The energy drink business is a big one, and for the top executives at the Monster Beverage Corp. (MNST), that led to some monster-sized rewards last year, according to the proxy filed yesterday.
Specifically, Rodney Sacks, Monster’s Chairman, CEO, and a director, received stock unit awards for fiscal 2011 worth more than $10.97 million. Another $10.97 million in stock unit grants went to Monster’s #2 executive, Vice-Chairman, CFO, COO, President, Secretary and director Hilton H. Schlosberg. And even Mark Hall, President of the Monster Beverage Division, received more than $3.1 million in stock unit awards. So long as the executives stay with the company, the stock units will vest over the next three years, with each stock unit converting to a share of stock when it vests.
Of course, we must note that the stock grants made up most of the total compensation numbers for each of those executives, whose other forms of compensation paled by comparison. (For example, Sacks got a salary of $420,000, a bonus of $192,000, and “Other” compensation of $49,700 – primarily as an automobile allowance.)
The value of the stock unit grants is noteworthy on its own, but it’s also interesting to look at a compensation shift that has taken place in the past few years. For example, Monster didn’t award any stock grants in either FY 2010 or FY 2009, and FY 2010 was a year of comparative fiscal restraint for most of the executives’ compensation numbers. The stock awards are a big shift from fiscal 2009, though, when Monster’s big awards to its named executive officers took the form of stock options ($5.63 million for Sacks and Schlosberg; $4.5 million for Hall. The fourth NEO, Thomas Kelly, Monster’s Senior Vice President Finance, received $213,490 in stock awards for FY 2011, compared to $414,902 in stock options in FY 2009). Obviously the executives would prefer the stock awards to options, since options cost something to exercise, and stock retains some value even if the share price drops.
Then again, it was a banner year for Monster, which – prior to January 5, 2012 – sold its products under the name “Hansen Natural Corporation” and traded under the ticker (HANS). Gross sales in 2011 increased by 31% to a record $1.95 billion; most of that growth was in the company’s energy drink segment, which accounted for nearly $1.79 billion in gross sales, according to Monster’s February 29, 2012 10-K.
Although Monster has only been selling its carbonated energy drinks (which contain vitamins, minerals, nutrients, herbs and and the vaguely-labeled “supplements”) since 2002, several smart steps have contributed to the explosive growth in sales of Monster’s products. First, it doesn’t directly manufacture its own products, but instead outsources the manufacturing process to third party bottlers and contract packers, a decision that minimizes production costs. Second, it also has distribution deals with major companies (including Coca-Cola) that distribute Monster’s products in 70 countries. Last year, gross sales from countries outside the United States accounted for $381 million, an increase of about $140 million from the prior year. And finally, it puts a lot of resources into promoting what it calls “a lifestyle in a can.” According to Monster’s website:
“Most companies spend their money on ad agencies, TV commercials, radio spots, and billboards to tell you how good their products are. At Monster we choose none of the above. Instead, we support the scene, our bands, our athletes and our fans. We back athletes so they can make a career out of their passion. We promote concert tours, so our favorite bands can visit your home town. We celebrate with our fans and riders by throwing parties and making the coolest events we can think of a reality.”
Clearly, the branding effort is working with Monster’s target customers, who apparently have embraced the company’s motto, “Unleash the Beast!” If profits keep edging upwards like they did in 2011, we might suggest that the executives adopt a similar motto for themselves: “Unleash the stock awards!”
The fine print in SEC filings can hide some truly scary disclosures. At footnotedPro, our subscription service for professional investors, we spot red flags and hidden opportunities well ahead of the market: regulatory risk, litigation, accounting games, M&A signals and more. For more information, or to inquire about a trial subscription, please email us.