Navistar board goes above and beyond__»

December 29, 2010

It has been a good year for Navistar International Corporation (NAV), even though its Fourth Quarter results – announced last week – missed analysts’ estimates by 6 cents. And – as one might expect – that good fortune resulted in a nice payout for the company’s Chairman/CEO/President, Daniel Ustian, as disclosed in the preliminary proxy filed Dec. 22.

Besides raising Ustian’s salary from $1.18 million (set in 2007) to $1.25 million, the board found that Ustian had earned a nice Annual Incentive cash award of $1.947 million. And, as boards sometimes do, they found a way to give a slightly larger payout than the numbers alone might have justified. The board approved Ustian’s award at the “Distinguished level” because of “…the Company’s successful financial results and his strong performance in fiscal year 2010 as a result of his achievements within our three strategic pillars of great products, competitive costs and profitable growth.”

Navistar has four categories for its Annual Incentive awards: Threshold, Target, Distinguished, and Super-Distinguished. Not to be sticklers, but it appears that Navistar really only performed at the “Target” level (defined as earnings per share of $2.34), not the “Distinguished” level (defined as $3.12 per share). With a little rationalization, though, the company offers the following explanation for bumping up Ustian’s award:

“As discussed in the Annual Incentive section below, the Company’s fiscal year 2010 Consolidated Normalized Earnings Per Share (EPS) was $3.05, which is 146% of Target, slightly below the Distinguished level of performance (150% of Target). Excluding a one-time charge for costs associated with the fourth quarter settlement of a new labor agreement, EPS would have been $3.19 (155% of Target), which is higher than the Distinguished level of performance of $3.12 EPS.”

So – in other words – if we didn’t have to pay out about $10 million in separation and layoff costs for the new four-year agreement with the UAW, our numbers would have been high enough to reach the “Distinguished” threshhold for real. (The UAW deal, together with Navistar’s $55 million investment in global expansion, are two of the primary reasons that Navistar didn’t quite pull in the $0.60 per share in earnings that analysts had hoped to see.)

Of course, Ustian’s nearly $2 million bonus helps to make up for the fact that in early August, he (together with Navistar and some former employees) reached a final administrative settlement with the SEC regarding its investigation into the Company’s restatement of its financial results from 2002 through the first three quarters of 2005. Without admitting or denying any wrongdoing, Ustian consented to a cease and desist order that requires him to comply with internal accounting controls; he also agreed to return to Navistar $1.32 million worth of common stock “representing his fiscal 2004 monetary bonus, the only bonus that he received during the restatement period.”

Still, Ustian came out ahead. Besides the previously mentioned award of $1.947 million, he also got a $1.946 million cash bonus, more than $646K in new stock awards, and $2.67 million in option awards. Adding all that to his salary, the increase in his pension, and his perks, and Ustian’s 2010 total compensation exceeded $10.382 million.

Image source: smaedli via flickr

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