Performance anxiety at Cosi’s

September 21, 2007

images-14.jpegCompanies have personalities, and Cosi Inc. (COSI) strikes me as a social climber: it takes its name from an opera, claims its customers are “elites,” and brags in its 10-K about serving food for “three major dayparts – breakfast, lunch and dinner.” Let’s hope newly hired CEO/President James Hyatt, a former Burger King franchisee, explains to the Cosi troops that (flatbread notwithstanding) they work for a fast food chain and it’s OK to say the word “meals.”

Hyatt will no doubt do his best to do something about Cosi’s earnings, not to mention its stock price. But I’m irked by something in his employment contract (filed with an 8-K Tuesday evening).

In addition to his $600K salary, bonus (TBD), and 475,000 shares of restricted stock that will vest if he just hangs around for a few years, he’s eligible to earn “Additional Restricted Stock” tied to annual “specified performance goals.” The contract is coy about what the goals will be, but indicates that their achievement, or lack thereof, will be measured using fancy techniques involving lots of math.

So far, so good. But then the contract, in a confusing 3-sentence paragraph you wouldn’t know about if you just read the summary in the 8-K, takes a slight twist. I’ll paraphrase it for you:

Sentence 1: In a year when 100% of the performance goals are met, Mr. Hyatt will get 100,000 shares of Additional Restricted Stock (vesting over 5 years).
Sentence 2: In a year when 100% of the performance goals aren’t met, he’s not eligible for any restricted stock.
Sentence 3: Actually, despite Sentence 2, if it feels like it the Compensation Committee can grant him up to 100,000 shares anyway “based upon overall performance.”

When a board ties an award to detailed performance measures while reserving the right to ignore them, the whole exercise becomes pretty meaningless. Why even bother creating the metrics? I guess some companies enjoy bragging about pay-for-performance but don’t want to sandwich themselves into practicing it.

P.S. See this Proxyland post for a similar gripe about The Gymboree Corporation (GYMB).

P. P.S. Thanks, Michelle, for inviting me to post here on Footnoted.

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