Unless you live in the mid-Atlantic states of Maryland, Pennsylvania, New York, New Jersey, or West Virginia, you may not have heard of Weis Markets, Inc. (WMK). The family-run company, which started in 1912 in Sunbury, Pennsylvania, now employs (according to its website) more than 18,000 people and has a market cap of $1.06 billion.
But it’s one of those employees – co-founder Harry Weis’s grandson, Jonathan – who came to our attention after we spotted the 8-K that Weis Markets filed November 8. The filing’s attachments revealed some bold compensation moves designed to benefit Weis, and only Weis: In addition to giving him a hefty, retroactive raise, the company created a new award that rewards Weis while costing shareholders more than $1 million each year.
Jonathan Weis’s new employment agreement was signed November 3 but – with a few deft keystrokes on the computer – it magically became effective four months ago, on July 1. Weis has been the Vice Chairman and Secretary of the Company since 2004, and, the filing tells us, he wants to stay in the family business in that job or whatever capacity the Chairman (his father, Robert Weis) and the board of directors want him to have.
We should point out here that Weis Markets is a controlled company with insiders owning close to 60% of the shares, so to a certain extent, the Weis family gets a bit more of a pass than other folks we’ve featured here on footnoted.
The new agreement obligates Weis to stay through December 31, 2016 and devote “a substantial majority of his business time” to the company’s affairs. In return, he gets a base salary of $669,500 per year and the contractual assurance that his salary won’t decrease. That’s a modest 3.5% raise over last year when he got a 9.4% raise, according to the March 10, 2011 proxy. Weis is also eligible to participate in the bonus and equity-based compensation plans, he gets a company-paid $1 million term life insurance policy, and he will get an additional $1 million to $3.5 million if he is terminated without cause or dies (in which case his spouse or estate gets $1 million).
It’s the second exhibit, though, the “Vice Chairman Incentive Award Plan“, that really fascinated us. Like the employment agreement, this Plan is retroactively effective to July 1. Its stated purpose is to “to provide a strong financial incentive each year” for Weis to perform by making “a significant percentage of the VC’s total cash compensation” contingent upon how the company performs each year, and “to encourage the VC to remain in the employ of the Company….” So far, so good. Except if you dig deeper, you’ll find that Weis is assured of getting a big check each year regardless of how the company performs.
The first part of the Award gives Weis a retention award equal to his base salary (except that for 2011, he only gets $334,750). Think about that for a second: For continuing to show up each day, the company has just doubled Weis’s salary and he gets a minimum of $669,500 (which will rise along with future raises).
The second part of the Award Plan states that Weis “shall be entitled to receive a profit performance award” equal to his salary if the company increases by 5% or more from the Net Income of the immediately preceding Plan Year…. Once again, though, he only gets $334,750 for 2011. That’s not exactly an aggressive goal, nor is it unfathomable to think that most companies’ accountants could produce a 5% net income gain on paper if the business is reasonably profitable and they really tried.
For 2011, the terms of the new plan mean that the company will pay Weis another $669,500 – twice the amount of his retroactively-raised salary. Starting next year, though, he could conceivably receive $669,500 as a base salary and up to twice that – or $1.339 million – in the form of the new Vice Chairman Incentive Award.
Some might argue that Weis might be tempted to leave the company and take his executive talents elsewhere. But, according to the proxy, he’s been getting a paycheck from Weis Markets since 1989. We doubt that the odds were ever very high that he would have gone elsewhere, but – thanks to the new agreement – they may have just dropped from slim to none.
Data source: Morningstar Document Research