That’s because March 15th is the day that Milchovich, the Chairman/CEO of Foster Wheeler, Inc., (a subsidiary of Foster Wheeler AG) (FWLT), signed an agreement to retire as CEO on May 31, 2010 and become a consultant. The company filed an 8-K and Consulting Agreement on Thursday afternoon to disclose the new relationship. (You may recall that in January we reported the generous contract terms Foster Wheeler gave to two executives who agreed to work in Switzerland for up to five years.)

There are several interesting things about this new deal, which will officially start on June 1, 2010 and end on November 3, 2011.

First, it’s one of the most lucrative contracting agreements we’ve read lately (though worth a bit less than this one). Milchovich will get $104,466.67 per month as a consulting fee, which works out to $1,253,600 per year. There’s also a clause stating that on the contract’s anniversary or whenever the parties agree it’s appropriate, “the Company shall review the Consulting Fee and determine if, and by how much, the Consulting Fee should be increased. Once the Consulting Fee has been increased hereunder, it shall not be decreased.”

Foster Wheeler notes that by relocating its primary office from New Jersey to Switzerland, it is in “material breach” of its employment agreement with Milchovich. That breach would entitle Milchovich to terminate his employment “for good cause” and receive a lump sum cash payment from the company, which appears to be (according to his Nov. 2008 Employment Agreement) 200% of his 2009 base salary, or $2,500,000.

Milchovich is to work primarily in New Jersey or Florida, and there is no requirement that he work a set number of hours per month. His duties, which are described in “Annex 1” to the agreement, are stated simply:

“Consultant shall provide the Company with assistance in the transition of the Consultant’s duties and responsibilities and such other business consulting services as the Board or the CEO may request, from time to time.”

In addition to his consulting fees, Milchovich may earn millions more if the company achieves its target objectives.  Per the contractual formula, his incentive fee shall be “equal to the product of (i) the Consultant’s monthly Consulting Fee at the rate in effect at the beginning of such fiscal year, multiplied by twelve and (ii) 130%.” And the Compensation Committee can double that amount – whatever it turns out to be – if it determines that the company achieved objectives that are “significantly beyond expectations.”

Although the agreement specifies that Milchovich will be an independent contractor rather than employee, the company also states – rather incongruously – that he’s eligible to participate in employee pension benefits plans, as well as group medical and dental plans. Foster Wheeler is also giving him $6,000 per month to pay for miscellaneous home office and car expenses, life insurance, and tax and financial planning; and furthermore, it will gross-up any amount Milchovich would owe if those benefits are taxable.  And finally, the agreement provides for large sums to be paid to Milchovich’s estate if he dies, or to him if he becomes disabled or if there’s a change of control at the company.

Personally, we’d probably take Switzerland over Florida and especially New Jersey, especially given that state’s current budget woes. But then again such a sweet consulting deal is hard to come by these days.

Take AOL (AOL) and the proxy it filed Tuesday:

In general, the elements of compensation reflect a focus on performance-driven compensation, a balance between short-term and long-term compensation and a combination of cash and equity-based compensation.

But look closer at the company’s cash incentive plans, and you find a few oddities.

The Global Bonus Plan is a one-year deal, implemented because the usual plan had been suspended “in light of the uncertainty with respect to potential transactions.” The first half, with targets set as a percentage of base salary, “was paid to employees who performed at a satisfactory level and were still active employees on July 15, 2009″ — in other words, bonus to you if you stuck around and did your job. After all, AOL was about to be spun off from Time Warner (TWX). Top execs collected between $119,000 and $206,250 for the first half.

The second half of the year hinged on performance, including meeting targets for free cash flow and “OIBDA,” or operating income before depreciation and amortization. But in the end, none of the convoluted details mattered. That’s because the board gave Chairman and CEO Tim Armstrong “discretion to award additional amounts based on individual performance or to otherwise modify awards regardless of the actual levels of OIBDA and Free Cash Flow achievement.”

And that’s just what he and a board committee did in January, the proxy notes:

Although our actual OIBDA and Free Cash Flow results would not have triggered a payout for the second bonus period under the GBP, upon the exercise of Mr. Armstrong’s discretion pursuant to the terms of the GBP, Mr. Armstrong recommended, and the Compensation Committee approved, a 110% bonus payout for the second bonus period under the GBP.

In other words: do-over! Three top executives did even better. Chief Financial Officer Arthur Minson, who was guaranteed at least $1 million under his employment contract, wound up getting $1.7 million instead, or 110% of his $1.5 million target plus $60,000 “on a discretionary basis in recognition of individual performance” during AOL’s spin-off from Time Warner. Two other execs got $40,000 added to their 110% for the same reason. (Armstrong wasn’t covered by the plan.)

Why this departure from the conditions and targets originally laid out? Among the reasons listed in the proxy: “Our executives did not receive merit-based salary increases in 2009″; bonus targets had fallen from 2008 levels, so even 110% didn’t reach 2008 targets; and “the original 2009 budget was prepared by the prior management and included a number of aggressive assumptions, including growth in advertising revenue …”

AOL’s Annual Incentive Plan for Executive Officers also departs from a tight link between performance and pay. To start with, it uses a performance measure that seems to have been cooked up in some accounting test-kitchen: “Adjusted Net Income,” defined not just as income or loss from continuing operations — thus stripping any foundering lines of business a management team might manage to shed before year’s end — but also excluding some M&A costs, non-cash impairments, gains and losses on sale of operating assets, restructuring charges over $3 million, litigation and tax-audit reserves of more than $3 million, any amount “related to securities litigation and government investigations” and more.

If that crazy-quilt measure of income is negative, no bonus. Good enough. But if the figure is positive, the bonus defaults to the maximum payout allowable: $4 million or 4% of this Adjusted Net Income figure, whichever is less. The board’s compensation committee has to step in to reduce it. (Curiously, the summary of the program  in the proxy doesn’t mention this detail. It just says any award “may not exceed” $4 million or 4%.) It’s not clear what ANI would have been in prior years, so there’s no way of knowing how 4% stacks up to $4 million.

No doubt, it can make sense for some pay to stay separate from immediate performance. That’s what salary is for, after all. But why go to all the trouble of establishing performance measures and bonus targets if you don’t intend to use them?

Image source: RogueSun Media via Flickr

When the announcement was made on February 1st, the company issued a press release which quoted interim CEO Peter Tobin as saying, “Alex came to CIT at a time of enormous challenge. We would like to thank him for his contributions during our restructuring, and we wish him continued success in the future.” Simultaneously, it also filed an 8-K with the SEC that stated:  “Mr. Mason has agreed to forego severance and any other compensation other than the earned cash compensation he is entitled to receive for 2009 and until termination under his employment agreement dated June 16, 2008.”

Given the wording of the 8-K, it’s understandable if readers might not know that the company was referring to the “minimum cash bonus” that CIT Group promised to give Mason for both 2008 and 2009. But we found that information in the late annual report that CIT Group filed on March 16th. (Its annual report was really due March 1, 2010, but the company filed a notice with the SEC to explain that it would not be able to meet the deadline “without unreasonable effort and expense.”)

Exhibit 10.20 of the annual report is a confidential letter dated January 29, 2010 from Executive Vice President of Human Resources James Duffy to Mason regarding “Transition Arrangements.” It states in part:

“This letter will confirm that your last day with CIT will be February 26, 2010 (the ‘Separation Date’). At that time, each of your positions as an officer and employee of CIT and its subsidiaries will cease.

From now until your Separation Date, you agree that your compensation will consist only of your base salary and continued participation for you and your applicable dependents in the benefit plans in which you or such dependents currently participate. In addition, you will continue to be entitled to the 2009 guaranteed cash bonus of $1,350,000 provided for in your Letter Agreement, dated June 16, 2008 (your ‘Employment Agreement’). For the avoidance of doubt, this amount will be payable at the time, and will be subject to all of the conditions, currently set forth in your Employment Agreement. For the avoidance of doubt, your termination of employment under this letter will be treated as an Eligible Termination for purposes of 2009 guaranteed cash bonus.”

In exchange for signing the “Transition” agreement – which also promised to reimburse Mason for up to $75,000 in legal fees – CIT Group asked for consideration: he had to sign a General Release that gave up any legal claims he might have asserted against the company.

You say either and I say either, You say neither and I say neither
Either, either Neither, neither, Let’s call the whole thing off.

You like potato and I like potahto, You like tomato and I like tomahto.

Potato, potahto, Tomato, tomahto, Let’s call the whole thing off

The reason? In a section of the proxy that begins on pg. 30, the company talks about the “modest death benefits” that the company provides to senior vice presidents or higher. The section goes on to note that these benefits were modified in December 2008 to make them less prevalent and that they are no longer available for any employee hired after Dec. 15, 2008.

But deeper into the proxy, there’s a shareholder proposal from the AFSCME Employees Pension Plan that doesn’t see the death benefits as being quite so modest. Instead, they describe them as “golden coffins”, which seems more than a pronunciation preference to us. Here’s a snip:

In our view, golden coffin payments—making payouts to senior executive’s beneficiaries based on salary and bonus that have not been earned by the executive prior to death and/or making post-death payments in lieu of perquisites—are not consistent with these principles. According to the 2009 proxy statement, Safeway provides a special death benefit to all named executive officers that results in a payment of four times salary, up to $4 million maximum, if the executive dies in office or after retirement.

This is the second year that AFSCME has submitted this proposal. But last year, Safeway didn’t use the word modest to describe the perk. In any event, shareholders defeated the proposal with 132 million votes cast in favor and 214 million in opposition.

What would Louis and Ella have to say about all of this?

But oh, if we call the whole thing off Then we must part
And oh, if we ever part, then that might break my heart

The Chelmsford, Mass-based company, which sells network infrastructure products to the wireless companies that provide mobile broadband services, announced last December that it planned to go private. The list of high-profile players involved in this deal included SAC Private Capital, Zelnick Media, Goldman Sachs (GS), which served as Airvana’s financial advisor, and Boston law firm Ropes & Gray.

But what really caught our attention in the filing was some of the giant-sized paydays that Airvana executives will receive post-deal. In addition to vested stock options and equity shares, the merger will accelerate the vesting of currently unvested stock options. Page 59 of the filing states what each director and executive officer would receive if a “Total Cash Payment” is made (based on assets owned as of Jan. 3, 2010).

The biggest recipient, by far, is Paul Ferri, an Airvana director since 2000, who will get $ 117,335,080 (yes, $117.3 million).  The proxy notes that Ferri is “a founding partner of Matrix Partners, a venture capital firm, where he has been a General Partner since February 1982.” Keep in mind that the size of the deal is valued at around $530 million and it’s still pretty rare to see so much go to one person. But others will benefit too including director Gururaj Deshpande, who stands to collect nearly $66 million.

Several other executive officers will also see big paydays, though not nearly as big as Ferri’s and Deshpande’s. They include VP/Chief Technical Officer Vedat Eyuboglu – $7,696,237; VP/CFO Jeffrey Glidden – $5,250,414; Luis Pajares (who was VP/North American Sales and Services until he resigned on December 31, 2009) – $3,910,866; and VP/Engineering Mark Rau – $3,472,904.

Battat, Verma, and Eyuboglu are “Rollover Stockholders” who will exchange 60% of their common shares of Airvana for equity interests of the new parent company. (The exchange helps them defer paying taxes.) However, p. 57 notes that they “will be paid merger consideration for [the remaining] approximately 40% of the shares of Airvana common stock that they hold.” Each man will also be an executive officer and a director of the new parent company.

But whereas some of the executive officers are retaining an equity interest in the surviving company, it appears that the directors such as Ferri are completely cashing out their interests.  The proxy says they will collectively receive $607,394 for their options; and “[a]dditionally, these directors will receive an aggregate cash payment in respect of their other beneficially owned shares of Airvana common stock in the amount of $184,118,232.” It continues on p. 61:

“The members of the board of directors (excluding Messrs. Battat and Verma) are independent of and have no economic interest or expectancy of an economic interest in Parent or its affiliates, and will not retain an economic interest in the surviving corporation or Parent following the merger.”

According to pp. 33-34 of the proxy, the board of directors (excluding Battat and Verma, who abstained from voting), and Goldman Sachs, which was hired to advise the Board’s special committee, concluded that the offer to pay $7.65 per share for common stock, was “advisable, fair to and in the best interests of the Company and our unaffiliated stockholders.” [Several law firms that filed suit to oppose the merger apparently disagree.] Page 6 states that Goldman Sachs will be paid “a transaction fee equal to approximately $6.3 million, $5.8 million of which is contingent upon consummation of the merger.”

These sorts of big numbers always make us wonder what the purpose of a deal like this is, other than to enrich a few people. Yet, the deal seems inevitable. Page 68 of the filing notes that as of Feb. 23, 2010, directors and executive officers owned about 48.6% of Airvana’s common stock, and they intend to vote all of their shares in favor of the merger agreement at the upcoming April 9 special shareholders’ meeting.

All this brings to mind another of Lewis Carroll’s well-known works. Except, perhaps, it’s the “Mergerwock” of which we should really take heed.

Image source:  sammydavisdog via Flickr

Of course, in Gupta’s case, the little stuff turned out not to be so little, as the SEC tells it. We’ll spoil the ending: Gupta, infoGroup Inc.’s (IUSA) former chairman and CEO, was formally accused yesterday of fraudulently using nearly $9.5 million in corporate funds “to support his lavish lifestyle,” while hiding another $9.3 million of transactions with companies that he owned at least in part. Two other former executives and a former director of the Omaha-based database and mailing-list vendor were also charged in the case.

Without admitting or denying wrongdoing, Gupta agreed to pay $7.4 million in penalties, interest and disgorgement, and will be banned from serving as a corporate director or officer for life. An attorney for Gupta didn’t return a call seeking comment.

If you’re feeling a little déjà vu, loyal readers, there’s a reason: Gupta’s a frequent flyer here at footnoted — he appeared in August 2008 when the company agreed to pay him $10 million to go away while requiring him to repay $9 million. Then, last year, Gupta and infoGROUP made the 2009 short list for footnoted’s worst footnote of the year contest after the company said that Gupta’s personal use of the company yacht in 2008 totaled more than $870,000 — not the zero previously reported.

But that turns out to have been the tip of the iceberg, by the SEC’s account. Indeed, the agency’s allegations read like a primer on proxy-filing red flags:

“Gupta improperly used corporate funds for more than $3 million worth of personal jet travel for himself, family, and friends to such destinations as South Africa, Italy, and Cancun.  He also used investor money to pay $2.8 million in expenses related to his yacht; $1.3 million in personal credit card expenses; and other costs associated with 28 club memberships, 20 automobiles, homes around the country, and three personal life insurance policies.”

Granted, those totals span 2003 to 2007, but they’re still eye-opening.

The SEC argues that Gupta had plenty of assistance when it came to shielding the largess from prying eyes. Former director Vasant H. Raval, a Creighton University accounting professor who once headed infoGroup’s audit committee, was accused of having omitted “critical facts in a report to the board” about the matter, and of failing to “respond appropriately to various red flags,” even after two internal auditors questioned whether Gupta was seeking reimbursement for personal spending. He has agreed to pay $50,000 to settle the charges against him, without admitting or denying wrongdoing, and will also be banned from serving as a public-company officer or director for five years, the SEC said. His attorney didn’t return a call seeking comment. (A spokeswoman for infoGROUP declined to comment.)

Two former infoGROUP CFOs are also accused of signing off on phony expenses without “sufficient explanation of business purpose.” Neither former CFO has settled as yet. Attorneys for Gupta and former CFO Rajnish K. Das didn’t return calls seeking comment. David Zisser, who represents ex-CFO Stormy Dean, called the SEC “wrong on both the law and the facts.”

“There are a lot of issues about what constitutes a perk and what constitutes a related-party transaction,” Zisser said. “There was a lot of information regarding the things supposedly hidden that shows they weren’t hidden at all.”

However things shake out in court, it looks like the curtain is falling on this chapter of the infoGROUP’s perks saga: Last week, Gupta resigned from the board, and the company announced it would be taken private by CCMP Capital. Once private, they can throw around whatever perks they might want, and we aren’t likely to find out (at least, until CCMP takes the company public again).

In the meantime, when you hear that even lavish perks are a small price to keep a good executive, think back to the long, strange tale of Vinod Gupta, infoGROUP and the corporate yacht that turned out to be more of a pleasure boat than the filings initially let on.

Sometimes, it turns out, the little things aren’t. And if you don’t take a good hard look, you might find out too late.

Consider Coventry Health Care Inc. (CVH), the $3.5 billion managed-care company based in Bethesda. It filed its 10-K on Feb. 26 — and then had to file an amendment on Friday because of “inadvertent omissions with respect to the initial filing.” What did it forget to file? An employment agreement with one Harvey C. DeMovick, as well as its 2010 Executive Management Incentive Plan.

This is DeMovick’s second time in the door at Coventry. He retired in 2007 as an executive vice-president and chief information officer who also oversaw customer service. He came back last year after two years as a private investor. He’s back as executive vice-president for customer service, IT and Medicare.

Here at footnoted, we perk up when we see phrases like “omission,” inadvertent or otherwise — especially when it comes to executive pay. Even more intriguing at Coventry: That employment agreement for DeMovick was dated May 17, 2009, and was effective three months before that, on Feb. 2.

In other words, it was signed 10 months ago, and has technically been in effect, though undisclosed, for more than a year. (The 10-K Coventry filed on Feb. 26 of this year listed the contract as an exhibit, but didn’t actually include the document itself.)

Digging a little deeper, we found another curious detail: While the contract was dated May 17, the $8 million “new hire equity award” that DeMovick got for signing on was valued as of March 24, 2009 — more than seven weeks weeks before the document was executed. And wouldn’t you know it, the share price had a nice run up between those dates, rising $6.91, or nearly 57%. So DeMovick appears to have gotten the contractual right to a chunk of options and performance shares on May 17, priced at a discount. While two thirds of those options and shares vest this month and next year, a third of it vested retroactively, on March 24 last year. Not too shabby.

Now, the securities rules are pretty clear on the matter of pay agreements: Companies must disclose material contracts — and compensation contracts are by definition material for “any director or any of the named executive officers of the registrant.” (That’s typically the CEO and next four highest paid executives). Even for others, “any other management contract or any other compensatory plan, contract, or arrangement … shall be filed unless immaterial in amount or significance.”

Moreover, those contracts “shall be filed as an exhibit to the Form 10–Q or Form 10–K filed for the corresponding period” — which would seem to imply by the 10-Q filed in the second quarter of 2009, if not (given the February effective date) some time in the first quarter. But here’s the rub: If the executive doesn’t become one of those “named executive officers of the registrant” until well after the contract is signed, then the delay may not be a problem if the contract isn’t material on its own. (For the full details, see language on material contracts throughout Title 17 § 229.601 (Item 601) Exhibits.)

DeMovick wasn’t in last year’s proxy. If he didn’t become a named executive officer until the fourth quarter 2009 or later, Coventry might have decided it didn’t have to disclose his contract until the 10-K, as long as the contract wasn’t material in its own right. At as much as $11 million or more over three years, we’ll let you be the judge (The math: $600,000 annual salary, 75% bonus target and a total of $8 million in restricted shares and options.) But given Coventry’s net income last year of $242 million, it works out to something like 1.5% of that figure a year.

For what it’s worth, this isn’t the most delayed executive contract we’ve seen here at footnoted. Earlier this month, Hess Corp. (HES) filed an employment letter for Timothy Goodell dated Sept. 19, 2008. And in November 2009, on the same day that its acquisition by Peet’s Coffee & Tea (PEET) was announced, Diedrich’s Coffee (DDRX) disclosed a 17-month-old compensation agreement with its CEO.

Needless to say, long disclosure delays can raise red flags. And even apart from disclosure omissions, DeMovick seems to have gotten a nice price on that new-hire equity award.

Image source: el clinto via Flickr

UPDATE 3/16: We heard this afternoon from Thomas Zielinski, Coventry Health’s executive vice-president and general counsel. He clarified that DeMovick’s equity award didn’t begin vesting on March 24, 2009, as we understood from the employment agreement, but rather will do so beginning this coming March 24. (The employment agreement was phrased somewhat ambiguously, saying that “The options and restricted shares will vest in equal thirds over a three (3) year period, commencing on March 24, 2009″.

Zielinski also took issue with the questions we raised about the timing of the contract. “Mr. DeMovick’s exact role within the company and the terms of his compensation were negotiated during the initial weeks of his return to the company,” Zielinski wrote to us. The company didn’t know DeMovick would qualify as a named executive officer until this year, he added, so “his employment contract was otherwise at the time of signing immaterial for SEC disclosure purposes.”

We are happy to provide additional context from Mr. Zielinski, but we stand by the original post.

———

Note from Michelle: I want to officially welcome Theo Francis to footnoted.org. Theo joined the site last week from Bloomberg and, earlier, BusinessWeek and the WSJ and Sonya and I are very excited to have him involved in the hunt for interesting tidbits in SEC filings. Now that Sonya and Theo are on board full-time, they’ll be posting here more frequently, so be sure to check back often. I also want to wish intern Kristen Scholer good luck as she heads off for a semester in South Africa and welcome Mavis Tan, an intern at Morningstar who will be helping out on footnoted. Mavis is a recent accounting graduate from the University of Illinois at Chicago and is currently working on her CPA.

Yet there on page 35 of the proxy filed by consumer-products conglomerate Fortune Brands Inc. (FO) is a table laying out the Form W-2 Box 1 income for its top five officers. “We are providing this supplemental table,” the proxy notes, “to highlight the difference between compensation reported under the SEC rules and compensation amounts realized and reports as taxable income on Forms W-2.”

Just how big are those differences? For Bruce A. Carbonari — chairman and chief executive of the company that markets Jim Beam bourbon, Titleist golf balls and Master Lock padlocks — it comes to as much as $9.5 million in 2009, with SEC-reported total compensation of $10.7 million and IRS reported “wages, tips and other compensation” of $1.3 million. For Craig P. Omtvedt, senior vice-president and chief financial officer, there’s a $3.9 million gap.

Of course, in many ways, the comparison is apples and oranges. The IRS looks at what taxpayers actually collect in a year, and Fortune Brands’ executives, like most, get a lot of pay that won’t necessarily land in their pockets for months or years. Cabonari’s compensation last year included $6 million in stock awards and $1.5 million in stock options, valued under SEC reporting rules, as well as $432,468 in gains on pension and deferred-comp plans. Stock options are generally taxed when exercised, and pension and other deferred compensation aren’t usually taxed until they are paid out.

One factor at Fortune Brands may actually have pushed up the taxable income some executives reported: paying out certain retirement benefits in advance, into trusts set up for the executives’ exclusive benefit. Ordinarily, executive pensions are merely IOUs from the company to the individual, payable at retirement. But that leaves executives at risk of losing their pensionsif the company fails — they have to get in line like other creditors in bankruptcy. The special trusts for some of Fortune’s top officers protect them against that, at the expense of paying taxes now instead of later. To ease that burden, Fortune Brands grosses up the payments to cover taxes on the trusts’ earnings each year — some $29,846 in 2009.

We’ll just have to wait and see whether other companies begin pointing to IRS pay figures to contrast with the SEC’s disclosure rules. In the meantime, we’re pretty sure Carbonari and his colleagues got some value out of the pay that hasn’t yet appeared on their W-2s.

<em>Image source: adonis hunter / ahptical via Flickr

Fast forward to yesterday when Boeing filed an 8-K with this consulting agreeement for Carson — something that we don’t recall reading about in the Aug. 31 press release. A quick scan of Boeing’s current releases also comes up empty, despite the fact that Boeing plans to pay Carson $1.5 million as a retainer over the next two years. As the contract notes, Carson will serve as a consultant through March 2012. In exchange for the fee, which essentially works out to his base compensation, he’ll be required to work “no more than 75 hours a month.”

Since it’s probably a pretty safe assumption that Carson was working 75 hours a week (if not more) when he was running the Commercial Airplanes unit, the consulting agreement works out to a pretty nice raise. We also didn’t see anything in the contract that precludes Carson from spending some of the non-Boeing hours — there’s roughly 730 hours in a typical month — consulting for anyone else.

That’s not to say the contract doesn’t have its restrictions. Boeing won’t pay for any alcoholic beverages and the contract won’t enable Carson to wine and dine on Boeing’s dime. Indeed, the agreement is pretty strict on this point, noting that “No entertainment is authorized under this Agreement and no entertainment expenses will be reimbursed. Entertainment includes the purchase of meals or refreshments for any individual (including Boeing employees) other than you.”

Still, given that this deal is essentially part-time work for full-time pay, we’re guessing that Carson won’t sweat too much having to dip into his pocket for some Glenlivet every now and then.

Image source: Glenlivet