Irony alert: A One-Time Benefit That’s Actually Three Times
The irony that we often see in SEC filings may go largely unnoticed by most. But here at footnoted, we try to keep a close eye on that. Much of this we point out via our twitter feed (see here and here and here for a few recent examples).
But this 8-K filed by Scansource a few days ago with news of renewed employment agreement for its top executives, set our irony-alert a-flutter.
Take a close look at the disclosure related to CEO Michael Baur’s new employment agreement, especially the last sentence:
“Mr. Baur’s Amended and Restated Employment Agreement provides for, among other things, (i) a base salary of $850,000 per year; (ii) an annual variable compensation opportunity of a maximum amount of 150% of his base salary based upon performance and the attainment of performance goals set by the Compensation Committee; (iii) consideration for inclusion in the Company’s annual equity grant; and (iv) the opportunity to participate in the Company’s Nonqualified Deferred Compensation Plan by deferring up to 50% of compensation eligible for deferral under such plan, with a match of 50% of deferred amounts to be made by the Company, up to a maximum of $200,000 per year. In addition, as a one-time benefit to Mr. Baur, at the end of each fiscal year of Mr. Baur’s agreement, the Company will make a $600,000 payment to Mr. Baur’s deferred compensation account for retirement funding.”
You read that right. The company says it will pay $600,00 to the CEO as a “one-time benefit” — for each of the three years that Baur’s employment agreement is in place — for a total of $1.8 million.
Why would Scansource describe this as a one-time benefit when it’s actually making three payments? We’re guessing here, but it’s probably just a bad attempt aimed at obfuscating what seems like a corporate largesse, especially since the payments seem outsized compared with the company’s market cap of just $1 billion.
We went back to the previous employment agreement with Baur, signed on June 6, 2011, but found no mention of any such one-time benefit to him. In fact, a search of the filings by the company didn’t find a single mention of that phrase, until the company’s latest disclosure.
If the company’s $1.8 million payout to Baur for his deferred compensation account seems out of the ordinary, consider this: the company has been paying $200,000 a year to him over the past several years to his non-qualified deferred compensation account. As the company’s disclosure noted above reveals, it will continue to make that payment for him over the three-year employment agreement — for a total of another $600,000.
The company also amended its employment agreements with CFO Charles Mathis, Principal Accounting Officer Gerald Lyons and General Counsel John J. Ellsworth, but none of them received anything close to that generous “one-time benefit.”
Granted that Baur has been with the company since its inception in 1992, but whether that justifies the $1.8 million payment, above and over a generous compensation that includes $850,000 in annual salary and other benefits, is a matter that investors and corporate governance advocates need to wrestle with.
Just another ironic day in SEC-filings land.