Donuts and performance at Krispy Kreme …

May 10, 2010

Like Homer Simpson, we have to admit a certain appreciation for donuts — and the fluffy, icing-caked Krispy Kreme glazed donut is certainly in a class of its own.

So are the company’s filings, as devoted readers of footnoted know. (Most recently, we footnoted its run-ins with Fairfax County, Virginia, over donut sludge and sewer problems.) The proxy that Krispy Kreme (KKD) filed Friday morning didn’t disappoint: Directors and executives got plenty of donuts — or should we say dough-nuts — last year.

Chief Executive James H. Morgan got a $651,700 bonus last year — nearly equal to his $657,500 salary — as well as $217,320 in options. Plus, he received $47,691 in housing and relocation expenses (including $15,761 to cover taxes on the benefit) and an “executive allowance” of $2,000 a month “in lieu of typical perquisites afforded to Chief Executive Officers at other public companies, such as company-provided cars, annual physical examinations, and financial planning services.” (The proxy helpfully notes that the allowance “permits the Company to attract and retain key talent in the Chief Executive Officer position while at the same time controlling costs.” We still think it sounds like frosting on the eclair: a little more salary by another name.)

Directors got $120,000 in stock, anywhere from $60,000 to $95,000 in cash, and reimbursement for meeting expenses and continuing education — plus a $1,200 stipend for unspecified “miscellaneous expenses.” Krispy Kreme also paid a company two-thirds owned by Director C. Stephen Lynn $357,000 “to refurbish the interior and exterior of two Krispy Kreme stores,” with the possibility of a five-year deal to do more of the same if the remodeling proves “successful.” Footnoted readers may recall that sweetheart related party transactions have long been an issue at the company.

Of course, for Krispy Kreme shareholders, 2009 wasn’t half bad: Its shares returned 75.6% last year, handily beating the S&P 500 and the restaurant industry generally (including dividends). And yet, we can’t help but wonder whether that kind of success, like some airy, sugary snacks, will have much staying power. After all, this is a stock that has lost an average of 10.7% over the last decade, 25.7% over the last three years. Revenue fell 9.8% last year, and, while its fiscal 2010 loss of $200,000 was easily its best showing in years, net income has languished in negative territory since 2005.

Morgan’s total pay is actually down slightly from last year — very slightly, at $1.598 million vs. $1.63 million — but the mix is what intrigued us: More of it is in cash, at 83.4% (including his allowance) compared to 41.4% in 2008. And while much of that may be a function of overall compensation design — including the mix between long-term and short-term incentives — it’s not exactly a ringing endorsement of the stock’s prospects when top management is rewarded with cash after a good year rather than equity.

In one Simpsons episode, Homer ponders productivity growth at the company where he works, and attributes it to “my motivational techniques, like donuts — and the possibility of more donuts to come!”

We’ll see how that works for Krispy Kreme shareholders.

Image source: House of Sims’ via Flickr.

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