CDO business activities.

"Give me one good reason to stay." (He has 91 or 95 [depending on your sources] reasons to leave.)

And a new entry into the biggest all-time severance packages, Mr. Foshee with more than $90 million dollars. Thanks to Mark for spotting this October 17^th Reuters piece which I have a strong suspicion came originally from the WSJ.

El Paso Corp Chief Executive Douglas Foshee does not plan to stay at Kinder Morgan Inc after the pipeline company acquires his employer, a Wall Street Journal report said. On Sunday, the two company [sic] signed a deal worth $21 billion in cash and stock to create the largest U.S. natural gas pipeline network. CEO Foshee is eligible to receive $95 million as his exit package, if he leaves within two years of an acquisition, the media report said, citing its calculations from a regulatory filing.

He’s going to come in at number 23 in our secret list. Twenty-three? Yes, that’s what you get for a mere $90 million and change.