It wouldn’t surprise us if the people holding the strongest opinions about Masimo Corporation (MASI) – a medical technology company with a $1.3 billion market cap based in Irvine, California – fall into one of two camps. Those who hold the most favorable opinions about the company, we suspect, may be the immediate family members of its Chairman and CEO, Joe Kiani, who benefit from a perk that lets them travel for free. On the other hand, it’s understandable if shareholders adopt a less rosy view, given the fact that Masimo’s stock price is down more than 35% from a year ago.
Kiani, though, is faring quite well for himself. According to the proxy that Masimo filed last Friday afternoon, Kiani’s total compensation for fiscal year 2011 rose more than 49% from what he got in FY 2010, rising to $7.65 million from its prior $5.1 million. Kiani’s salary was $717,679, but he also got a bonus of $356,050 and stock options worth more than $5.96 million. And then there’s the “Other Compensation,” and this is where Kiani’s family enters the picture.
Kiani received “Other Compensation” worth $607,774 in FY 2011, but you have to root around in the footnotes to find out what that’s really for. Masimo first discloses the little stuff (Kiani got $7,350 in retirement savings plan matching contributions, $11,934 in medical insurance premiums, $1,440 in life insurance premiums) before telling investors about the big stuff, which includes:
“…$377,699 for certain travel expenses incurred by Mr. Kiani and his immediate family in connection with Mr. Kiani’s business meetings (the —Travel Expenses), and a $209,351 payment to reimburse Mr. Kiani for the taxes incurred pursuant to our payment of the Travel Expenses.”
Reading on, we learned that Masimo reimburses Kiani “for all reasonable travel and lodging expenses for his immediate family in the event his immediate family accompanies him during business travel.” At this point, you may find yourself wondering – as we did – What’s “reasonable”? Well, suffice it to say that what Masimo defines as “reasonable”, we would define as “generous.” Masimo states that (per Kiani’s employment agreement):
“…’reasonable’ expenses include travel and hospitality expenses for first class airplane travel and accommodations and expenses for travel using private or chartered aircraft. In addition, under the agreement, each year Mr. Kiani is entitled to receive an additional payment equal to, after taxes, the amount of the taxes incurred by him under federal and state regulations….”
If you do the math, it turns out that in FY 2011, Masimo’s shareholders paid $587,050 for the perk of Kiani’s family tagging along when he traveled and the tax gross-up he got on that perk.
That number is also more than twice what the company spent on Kiani’s family’s first-class travel adventures in FY 2010. According to the proxy filed in April, 2011, the company spent a combined $258,283 on the family’s travel and hospitality expenses and Kiani’s tax gross-up. And contrast that figure to what we found in the 2010 proxy, which disclosed that the company would pay Kiani’s family’s travel expenses; however, no amount was disclosed for the perk that year, and Kiani’s “Other Compensation” was a comparatively paltry $21,831.
Kiani’s family travel expenses and tax gross-up have ballooned from $0 in 2009, to $258,283 in 2010, and to $587,050 in 2011. The annual meeting is coming up June 7, 2012, so shareholders may get a chance to ask the questions we’re wondering about: How much will they have to pay in order for Kiani’s family to fly around in first-class style in 2012? And, really, why should they have to foot the bill for Kiani at all?
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