Investors Are Losing Patience With Plato Learning

In October 2006, Plato Learning, Inc. (TUTR), a provider of computer-based and e-learning instruction for kindergarten through adult learners, switched its revenue model from dependence on a one-time perpetual software license model to a fee-based subscription model, the PLATO Learning Environment.

He who steals a little steals with the same wish as he who steals much, but with less power. ~ Greek Philosopher Plato (427 BC – 347 BC)

When it became apparent that market acceptance of new online learning subscription products was slower than anticipated—and that no payments would be made under the Company’s Incentive Performance or long-term equity grant plans—the Board wrestled with the issue of retention of its Named Executive Officers.

Rhetoric is the art of ruling the minds of men. ~ Plato

The Compensation Committee recommended and approved retention cash payments to CEO Michael A. Morache, CFO Robert J. Rueckl, CTO James T. Lynn, and Sr. VP David H. LePage for $175,000, $75,870, $93,336 and $73,361, respectively, according to its recent proxy filing.

Wealth is well known to be a great comforter. ~ Plato

Plato Learning did have in place a defined EBITDA-based incentive payment. An EBITDA achievement of $3.4 million was the minimum threshold necessary to receive an actual payment of 50% of contractual targeted incentives.

For the fiscal year-ended October 31, 2007, actual EBITDA was $0.7 million, for order growth did not offset a decline in the average value of orders (lower price points for subscription products versus perpetual license products).

Because the EBITDA goal was not achieved no annual cash Incentive Payments were to be awarded during the year.

The excessive increase of anything causes a reaction in the opposite direction. ~ Plato

Veering from an executive compensation program designed to closely link payment packages to corporate performance and returns to stockholders may keep senior managers onboard—but does little to retain investors. Shares in Pluto Learning declined 30 percent year-over-year, reflecting investor impatience with management’s pace of progress in transitioning from legacy products to online subscription courseware products.

No one ever teaches well who wants to teach, or governs well who wants to govern. ~ Plato

Dare we say, however, Plato Learning bears no relation to the great Greek thinker. If it did, the Company would not be sitting on $69.2 million in accumulated deficits; and, the Board could better spend its limited resources finding managers that can execute on a stated business formula.

Author David J. Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.