Dollar Financial Corp.’s Paper Scavenger Hunt…

May 21, 2010

We love scavenger hunts as much as anyone else, but they’re less fun in the context of SEC filings.

Take the example of Dollar Financial Corp. (DLLR), a company that provides payday loans, check cashing, and pawn lending services to (in its words) —unbanked and under-banked consumers.

This week the company filed an 8-K to disclose an amended employment agreement, dated May 17, 2010, with EVP/CFO Randall (Randy) Underwood.

On its face, the amended agreement seems pretty routine: Underwood now gets an annual base salary of $505,000, and if the company meets its performance objectives, he—ll get an annual target bonus opportunity equal to 90% of his base salary (although the Board’s Comp Committee can give him up to a maximum bonus of 180% of his base salary). He may also get an award under the company’s Long Term Incentive Plan (LTIP), as well as other benefits.

Underwood’s prior agreement contained a section that gives him a —Retention Bonus of $150,000 per year, for as long as he lives, so long as he stayed with the company through June 30, 2011. The company listed his age as 59 last fall, so this could add up to a lot of money over the course of his lifetime. (And keep in mind that this money is on top of his retirement benefits.)

In this new agreement, Underwood still gets the $150,000 a year, but now he also gets an —Incremental Retention Bonus which gives him another $50,000 per year, —payable in equal monthly installments during his lifetime. The new bonus is —in recognition of [his] prior and future service to the Company. To get it, though, he must stay with the company through December 31, 2012. (In both cases, if Underwood remains married to his current spouse and she’s still living when he dies, she’ll receive half of each bonus during her lifetime.)

As we read through the compensation terms, we found this curious subsection:

(k) Attached is Schedule X, which identifies a list of employment terms, conditions and benefits unique to the Executive’s employment relationship with the Company which shall at least be maintained, or improved for the benefit of the Employee, for the term of this Agreement.

It seemed odd to have a mysterious —Schedule X to set out —employment terms, conditions and benefits. Why not just include them in an Amended Employment Agreement, the purpose of which is to specify —employment terms, conditions and benefits?

So we found Schedule X, which states, in part:

——the following are additional employment terms, conditions and benefits which, together with the remuneration detailed in Sections 4(a) through 4(h) of the Employment Contract, collectively shall constitute —Compensation to the Executive:

1. Housing Allowance — The Company will continue the present practice of paying a housing allowance of $3,000 a month. This amount shall be grossed up annually based on employee’s effective tax rates.

That raised the question about the housing allowance. Usually companies provide those when an employee takes an international assignment or works in an expensive area on a temporary assignment. But does either circumstance apply to Underwood?

We researched the company’s past filings, and the first mention we could find of Underwood’s housing allowance was the October 10, 2007 proxy, which states:

“Mr. Underwood receives a monthly housing allowance. The current housing allowance is $3,000 per month.”

Thus, we know that he’s been getting it for a few years; but we don’t know why, because the company doesn’t explain why.

If the last decade has taught us anything, it’s that transparency in SEC filings is essential if investors are to make informed decisions. When companies don—t explain their compensation practices on seemingly small matters, it leaves one to wonder about the larger ones.

And in fact, this 2005 post from footnoted’s archives illustrates the point. That post focused on Dollar Financial Corp.’s disclosure that it had forgiven $2.3 million in interest on a loan the company had made to CEO/Chairman Jeffrey Weiss. Michelle noted at the time that the company offered no other details about the loan; however, it had to be big, if the interest due on the loan was $2.3 million.

If it were up to us, companies would clearly disclose their actions, and it wouldn—t be necessary to jump from document to document in the search for information that a company should provide in a clear manner. If we’re going to have scavenger hunts, may we please stick to the fun kind?

Image source: swanksalot via Flickr

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