FBI awards bonuses
By Heath E. Combs -- Furniture Today, March 16, 2009
ST. LOUIS — Furniture Brands International's top executives collected more than $10 million in incentive awards last year even though the company's stock went into a freefall, according to a proxy statement released two weeks ago.
In a sharply worded critique this week, Raymond James analyst Budd Bugatch said the steep compensation was an example of how FBI's top executives were acting in their own interest, rather than that of shareholders. The company, however, defended the incentive payments.
CEO Ralph Scozzafava was awarded $3.8 million in total cash compensation last year, not including stock awards and options, of which $2.9 million was through the company's long-term incentive plan. He also received a 7% salary increase in 2008.
“Unquestionably, he was rewarded more than handsomely. We suspect some would say 'outrageously,'” Bugatch wrote.
But company spokesman John Hastings told Furniture/Today that the Furniture Brands board established the long-term incentive plan for top FBI executives almost three years ago, well before Scozzafava joined the company in mid-2007.
Hasting also said that the payments were based not on profitability or stock price, but on the company's free cash flow in 2007 and 2008. He said the company's board approved the incentive plan in 2006 under the leadership of Mickey Holliman.
The proxy statement also said that the FBI board's human resources committee “determined that Mr. Scozzafava's total compensation, which was established in 2007 based on his role as Chief Executive Officer designate, was well below the market median for chief executive officers at companies of similar size.”
According to FBI, that view was confirmed by compensation consulting firm Towers Perrin.
“Knowing that cash is king, in 2006 our board determined that generating cash would be a critical component of strengthening FBI for the future,” Scozzafava said. “We delivered strongly against that objective.… We cut our debt from $300 million to $160 million over the past 14 months to guarantee our future.”
Furniture Brands' financial performance, however, has suffered as the industry has slumped. The parent of Broyhill, Lane, Thomasville, Drexel Heritage, Henredon and Maitland-Smith reported a loss of $373.6 million in 2008 as sales declined 16.3%, to $1.7 billion.
Scozzafava said part of the loss stems from temporary costs and charges the company has taken to position itself for long-term growth.
“Included in the list were things such as our exiting an unsuccessful retail store program, eliminating distressed inventory and writing off uncollectable bad debt,” he said. “And those strategies have allowed us to position ourselves to prepare for a solid 2009.”
Bugatch also noted that the company's market capitalization fell from $1.1 billion at the end of 2006 to about $100 million at the end of 2008 as the stock price plunged about 86%. The stock has declined further this year and the market cap recently has been under $50 million.
Scozzafava said the company's “market cap today is facing the same issues that many other publicly traded companies are experiencing.”
While the proxy said the incentive payments rewarded the creation of free cash flow in 2007 and 2008, Bugatch said that much of that cash flow increase was achieved before the current top management was installed at the company.
Scozzafava, a former executive of gum and candy supplier Wm. Wrigley Jr. Co., was named chairman and CEO-designate of Furniture Brands in June 2007. By that date, more than half the free cash flow in 2007-2008 had already been generated, Bugatch said.
The Raymond James report also disputed the way FBI calculated the cash flow achievements, saying that two items that required cash — a new overseas plant and a tax payment related to the sale of Hickory Business Furniture — were not counted.
But according to Scozzafava, “The fact of the matter is that had the board included the new plant in Indonesia and the sale of Hickory Business Furniture, the cash flow would have been much higher.”
The report also criticizes the amount awarded to Chief Financial Officer Steven Rolls, who joined the company in March 2008. According to Bugatch, Rolls negotiated his participation in the 2007-08 long-term incentive plans as part of his employment agreement. Rolls was awarded $1.2 million through the incentive plan and earned about $2 million in total cash compensation last year, according to the proxy.
The Raymond James report was also critical of the amounts awarded through the plan to Broyhill President Jeff Cook ($2 million), Lane President Skipper Holliman ($1.5 million), Senior Vice President of Human Resources Mary Sweetman ($1.2 million) and interim CFO and principal accounting officer Richard Isaak ($627,296).
Lynn Chipperfield, who retired in early 2008 as Furniture Brands' senior vice president and general counsel, earned $1.7 million through the long-term incentive plan and about $1.9 million in total salary.
The FBI proxy also stated that this February, the company suspended salary increases for 2009 to executive officers and established terms of its 2009 short term incentive plan. Details of the plan were not included.
T. Scott King, one of the representatives of investment firm Sun Capital who won a seat on the FBI board last year after a proxy fight, resigned from the board in February due in part to “a difference of opinion regarding the company's future executive compensation policies and practices,” the company announced at the time.
However, observers also pointed out that Sun Capital began to sell its position in FBI stock on the day King stepped down.
Editor-in-chief Ray Allegrezza contributed to this story.
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