Christmas has come a month late to the top executives of Green Mountain Coffee Roasters (NASDAQ:GMCR). But believe you me, it is one heck of a holiday for some of the least deserving executives in Corporate America.
An SEC filing on Friday sets forth the details of the staggeringly over-generous compensation plan for the top honchos of this walking disaster area. I tell you, it's enough to make one want to get a stiff drink--and by that I don't mean the bad coffee that this company sells to undiscerning coffee drinkers throughout the land.
One of my favorite white-collar crime bloggers, former Crazy Eddie fraud mastermind Sam Antar, tells me that "GMCR's compensation plan sounds like Crazy Eddie."
He points out that the plan gives enormous raises to the same CEOs who are responsible for the mess that they themselves created, which has been chronicled by Sam on his blog and money manager David Einhorn.
CEO Lawrence J. Blanford, for instance, got $3.6 million in 2011 and stands to get a hefty increase in the coming year, including an 18.8% increase in his base salary, which goes from $800,000 to $950,000. Similar generosity was bestowed on the other big cheeses of this company.
You have to shake your head in amazement and wonder: Are these people serious? On their watch:
- Green Mountain fouled up its financial statements over a four-year period, requiring restatements.
- The company incurred millions dollars of legal and accounting fees to cope with litigation alleging securities fraud and an ongoing SEC inquiry (or is it a formal investigation?).
- Green Mountain still can't get the arithmetic right.
- Carried out an "internal investigation" that Einhorn has called nothing less than a "whitewash."
A good part of the exec compensation plan consists of incentive awards. And Green Mountain computed the numbers in a way that's really terrific for a company that's under SEC scrutiny. It inoculates them from the cost of coping with the investigation.
According to Green Mountain's preliminary proxy statement, which was filed last week:
We use these two metrics to determine the amount of annual incentive awards earned. For fiscal 2011, these results translated into an achievement of 122% of the bonus targets set for the year, with net sales for fiscal 2011 of $2.7 billion exceeding the prior year's target by 9% and non-GAAP operating income of $428 million exceeding the prior year's target by nearly 14%. The Compensation Committee set these targets at challenging levels that it believed would incentivize the executives to perform at the highest levels. (Emphasis added)
Company executives evidently received higher annual incentive rewards because its non-GAAP operating income excludes legal and accounting expenses related to the SEC inquiry and pending litigation.
Sam analyzes the numbers thusly:
Non-GAAP operating income exceeded the target amount by $52.6 million (actual non-GAAP operating income of $428.693 million minus target non-GAAP operating income of $376.100 million). A total of $7.868 million came from excluding legal and accounting expenses related to the SEC inquiry and pending litigation in toting up non-GAAP operating income.
So take a look at Blanford's annual incentive payment for 2011 of $932,000. That was $132,000 more than he would have received had actual non-GAAP operating income only met its target amount. "All things being equal," Sam tells me, "we can infer that as much as 14.9% of his $132,000 excess bonus or about $19,700 could have come from excluding legal and accounting expenses related to the SEC inquiry and pending litigation in the computation of actual non-GAAP operating income."
That's almost 20K, a pretty penny for most people nowadays. But I guess it's just chump change for a big company that makes bad coffee.
Assuming Sam's analysis is correct--and I have yet to see his Green Mountain numbers seriously disputed--well, what more can I say? It's not a very nice thing to do. Maybe the people who run GMCR should sit down at their kitchen tables, pull out the shoeboxes where they keep their receipts, and start over.
But the first thing they need is a cup of coffee. I'd suggest that they go to a good Dunkin Donuts that knows how to make coffee. Or order up some of the really great stuff they roast down at Porto Rico Importing on Bleecker Street. Man, that's coffee! And no bitter aftertaste, as comes when executives of public companies are overgenerous with their compensation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.