Plenty of fizz behind National Beverage pay…

September 2, 2011

At first glance, the proxy that National Beverage (FIZZ) filed on Monday, paints a pretty simple picture for Chairman and Chief Executive Nick Caporella and for George Bracken, senior vice-president of finance: Neither man got salary or a bonus, and Bracken got a mere $69,944 in stock options.

On the other hand, there’s also the column for “all other compensation” —some $6 million for Caporella, and not quite $400,000 for Bracken.

A footnote elaborates: Neither, it turns out, is actually employed by National Beverage, which makes Shasta Cola, LaCroix seltzer and Rip It energy drinks, among other drinks. Both men work for an outfit with the generic name of Corporation Management Advisors, owned (wouldn’t you know it) by one Nick Caporella. National Beverage pays CMA 1% of consolidated net sales. CMA pays Bracken, and Caporella, presumably, gets CMA’s profits.

It’s a circuitous arrangement, but a long-standing one, dating back to 1992. Until recently, it has also been pretty much opaque for investors, something that has changed only under pressure from the Securities and Exchange Commission.

Until a couple years ago, National Beverage only disclosed its total payment to CMA: about $6 million a year of late. Just how much Caporella, Bracken or anyone else received in the process was left to investors’ imagination: The proxy’s standard-issue compensation table effectively showed a bunch of blanks.

That began to change after February 2009, when the Securities and Exchange Commission staff started asking about the arrangement, in the form of a comment letter [PDF]. After some back-and-forth (including National Beverage’s observation that it had stopped reporting Bracken’s pay in response to a prior comment letter), the agency got National Beverage to agree to include —compensation that is paid … indirectly through third parties—¯in the table. In Caporella’s case, the company reports the full management fee as “other compensation”, given that he owns the management company; for Bracken, it reports his actual pay from CMA.

Both strike us as improvements over what National Beverage did before, but still less than ideal. Pay is in part about incentives, after all, and understanding how a company rewards its officers and directors is supposed to provide insight into the incentives they have to perform for shareholders. That means understanding its structure and nuances, not simply knowing the raw amounts. True, CMA has an incentive to boost sales at National Beverage, but knowing how much of CMA’s revenues Caporella ultimately gets to keep is as helpful as knowing the salary and bonus paid to more run-of-the-mill CEOs.

The SEC may be thinking along similar lines. It has recently been seeking to clarify other issues in the relationship between National Beverages and CMA, including whether National Beverage’s overall compensation plan helps determine Caporella’s pay, and whether CMA also rewards other senior corporate personnel. (National Beverage answered no on both counts.)

In addition to owning CMA, Caporella owns almost three-quarters of National Beverage’s shares, so to some degree the debate is academic.

Still, Caporella goes to some effort to put his personal stamp on the company — a recent earnings release included his thoughts on patriotism and modern political discourse, for example. From our perspective, that would make it all the more refreshing if he and his company were a little more transparent about their internal dealings.

Image source: Shasta (a National Beverage brand) website

This post was written by footnoted intern Andy Cheng, a rising junior at the University of Chicago.

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