Lower Wall Street Bonuses? Don't Let Your Guard Down
Occupy Wall Street protesters and other outraged Americans, take heart: Wall Street bonuses are expected to plunge by as much as 45% this year. But as satisfying as that pay cut sounds, corporate America's love affair with over-the-top and often undeserved compensation arrangements is far from over -- so don't let your guard down.
In evaluating the stocks in your portfolio, ask this question: Are the companies you own managed by people who are more laser-focused on what they can get away with (and plow into their own bank accounts) than on the value they add to the long-term business? After all, it's a common problem these days.
Bonuses and moral bankruptcy
Compensation consulting firm Johnson Associates says bonuses for Wall Street's "finest" will decline by an average 20% to 30% at year-end; annual bonus payouts in areas like fixed income could exhibit as much as a 45% decline. This will be first time Wall Street bonuses will fall on a year-over-year basis since the financial crisis in 2008.
Current outrage reflects Wall Street's model: privatized profits, socialized losses, and expectations for business as usual after that. So it's nice to see an unusual turn of events.
Still, this doesn't change the fact that corporate America's mind-set on pay without performance has got to change. Here's a reminder: MF Global paid its U.S. and U.K. staff quarterly bonuses mere hours before it sought bankruptcy protection here in the U.S, according to TheWall Street Journal. Although reports state that the bonuses were planned far ahead of MF Global's demise, the fact that customers were basically busted hours after bonuses got doled out doesn't sound quite right.
And speaking of things that don't sound quite right, MF Global head Jon Corzine previously held a high-ranking position at Goldman Sachs (NYS: GS) , the poster child for the type of Wall Street firm that's stoked the outrage.
Not exactly a cut above
Regis Corp. (NYS: RGS) is no Goldman Sachs or bonus-for-failure entity like AIG (NYS: AIG) , nor is it a powerhouse of great operational performance or even explosive growth potential. Regis runs hair salons under a variety of names, like Supercuts, Cost Cutters, The Hair Club, and Sassoon; although its SmartStyle subsidiary provides haircuts in megaretailer Wal-Mart (NYS: WMT) , Regis is nowhere near too big to fail.
However, move over, Wall Street folks: Chairman and CEO Paul Finkelstein's kingly rewards have drawn attention -- and ire.
Major shareholder Starboard recently took action against the company in the form of a proxy fight, nominating three of its own representatives to serve on the board of Regis, which has been underperforming the market and industry peers on many measures.
Starboard's list of grievances about Regis' management (or mismanagement, as the case may be) is long, but Finkelstein's pay package is particularly mind-blowing. First off, from 2008 through 2010, Finkelstein made nearly $15 million, even though the stock price fell 30% in that time. When Finkelstein retires, his compensation won't: The board decided he could receive 60% of his salary, adjusted for inflation, for the rest of his life.
You'd think it couldn't get any worse, but it does. There's a "golden coffin" benefits arrangement in place. Should Finkelstein pass away, his spouse would receive half of his deferred compensation benefit, adjusted for inflation, for the rest of her life.
After all those unpleasant shocks to one's sense of logic and decency, here's a far more pleasant surprise: 71% of Regis shareholders recently rejected the company's compensation policy. Institutional Shareholder Services said this constitutes the largest dissent yet in U.S. say-on-pay advisory votes. In addition, shareholders elected all three of Starboard's director nominees to the company's board.
Starboard's elected directors will replace Susan Hoyt, Rolf Bjelland, and Van Zandt Hawn; this is a positive development, since both Hoyt and Bjelland served on the company's compensation committee and therefore can be directly implicated in the egregious pay policies at Regis, and Hoyt served as the committee chairperson. In 2010, Joseph Conner, Thomas Gregory, and Stephen Watson also served on the compensation committee. Hoyt, Bjelland, Gregory, and Hawn all served on the committee in 2007, the date of Finkelstein's shareholder-unfriendly employment agreement.
Guard against misdirection
Keep on the lookout for ways shareholder money gets squandered. Beyond the news headlines and occasional misdirection, it's an ongoing problem at many, many companies. Every time you're looking over here, there's probably another outrage going on over there.
For example, pro SEC filings miners Footnoted.com recently noted that while we're all distracted by the cool factor of IBM's (NYS: IBM) first female chief executive officer, Ginni Rometty, outgoing CEO Samuel Palmisano could rack up about $170 million as he eases his way out the door. Talk about a lucrative exit strategy while everybody's focused on somebody else's splashy entrance.
We shareholders should celebrate every victory in the battle to return to reason, such as shareholders smacking down the worst CEO pay offenders through their proxy votes. However, we must stay vigilant on the topic despite occasional victories like lighter paydays for Wall Street bankers this year.
Our major challenge is to condemn companies where top executives' major incentive seems to be trying to "get away with" as much shareholder money as they can, with boards of directors that let them do it. Don't let your guard down, Fools. Stay vigilant and vote your proxies.
Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
At the time this article was published
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