Here’s one reason companies might want to work extra hard to disclose employment contracts sooner rather than later: Delays can raise more and thornier questions.

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

———

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.

It’s a rare day when corporate America cites the Internal Revenue Service as a bastion of restraint and sober perspective — especially when it comes to personal income.

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

I was in Chicago earlier this week working on some integration issues with the folks at Morningstar, but found time to tape this video on proxy season which is going on right now. Here’s a link.

Last August, Boeing (BA) announced a management reshuffling that included the departure of Scott Carson, who had been running the company’s Commercial Airplanes unit. The release, which was dated Aug. 31 — when few people were likely paying attention, given how sleepy things are at the end of August — noted that the changes would be effective the very next day. As the release noted, Carson planned to continue working through the end of 2009 to “ensure a smooth transition”.

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

It’s been a rocky couple of years for the car industry, which still employs hundreds of thousands of Americans, and now the public owns hefty chunks of General Motors and Chrysler. So we wouldn’t be surprised if more than a few corporate boards see it as patriotic to support automakers.

But pay $87,378 for automotive transportation for one executive in a year? That’s the value Sonic Automotive Inc. (SAH) pegged in its recent proxy for the personal use of company vehicles last year by Chairman and Chief Executive O. Bruton Smith, the founder of the dealership chain. For President and Chief Strategic Officer B. Scott Smith (Bruton’s son), the Charlotte, N.C. company valued the perk at $35,427. But for three other executives, “the incremental cost of demo vehicles is not calculable because those vehicles are provided to the executive by our dealership subsidiaries.” (Do dealerships really have that much trouble putting values on their inventory?)

Just for the record, with that kind of cash, Bruton could pick up a 2010 Jaguar XK Coupe outright, with a little left over for vanity plates and a pair of fuzzy dice — or as many as five of the 2010 Honda Civic VP Sedans it’s offering through its Honda dealership in Tyson’s Corner, Va.

In its filing, Sonic Automotive calls personal use of company vehicles “a common competitive perquisite afforded to executives in the automobile dealership industry.”

Sonic Automotive isn’t the only company getting personal with automotive perks. Home BancShares Inc., a Conway, Ark., bank holding company that got $50 million in federal bank-bailout funds in January 2009, pays to fill up the tanks of executives’ personal vehicles. Chairman John W. Allison got $2,117 in gas last year, according to its latest proxy. At last year’s average price in Arkansas, it works out to more than 800 gallons. And that’s on top of an $18,000 “auto allowance” and $16,500 in personal flight services from the pilot who flies the plane Sonic leases — from a firm owned by Allison.

Image source: macieklew via Flickr