Yesterday, there was a lot of outrage over Citigroup’s (C) plans to raise the base salaries of its workers by as much as 50%, given that the government owns about 1/3 of the bank.

What’s interesting is that Citi isn’t the only one. As I wrote on Research Edge on Monday, Discover Financial (DFS), which has received about $1.2 billion from the Treasury Department, disclosed its own hefty salary increase program in this 8-K filed late Friday. According to the filing, three of Discover’s top executives will see their base salaries go up by 50%, while Chief Operating Officer Roger Hochschild will see his base pay go up by 33%. Chairman and CEO David Nelms’ salary will not increase.

What’s particularly interesting about Friday’s filing, however, as I wrote on Research Edge on Monday, is that Discover seemed to go out of its way to throw people off the scent of the hefty salary increases. In the filing, it states that “NEOs’ total compensation for fiscal 2009 is expected to be significantly lower than for fiscal 2008.” It’s only when you compare the new salaries to the proxy statement filed back in February, that you start to see the hefty increases.

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In nearly six years of digging through SEC filings, we’ve seen a lot. All sorts of things, really. But every now and then, we come across a filing that still surprises us. Like the 8-K that Expeditors International (EXPD) filed yesterday. The filing is in response to a question on legal expenses related to a Department of Justice investigation first disclosed nearly two years ago. Here’s the good part:

When you come from a frame of reference, as we do, where $0 spent on legal expense would be the most preferred alternative, having to predict anything beyond that, by its nature, would become inherently and incredibly biased towards our own wants, desires and expectations. To us, this is somewhat akin to being asked to predict how many minutes after being force fed a dead frog we would throw-up…and the operative word is “force,” as we’d never elect to do either on our own. In both cases (the legal fees or swallowing the dead frog) we’re certain we would eventually throw up. In neither case do we know exactly how much money or how much time would pass before we did. In both cases, however, our gut check, no pun intended, is not very much and not very long! It should go without saying that given our druthers, we’d rather not spend the legal fees or eat the dead frog in the first place. Sometimes you don’t get the luxury of deciding what you have to eat. When you do, and it’s unpalatable, it should be obvious that you would eat as little as possible. What we are certain of is that if we were talking about being force fed dead frogs and not incurring excessive legal fees, people would be content accepting at face value that it would be as little as possible.

We’re not sure who Expeditors outside counsel is, but it’s probably a pretty safe bet that they don’t like their billable hours being compared to the force-feeding of dead frogs. And while we’re pretty sure that the dead frog reference is figurative, instead of literal, hopefully PETA won’t find out about it or Expeditors could have another mess on their hands.

Unlike the SEC, which seems to be spending a lot of time reading the CD&A sections of various proxies, we don’t tend to spend a lot of time with that section, because, quite frankly, it’s all too often boring boiler-plate. But as with every other filing, every now and then, you can find something pretty interesting like we did in the proxy that Legg Mason (LM) filed yesterday. There, in the justification for Chairman and CEO Mark Fetting’s bonus, was this little pearl:

Mr. Fetting’s leadership of the company during one of the worst financial crises of the last 100 years, which particularly affected financial services companies

Just to make sure, we did a quick check for the word crisis (or crises) at other financial services companies and didn’t come up with anything that even came close. While the word was used in several other proxies, it wasn’t used in a way to justify a bonus and there were no pronouncements about this being the “worst financial crises”.

Equally interesting is that while the board set Fetting’s bonus at 21% of the bonus pool in June 2008, Legg Mason’s loss of $1.9 billion last year meant that there was no bonus pool. But that didn’t stop the bonus because as the comp committee writes in the proxy the net loss was due to just two items and without those two items, the company “would have had net income, and the plan would have produced a total bonus pool large enough to accommodate the annual incentive awards made. Although the terms of the plan do not explicitly provide for the exclusion of those items, the Committee considered the items to be extraordinary expense.”

Just remember: where there’s a will, there’s a way.

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Image source: Associated Press/Chris Gardner

The weather may not exactly be cooperating here in the New York area, but it’s now officially summer, which means it’s time to pick up something a bit less serious to read. Since we’re not big fans of chic lit, we’re glad that we found an 8-K that Chesapeake (CHK) filed first thing this morning. The filing includes this transcript from the company’s annual meeting on June 12 and while the details of that meeting have been reported, we found the transcript too juicy to put down. Here’s a snip:

Please note Mr. Armstrong’s emphasis is on accountability, accountability, and accountability. Accountability is where Mr. Armstrong believes the Board has already failed. The members of the Board are apparently so entrenched that they disregarded sound and ethical business practices and allowed the Chairman to place his stock ownership in a margin account where he was forced to sell 90% of his shares when the market price of Chesapeake stock collapsed.

The Board members then rewarded him with a well cost incentive award, stock awards worth $20 million, and continued use of the corporate aircraft for personal purposes, creating total compensation of $100 million, making him the highest paid executive in our country. The Directors are also among the highest paid in the country, as well. Some were compensated more than three quarters of a million dollars in 2008.

This compensation is excessive, and has been brought about by the lack of independence and accountability of the Board; something that can be rectified by Mr. (Gerald) Armstrong’s proposal.

Maybe we haven’t looked hard enough, but we can’t recall a lot of filings that include transcripts of annual meetings in them. Of course, as we’ve footnoted in the past (see here and here) , Chesapeake’s annual meeting wasn’t likely to be a rote affair. One individual investor, Jan Fersing of Ft. Worth, Tx, was particularly harsh during the Q&A part of the meeting, when he told CEO Aubrey McClendon:

“So, your $2 billion fortune was not enough; you wanted more. But this time your hand got stuck in the cookie jar, and you couldn’t let go until your own cookies were taken in the process. And after your embarrassing losses, but with a carefully picked and extremely well compensated Board of Directors, Chesapeake shareholder funds were partially used to cover your losses.”

When McClendon answered, he had this to say:

I’m sorry you have such a dim view of my capabilities and my talents and my contributions. I’m quite confident, sir, that there’s not another CEO in the industry or in the country who has ever spent $185 million buying stock directly from his company, so the company could use that money to go out and explore for and find natural gas. In addition, I spent another $315 million in the open market buying stock, again, an amount that I don’t believe any other CEO has spent buying stock in their own company.
Why did I do that? Well, you tell me it’s because of my greed and my ego. I differ. I did it because I believe in what I do for a living; I create value. I started this company with a $50,000 investment, with my friend Tom Ward,20 years ago. We had 10 employees. We had about 3,000 square feet of space. Today, we employ 8,000 people directly. We employ another 50,000 people indirectly. We have 400,000 shareholders. A certain number of them are not happy today, but it’s a relatively small number, as you can see from the large percentages of people who re-elected our Directors. I’ve worked 100 hours a week, at least, since 1989 building this company. I’ve sacrificed a lot to do that. I sacrificed $500 million that I lost last Fall as a result, not because of bad decisions, but because of things beyond my control in this country’s economy and with regards specifically to natural gas prices.

So, I’m sorry that you find me as egocentric and greedy. But, I’ll tell you there’s not a harder working guy out there who thinks every day about how to create shareholder value. And, I’m dedicated to that. I’ve been dedicated to it for 20 years. And as long as this Board is willing to employ me, that’s what I’ll be dedicated to for the next 20 years. And I’m sorry that you’re going to sell your shares of stock. I’m sorry that there was nothing that we could say here that would change your opinion. I’m sure you’ll do well with whatever else that you invest your money in. But I want you to know that you do not properly characterize my past, my present, or my future by your prepared statements today.”

See? More entertaining than most anything else you’ll read this summer.

Lately, it seems like hardly a day goes by when some other company isn’t rolling out an option exchange program. The filings are virtually identical with stories of woefully overpriced options damaging employee morale. Footnoted regulars may remember that Google (GOOG) seemed to kick things off earlier this year with its option exchange program. But since then, we’ve counted dozens of others.

Today’s entry is from Cardinal Health (CAH), which has been something of a frequent flyer on footnoted. In this filing from earlier today, they talk about giving employees the right to exchange options that are priced higher than $56.45 a share. The filing includes a wide range of additional material from FAQs to screenshots of the back end, now doubt to help people like this truck driver understand the benefits of trading in their boatloads of options for new, lower priced ones.

A quick scan of Edgar shows that the pace of companies offering stock option exchange programs seems to be accelerating. We counted over 80 filings that mentioned stock option exchange programs in June 2009, compared to just 11 filings in 2008. Granted, many of those are multiple filings for the same company. Still, it’s hard to ignore the fact that option exchange programs seem to have really taken off lately.