A CEO-pay makeover at Helen of Troy…

Helen of Troy (HELE) makes everything from OXO kitchen implements to Brut aftershave, Dr. Scholl’s foot spas, Vidal Sassoon hair-care products, and a lot more besides. As best we can tell, Chairman and Chief Executive Gerald J. Rubin makes a mint. Thanks to a new employment agreement signed last week, he may make even more — but good luck figuring that out.

In some ways, Rubin’s new contract (filed with this 8-K) tones down some of the excesses of the past, which isn’t hard to imagine, considering that his total pay reached $11.3 million in the most recent fiscal year, almost all of it salary and cash bonus. So going forward, he loses his car and driver and some lifetime benefits, the company will no longer pay his taxes on perks he does receive, and at least some of his bonus will be paid in equity, instead of the all-cash deal he had been getting ($10 million in the year ended February 28, 2011).

His salary stays steady at $600,000. His bonus, however, becomes a percentage of the company’s “adjusted EBITDA” (which sounds to us a lot like “adjusted adjusted earnings”). Just how big a percentage depends on what the company’s adjusted EBITDA turns out to be each year, but his payout can range from 2% to 8.5% of that number, which is defined laboriously as

“operating income (loss) before impairment charges plus depreciation and amortization charges, in each case, of the Company and its subsidiaries, as determined in accordance with GAAP plus the amount of Mr. Rubin’s bonus … accrued during the applicable year.”

The bonus is capped at $25 million, and is to be paid two-thirds in cash (up to $10 million in cash) with the balance paid in restricted stock.

All well and good — but now that he’s getting equity for compensation, Rubin is also eligible for restricted stock awards quite apart from his annual bonus. Next March, for example, he’s scheduled to get 700,000 restricted stock units, which vest in three chunks over fiscal years ending in February 2013, 2014 and 2015 (essentially, the next three fiscal years after the current one). But this calculation makes the annual bonus calculation look trivial — it’s based on something called “EBITDA ROIC”, or

“a ratio of (1) operating income (loss) after impairment charges, plus depreciation and amortization charges, plus, to the extent included in income (loss) above, any impairment charges, in each case, of the Company and its subsidiaries as determined in accordance with GAAP, but in the case of impairment charges solely to the extent such charges result from capital market and/or economic conditions creating a stock market trigger that requires testing for and recording of impairments under GAAP which cannot be attributed to any fundamental change in the underlying current or expected operating cash flows associated with the impaired assets, as reflected in the financial statements of the Company and its subsidiaries and the notes thereto (after taking into account the Company’s effective income tax rate) to (2) Average Invested Capital.”

“Average Invested Capital,” as you might have guessed, has its own definition, and is calculated “based on the last day of each of the trailing five fiscal quarters through the end of the applicable fiscal year” — we’ll spare you the rest. All in all, the definition of EBITDA ROIC works out to 222 long, sleep-inducing words. As for guessing what the figure might be in a given year, the company doesn’t appear to give much guidance: As far as we can tell, the most recent 10-K doesn’t mention the metric at all. We see a lot of financial gymnastics when it comes to pay metrics, but this one stands out even by those standards.

It turns out that EBITDA ROIC is also the key to Rubin getting ownership of three sweet life-insurance policies that the company has been keeping on him (and his wife) for years. They began life as split-dollar life insurance, and Helen of Troy has paid some $6.2 million in premiums over the years — including $355,542 as recently as the last fiscal year.

These policies, we’re told in Helen of Troy’s most recent proxy filing, provide a total of $33 million of insurance that will be paid out at death. Under various agreements with the company over the years, the idea has been that the company would get back the premiums it has paid so far, presumably without interest, and Rubin’s estate would get the rest.

Well, now if Helen of Troy’s EBITDA ROIC exceeds 7% in any of the next three years, he gets to keep one of the three policies, under what the company is calling the CEO Insurance Bonus. Rubin would have to pay any additional premiums on the policies once they’re in his possession, but then again, his estate wouldn’t have to repay the $6.2 million Helen of Troy has paid in premiums.

Finally, the new contract does nominally reduce the severance Rubin would get if he were fired without cause or quit under certain circumstances — from $34.5 million in cash and benefits under the old agreement, to $30 million cash under the new one, according to the proxy. If he gets canned after the company is sold, however, he’d get $42.3 million in cash and insurance benefits, instead of the $34.5 million spelled out in the old policy.

There’s one more unusual feature about this tangled web of compensation: Shareholders get a direct say in all of this. That’s because the entire thing is contingent on the adoption of a 2011 Annual Incentive Plan and amendments to the company’s 2008 Stock Incentive Plan, which contain key elements paving the way for the pact. If those aren’t passed, the company says in last week’s 8-K,

“the Revised Agreement will terminate, neither the Company nor Mr. Rubin will have any obligations under the Revised Agreement, Mr. Rubin’s existing employment agreement with the Company will continue in full force…”

We suppose we should congratulate Rubin and Helen of Troy for taking steps to rein in a little of his eye-opening pay. But it seems they could have done at least a smidgen better.

We’ll see soon enough if shareholders agree.

Image source: Company website