Underscoring the fact that proxy season is in full swing, union advocacy group Change to Win (CtW) Investment Group issued a letter to shareholders of The Ryland Group late last week, urging them to withhold their votes for three specific members of the board of directors during the company's annual compensation committee meeting scheduled for April 23, 2008.
Specifically, William Jews, Norman Metcalfe, and Charlotte St. Martin were cited for their repeated failure to "link pay and performance when designing executive compensation packages.
"Even in an industry known for disproportionate compensation, Ryland's practices have long stood out," said CtW Investment Group executive director William Patterson in a statement. "Investors are disappointed that, despite facing a substantial vote of no confidence last year, directors Jews, Metcalfe, and St. Martin continue to misalign executive and shareholder interests. At the upcoming annual meeting, shareholders can send a message that Ryland needs directors who will restore the link between pay and performance."
According to CtW's Web site, the group is a federation of unions representing nearly six million workers in the United States. Members of CtW affiliates participate in public and Taft-Hartley pension funds with approximately $1.5 trillion in assets, including $180 billion in Taft-Hartley plans sponsored by CtW affiliates. The group claims to be acting in defense of the long-term health of its pension plans and the retirement security of its workers.
CtW's recommendation followed another from investor advisory group PROXY Governance Inc., which also urged voters to withhold their votes for the three directors.
Several issues are causing contention. The shareholder letter specifically notes that Ryland CEO Chad Dreier's annual bonus is benchmarked to 2% of pre-tax income and that 57.2% of his total compensation was performance-based in 2007. According to the company's proxy statement, "other named executive officers," including the CFO and COO, were had 46.2% of their pay tied to performance.
In addition, tax "gross-ups" have helped defer personal income tax liability to Dreier related to the receipt of $4 million in stock during 2007. In 2006, CtW claims he received $5.7 million in tax assistance.
An "excessive" pension--up to $3.84 million per year for 15 years--as well as a "single-trigger" severance package that includes a "change in control" clause are also sticking points.
"Mr. Dreier's single-trigger provision allows him to profit from both the change in control and from continued employment at a potential purchaser," the letter to shareholders stated. "This not only undermines the central rationale for such a payment, but also reduces [his] incentive to maximize merger consideration. With the home building sector likely to enter a period of consolidation, this is an acute concern."
An assistant to Eric Elder, Ryland's senior vp of marketing and communications, said the company would have no comment on the letter beyond a previous statment that Dreir received no bonus in 2007.
Regarding salaries, the proxy states: "In July 2007, the compensation committee provided increases averaging 15.7% of base salary to certain executive officers, other than Dreier, to recognize their performance during a challenging period in the home building industry and enhance the competitive level of their base salary to assist with the retention of these key employees. Pursuant to his employment agreement, Dreier's base salary has not increased since 2002." Dreier's base salary, according to the proxy, remained $1 million for 2007.
According to proxy statements of the public home builder companies, a CEO's average base salary in 2007 was $848,127. In addition to that, the average annual incentive was roughly $5.50 million. In all, total remuneration for these CEOs was $9.25 million.
Despite the drop off in company performance and shareholder return in 2007, base salaries were down approximately 2% from the previous year, annual incentives dropped 44%, and total remuneration for CEOs fell 36% for the same period.
In the past, Dreier has been scrutinized as having high compensation, even compared to his home-building peers. In 2007, his package totaled $14.2 million down from $31 million the previous year.
Ryland is only the most recent company to come under fire from activist groups seeking change at the board level. Others include Lennar, Standard Pacific and Pulte.