Fifteen months ago, we took Choice Hotels (CHH) to task for tearing up a departing executive’s carefully crafted severance terms in favor of an ad-hoc arrangement that the company admitted it wasn’t actually obliged to pay. As it turned out, that executive faced insider trading allegations by the Securities and Exchange Commission a few months later, which she settled without admitting or denying anything.
When it comes to disclosure and executive exits, however, we’d like to think someone over at Choice Hotels was paying attention: An executive vice-president is being shown the door again, and the hotel chain seems to be going more or less by the book. The book, of course, is the severance terms the company’s lawyers had written in advance. The outgoing EVP is Bruce Haase, whose broad portfolio included global brands, marketing and operations, and the executive is going to get pretty much what he was promised.
Not that it’s easy to figure that out. The 8-K that Choice Hotels filed yesterday was a model of brevity, at just under 350 words. Unfortunately, it could probably have been boiled down to just a sentence or so: “Go take a look at his employment agreement, and the amendments attached to the 8-K.”
We should stress that in this case, there’s no indication that Haase is leaving under any kind of a cloud. The filing simply says his departure “will be deemed a termination without cause under Mr. Haase’s Non-Competition, Non-Solicitation and Severance Benefit Agreement.” But there are also no numbers to make clear what’s happening. The document simply refers readers back to that melodiously named “Non-Competition, Non-Solicitation and Severance Benefit Agreement” and a new amendment, dated January 27. The amendment is attached as another brief document, but unfortunately it amounts to a laundry-list of changes, without saying much about the original terms. Similarly, a two-page Transition Services Agreement spells out his pay and benefits entirely in reference to his earlier agreement and the recent amendment (and federal law, which isn’t all that illuminating either).
Given time and a little effort, it is possible to piece all this together — that’s how we can tell you it works out to something like $2.7 million, going by the proxy that Choice Hotels filed on March 31, 2011 (or maybe a smidgen less, given the 6.6% decline in the company’s stock since the end of 2010).
Most of that is cash, at 18 months’ salary ($600,000) and the equivalent of a bonus target of $220,000, or 55% of salary. Health benefits and outplacement services — last month’s amendment says he can use any outplacement firm he wishes — amounts to another $38,000 or so. Some $248,967 represents the pension he can start drawing at age 65 (he’s now about 50 years old). The rest — some $1.7 million — comes from from the continued vesting of stock and options over the 18 months after his termination. Not included in there, as far as we can tell, is the $4.3 million or so he’s accumulated in his deferred compensation account, including more than $370,000 in employer contributions and company-paid earnings for 2010 alone.
Beyond the fact that they could have made it a lot easier for shareholders to get the complete picture, we do have one other (small) bone to pick with Choice Hotels: The company first mentioned that Haase would be leaving in a separate 8-K filed on January 20 — and good on them for doing so; we’ve seen companies do less for more prominent executives. But in that two-sentence filing, Choice Hotels said cryptically that, three days before, it and Haase had “agreed that Mr. Haase will relinquish his title and authority as an officer” on January 31, and that “this event will occur in connection with Mr. Haase’s planned departure from the Company” in the second quarter. That wording makes it sound like this was some long-planned transition, though we don’t see any previous reference to the move.
Anyway, we can pick nits — we’re good at that — but Choice Hotels is at least moving in the right direction, in terms of sticking to the severance terms it already has on the books instead of cooking up ad-hoc arrangements. Now maybe the company can work on making its disclosures a little more investor-friendly.
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