Poring over as many proxies as we have been lately, we often come across familiar patterns, really language, that reminds us of something that we’ve read before. Part of that is undoubtedly due to the fact that the same handful of law firms, accounting firms and compensation consultants write most of what passes as proxy disclosure these days. But part of that is probably also due to an interest in replicating something that works.
We thought about that when we came across the proxy that DuPont Fabros (DFT) filed last Thursday afternoon, once the market was closed for the holiday weekend. That’s because CEO Hossein Fatah apparently decided over the last year to lower his salary to a mere $1, a technique that’s far more popular in Silicon Valley, than in New York City, where DuPont Fabros is based. As this Wired story points out, the list of Valley execs who agreed to just a buck impressively included the late Steve Jobs, as well as Jerry Yang, Meg Whitman, Sergey Brin, and most recently, Mark Zuckerberg.
But as it turns out, cutting Fatah’s salary to a buck actually represents a pretty nice increase in the CEO’s pay. That’s because as footnote #3 helpfully notes, “Pursuant to Mr. Fateh’s employment agreement, his annual base salary is $1.00, and he is provided with an annual aircraft allowance toward the use of a company-chartered aircraft for his personal travel.”
There’s also footnote #8, which states that “For 2011, consists of $464,000 that we paid to an aircraft charter company in connection with our procurement of an aircraft for Mr. Fateh’s personal travel, pursuant to the terms of his employment agreement.” The second part of that footnote adds that “Mr. Fateh received payments from a charter company related to such company’s leasing of Mr. Fateh’s aircraft to us in connection with his personal travel.”
Deeper into the proxy, in the related party transaction section, there’s some more additional disclosure under the heading “aircraft arrangements”. Here’s a snip:
From time to time, we charter an aircraft that is owned by an entity owned and controlled by Mr. Fateh. We charter this aircraft through an independent third-party aircraft charter company, Executive Jet Management (EJM), at rates that we believe are fair and reasonable and reflect terms that we would expect to obtain in an arm’s length transaction for use of a comparable aircraft. During 2011, we chartered this aircraft for our business-related use and travel and paid EJM a total of approximately $375,000, of which EJM paid the entity that owns the aircraft approximately $247,000. Pursuant to Mr. Fateh’s employment agreement, in lieu of an annual salary, we provided him with an allowance of $464,000 in 2011 for his discretionary use of an aircraft to be chartered by us upon Mr. Fateh’s request from time to time.
So Fateh’s single dollar of salary is actually quite a bit more. Indeed, when you look at the “all other comp” in the summary compensation table for the company, you see that Fatah really racked up the frequent flyer miles in 2011. In 2010, he spent $207,695 on personal jet usage. (We’ll also note that the numbers for 2011 don’t quite add up, between what Fatah spent and what the charter company received).
We understand Fabros wanting to channel Steve Jobs here with the $1 salary. But as you can see from DuPont Fabros’ performance over the past year, it would be hard to confuse the company with Apple.
We’re deep in the midst of proxy season this month. While many proxies seem pretty routine, there’s often some significant details buried deep inside. Over at footnotedPro, we scour corporate disclosures to find warning signs and hidden opportunities before the rest of the market. To see what you’re missing in the filings, or to inquire about a trial subscription, please contact us.