Getting Rewarded for Failure
Courtesy of Dr. Paul Price, Beating Buffett
Wall Street Boards often blatantly hands out enormous restricted stock awards and bonuses to executives that have reigned during times of severe company-specific underperformance. How bad has Alliance Bernstein been since Mr. Kraus took over in January 2009? You make the call.
Share Price Comparison with Peer Group
Alliance Bernstein didn’t just perform badly. AB units declined more than 38% in a period when the S&P 500 gained 52.28% (both excluding dividends/distributions). [See chart]
AB’s 2011 annual report noted that Mr. Kraus’s first employment agreement [dated Dec. 19, 2008] granted him 2,722,052 restricted holding units which had an approximate value of $52,000,000 as of the date of the grant. The $6 million cash bonus for 2009 was said to have been needed as an extra short-term inducement to join AB as CEO.
Those two pieces alone were worth about $58 million in additional to his $275,000 annual base salary. The contract even agreed to pay COBRA medical coverage expenses on his behalf should Mr. Kraus not finish out his term of office. I’m sure that would have been a deal breaker otherwise.
Peter Kraus took home over $10 million in 2009 including the $6 million bonus. He had total compensation of more than $8.86 million for the horrendously bad years (for AB) 2010 and 2011. With about one and a half years remaining on his original contract you might have been expecting the Board of Directors to be thinking about a change at the top.
Instead, Alliance Bernstein’s CEO just received an especially generous 5-year contract extension. Mr. Kraus is now signed on through January 2019. How could they risk losing a man of such obvious benefit to the firm?
This time around the Board determined he needed extra incentive to properly align his interests with the firm. They authorized a grant of an additional 2.7 million restricted units (worth $33,600,000 on June 26th).
Only government entities and Wall Street Boards have the nerve to offer packages like this to executives with years of documentable poor performance in the same job. Actions of this type are what gall the public and fuel the Occupy Wall Street movement.
Disclosure: No position
