A primer in Apollo’s executive pay practices…

January 4, 2012

A few weeks ago, Rep. Elijah Cummings (D-MD), the ranking Democrat on the House Oversight and Government Reform Committee, opened an investigation into what he called “lavish” pay practices at for-profit colleges. (Bloomberg’s report on the matter is here; the Wall Street Journal’s is here.)

It’s a touchy subject, because the for-profit schools receive tens of billions of dollars in Pell grants and federal student loans, yet a recent newsletter published by the National Education Association cited government data that

“…students at for-profit institutions represent just 12 percent of all higher-education students — but 26 percent of all student loans and 46 percent of all student loan dollars in default. Their students carry a median debt of $14,000, while most of their counterparts at public community colleges don—t borrow a single penny.”

All that was an interesting backdrop as we read the DEF 14C that Apollo Group, Inc. (APOL) filed late in the afternoon on December 28, 2011. It’s quite a lengthy document, coming in at 110 pages online, but we’ll try to distill it down to a few “highlights.”

First, we learned that Apollo’s Compensation Committee is – by far – the hardest-working sub-group of the Board of Directors. The Comp Committee met 22 times during fiscal year 2011, compared to 8 times for the general Board of Directors, 11 times for the Audit Committee, 4 times for the Nominating and Governance Committee, 14 times for the Special Litigation Committee, and 4 times for the Independent Director Committee. The Finance Committee – which was “constituted by the Board on June 24, 2011 to evaluate options with respect to possible financing transactions proposed by management that require Board approval, and report its findings and recommendations back to the Board” – never met even once between the time it was created and August 31, 2011, when FY 2011 ended.

The named executive officers all fared well, including the biggest winner, Co-CEO Gregory W. Cappelli, who received $25.13 million in total compensation (including a $19.5 million stock award and $3.95 million in stock options; Apollo noted that the huge hand-out of equity awards is “in lieu of a series of annual grants for each [of] the 2012, 2013 and 2014 fiscal years”). Cappelli also got a cash bonus of just over $1 million; and his salary rose from $650,000 to $700,000 on September 1, 2011, thanks to the guaranteed $50,000-per-year raise built into his employment agreement, which runs through 2014. Each of the other NEOs got a total compensation package that ranged between $3.3 million and $6.8 million.

The executives also got a number of company-paid perks that one might expect multi-millionaires to buy for themselves, including tens of thousands of dollars of personal use of Company-chartered aircraft (coincidentally, at least one aircraft is leased to the company by Yo Pegasus, LLC, an entity controlled by Apollo’s founder, John G. Sperling), and more than $1 million to relocate Sean B. W. Martin, Senior Vice President, General Counsel and Secretary, from California to Arizona, to compensate him for a loss on the sale of his California home, and pay the taxes he would have owed on the relocation-related payments. Apollo also paid for plenty of smaller expenses, too, such as $601 for Cappelli’s “personal use of [a] Company-owned condominium” and “$750 relating to sponsorship of a little league baseball team of a family member.”

Most of the directors, meanwhile, earned between $300,000 and $400,000, which was paid in a combination of cash, stock awards, and stock options.

And finally, veteran footnoted readers will be relieved to know that Apollo’s cozy relationship with football is still going strong. We wrote about Apollo nearly a year ago, with Michelle noting (in this post) that the company – thanks to its naming rights agreement with the Arizona Cardinals – has a “private stadium loft” where executives and their guests can kick back and enjoy a little pro football. The executives and their guests are also occasionally whisked away on all-expenses-paid trips to some of the Cardinals’ away games, the Pro Bowl, and even the Super Bowl. Those perks are still perking along on pages 49-50 of this year’s filing, where you’ll also find Apollo’s justification that the naming rights agreement is a “valuable marketing tool” and that there’s “no separate cost allocation under the naming rights agreement” for the private loft, the tickets, or any of the all-expenses-paid trips. Apparently if you spend $154.5 million on a naming rights agreement (as Apollo did in 2006), those goodies won’t cost you anything extra. (Of course, the proxy doesn’t remind investors of the price tag for the deal; we found it here.)

Untangling the issue of executive compensation in the for-profit education sector won’t be easy, but as Apollo’s proxy makes clear, Cummings and his staff will have plenty to work with.

Image source: Education costs via Shutterstock

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