One of the things that usually makes for an entertaining read in the proxy is the section where the compensation committee tries to explain why the CEO received a particular bonus. While some companies provide better disclosure than others, the idea is basically the same: (fill in the blank) really earned it!
The proxy that Clorox (CLX) filed earlier this week is a great example. CEO Gerald Johnston, who added Chairman to his title in March, met a wide range of goals, ranging from sales of new products to cost-cutting, which prompted the board to increase his bonus by about 50% in fiscal 2005 to $1.52 million. It certainly sounds legitimate.
It’s only when you look at Clorox’s performance, particularly during the last two months of the fiscal year, and then skip down to the stock comparison for Clorox’s peer group, which has consistently outperformed Clorox, that you start to wonder if there’s a disconnect. Granted, stock price alone shouldn’t dictate the size of the bonus (or you’d have executives doing dumb things to artificially drive up the price — imagine that!). But there should be some correlation so that when investors are impacted, it hits the top guys too.