E*Trade figure does not compute…
Every now and then, I stumble upon an old episode of Lost in Space. What’s this have to do with SEC filings? Because the line “does not compute” came to mind after taking a closer look at the 8-K that E*Trade (ETFC) filed late Wednesday. The filing was a follow-up to the press release E*Trade put out about the resignation of former CEO Mitchell Caplan. Caplan stepped down as CEO at the end of November after Citadel Investment Group pumped $2.25 billion into the company after it got into trouble with sub-prime mortgages. On Dec. 31, Caplan stepped down from the board. Wednesday’s events were widely reported, and mostly focused on the $10.9 million that Caplan was receiving in severance.
But here’s where it gets interesting. As both the release and the multiple press reports noted, the $10.9 million was based on “two times the sum of his base salary and bonus during 2006″. So I decided to go back to the proxy that E*Trade filed back in late April to do a bit of fact-checking. Turns out that two times Caplan’s 2006 salary and bonus is only $1.5 million (his salary was $750K and the bonus was listed as zero). Even adding on the options and stock awards that Caplan received ($1.7 million and $2.6 million respectively) and doubling that figure gets you closer: $10.17 million and throwing in another $300K for the doubling of “all other comp” gets you closer still. But that’s not the same as “two times salary and bonus during 2006″.
As footnoted regulars know, when a company stretches the truth about something that’s easily checkable (it took me less than 5 minutes to find those numbers in the proxy), it kind of makes you wonder what other numbers they’re monkeying around with — numbers that are often a lot more cumbersome to fact-check.
|
Posted in Tags: 8Ks, executive exits, subprime |
 4 Comments » |
RSS
January 4th, 2008 at 1:20 pm
Nice catch. I guess the question any of us would have to ask is why the company even tried to rationalize the severance amount in the first place?
In many of these situations it is obvious that there is no particular “formula” that is applied. Oftentimes the package the departing executive gets seems more related to his ability to extort from the firm, than anything having to do with “just and fair renumeration”. The potential extortion leverage that the departing executive yields, being directly proportional to how many “skeletons in the closet” he may have knowledge of.
The more important question in this situation is WHY did a CEO who was responsible for putting the firm, and the firms shareholders, in dire straights, get ANY severance whatsoever?
January 4th, 2008 at 2:20 pm
You are actually incorrect; in your calculation you forgot the value of cash incentive plan awards. The number they calculated of $10.9 million is “Salary and Bonus” but not in as transparent a manner as you expected (my apologies if you know this information already).
Due to the year-old changes in the executive compensation disclosure rules by the SEC, the ‘Bonus’ column now truly reflects only a discretionary bonus (i.e. a bonus the compensation committee gives because they want to / a sign-on bonus / etc.). While some firms do note most of their bonus compensation in this column [such as American Express] most other firms are noting the value (both AXP and ETFC are placing the values in the correct locations) in the Non-Equity Incentive Plan Awards. These awards are the payout values for both short- and long-term cash incentive plans (now found in the Grants of Plan-Based Awards Table) and, represent in most situations, where most of the value of a ‘Bonus’ is derived. As such, the value displayed under that columns makes the numbers work. ($4,700,000 + $750,000) * 2 = $10.9 million.
By all means email me if my explanation seems confusing.
January 4th, 2008 at 2:56 pm
Thanks, Andrew, for bringing this to my attention. I guess it all boils down to what the meaning of the word bonus is (not to paraphrase Bill Clinton, but it is another political season!). It seems a bit ingenuous to me to cling to a zero bonus in the proxy and then use a different interpretation of the word bonus to calculate Caplan’s exit. I also went back and looked at the proxy and the footnotes documenting that $4.7 million are pretty skimpy (and that’s being charitable) since they explain $15K of the $4.7 million, leaving the rest a giant guessing game.
The other thing that doesn’t make sense is that if you take two times the $4.7 million and the $1.5 million to arrive at the $10.9, where’s the money for the continued health and insurance coverage? The bottom line here is that it seems to me, at least on the surface, that they’re still trying to play games with the numbers. And when a company plays around with the stupid stuff, you have to wonder what else they’re hiding.
January 9th, 2008 at 2:17 pm
Michelle-
one word…..
Goosebumps.
WOW. what a simple 5 minute research can uncover…
Izzy