Lots of people complain that there’s not enough disclosure about executive pay.
But if you read a proxy statement, you’ll see a ton of disclosure. Whether it makes sense is the real issue.
Earlier this week, Dollar Financial Corp. said it approved cash bonus awards to its top management after the Berwyn-based operator of 1,206 check-cashing stores achieved its financial performance goals for its fiscal year ended June 30.
Chairman and CEO Jeffrey A. Weiss got a bonus of $911,520, according to a filing with the Securities and Exchange Commission. Four other executives received a total of $960,467 in bonuses.
I thought that was curious because the company had just announced a 97 percent decrease in profit for its recently completed fiscal year. Last Thursday, Dollar Financial reported net income of $1.8 million, or 7 cents per share, compared with $51.2 million, or $2.08 per share.
How had Dollar Financial achieved its management bonus goals with performance like that?
The answer lies not on the bottom line but in the company’s proxy statement where its human resources and compensation committee clearly states that the bonus gets paid if Dollar Financial meets “consolidated targeted EBITDA objectives.”
EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” Listen to enough earnings calls, you will hear more about “ee-bit-dah” than net income because it measures how a company’s operations are doing. Always looking forward, analysts don’t dwell on charges for litigation or discontinued operations.
The primary reasons for Dollar Financial’s paltry net income were a $57.9 million charge for settling long-running Canadian class-action litigation and a $10.3 million charge for store closings.
But it’s a different world when viewed through EBITDA glasses. According to Dollar Financial, its consolidated adjusted EBITDA was a record $158.6 million, up 8.5 percent from the $146.2 million it reported for its previous fiscal year.
So bonus target achieved - despite what Weiss described as “the worst recession we may ever have to face” - but not at a level to warrant the maximum pay-out. If so, he would’ve gotten 150 percent of his $850,000 base salary, or $1,275,000.