Free

Harman’s expensive mistake…

October is recruiting month here at Northwestern University. Hundreds of students outfitted in sharp black suits huddle into crammed, overheated rooms trying to convince companies to hire them. Seniors and juniors prepare for these campus visits months in advance because it gives them an opportunity to show companies why they are the perfect candidates.

For many companies, college visits are equally as exciting and stressful as they are for students. One reason for this is because hiring the wrong person can be expensive for companies, especially given the current economy. Harman International’s (HAR) proxy filed earlier this week demonstrates the hard hit companies can take when an employee or, in this case a top executive, doesn—t stick around.

In January 2008, Harman announced the hiring of Richard Sorota jas president of the company’s consumer division. He boasted more than 20 years of experience in the consumer product industry, including stints at Scotts Miracle-Gro (SMG) and Procter & Gamble (PG). But Harman clearly wasn’t a good fit since he only lasted one year. In this press release from January 2009, Sorota was described as seeking “an opportunity outside the company”.

But that one year cost Harman around $1.6 million, the bulk of it in relocation benefits and severance benefits, according to the proxy. The severance of $434,632 — nearly two times Sorota’s base salary — seems particularly interesting since the company noted in the filing that it did not have a severance agreement with Sorota. Also interesting is that Harman investors seem to be learning about these details for the first time, nearly 10 months after the fact.

Of course, Sorota could be the real loser here. Since leaving the company, the stock has nearly doubled and is up sharply — over 20% — on yesterday’s earnings announcement.

This post was written by footnoted.org intern Kristen Scholer who is a junior at Northwestern University.