Determining Executive Compensation......
The Employment Agreements for senior management permits bonuses to be paid based on the discretion of the Board. In FY 2008 CKE restaurants did not hit the targeted income for management to receive a performance bonus. So, the Board felt that it was important to analyze why the company missed numbers and determine if senior management should get a bonus.
And guess what........ The market value of the company declined nearly by $600 million The CEO made $6.2 million, down from $6.8 million last FY.
According to the CKE proxy - During fiscal year 2008, a number of material events occurred which were not anticipated at the time the original target income was approved and which changed the Company structurally. Since these events were not anticipated, they were not factored into the original budget.
These events included the following:
(1) In July of fiscal year 2008, the Company sold its La Salsa brand. The original budget contemplated owning La Salsa for the entire year.
(2) The Company refranchised 136 Hardee's restaurants pursuant to a refranchising program the Company announced in April of fiscal year 2008. The original budget contemplated owning these Hardee's units throughout the fiscal year.
(3) The Company repurchased $266,640,000 of its common stock during fiscal year 2008. The Company increased its borrowings under its credit facility by $219,404,000 in fiscal year 2008 principally as a result of the share repurchases, thereby increasing interest expense during the fiscal year. The original budget did not contemplate this volume of share repurchases or the attendant interest expense.
(4) The primary unforeseeable events creating these adverse consequences were the significant increase in commodity costs, the extent of the increase in the minimum wage, and the substantial decline in interest rates resulting in mark-to-market accounting charges which the Company was required to take on the interest rate swap agreements the Company had entered into with respect to certain of its debt.
Because of the structural changes to the company and unforeseen events the board believed that the original budget was no longer relevant in determining management compensation. As a result, there was no impact to senior management compensation, despite a nearly 50% decline in the value of the company.