Bloated Pay Came
Before Hain Celestial’s Error
The Hain Celestial Group is a
maker of natural and organic foods and beverages.
The Hain Celestial Group,
via PR Newswire
Celestial Group is a maker of natural and organic foods and beverages.
Credit The Hain Celestial Group, via PR Newswire
Celestial Group, a maker of
natural and organic foods and beverages,
has been riding high in the market. But on Monday it came crashing to
earth when it disclosed an accounting problem, delayed its full-year
financial report and said it probably wouldn’t meet its earnings
guidance for 2016.
dumped shares in the company, based in Long Island, wiping out $1.5 billion in
The problem, Hain
said, was that it might have improperly recognized revenue from certain
distributors in the United States during an unspecified period. The company,
which says its purpose is “to create and inspire a healthier way of life,” may
have mistakenly recorded revenue when it shipped products to the distributors,
rather than waiting until those goods had been sold to consumers.
Not the most
transparent disclosure in history, that’s for sure.
Hain said it did
not expect the accounting problem to have an impact on the total amount of
revenue the company had recognized, but it said it was assessing its internal
controls over financial reporting.
were stunned by Hain’s statement. Maybe they shouldn’t have been.
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According to corporate governance experts, clues to oversight problems
at Hain have been evident for a while in its excessive executive pay
practices and disdain for shareholders’ anger about them.
you see overcompensation, it’s usually indicative of failure in other
Charles Elson, director of the
John L. Weinberg Center for Corporate Governance. “Compensation is
oversight. It’s a picture window into the boardroom because it’s such
an important issue.”
Hain is led by Irwin D. Simon, who founded
the company in 1993 after stints at the SlimFast Foods Company and Häagen-Dazs,
the ice cream maker. He wears three hats at Hain: president, chief executive and
chairman of the board.
For a founder, Mr.
Simon does not own that many shares of Hain. As of February, he held 1.9 million
shares, or 1.8 percent of its stock outstanding. Those holdings are worth about
$74 million at current prices.
company founders, who eschew high pay, he has enjoyed hefty remuneration that
comes from shareholders. Over the most recent three years — fiscal 2013-15 — he
has received an average of $18.1 million in annual compensation.
That is a bounty
for a company of Hain’s size, which reached $2.7 billion in sales for the most
recent fiscal year.
What is more, many
of Hain’s shareholders have expressed their
displeasure with the compensation, voting in
nonbinding resolutions against the company’s pay practices in higher numbers
with each passing year. In 2012, for example, 30.9 percent of votes cast at
Hain’s annual meeting were nos. By 2015, this figure had risen to a staggering
This is a striking
contrast to the 5 percent median nay vote tallied at all 500 companies in the
Standard & Poor’s index this year.
Anthes, a Hain spokeswoman, said in a statement:
Celestial is committed to delivering value to all of our stakeholders and has
created significant value for our stockholders over time. We have a very strong,
experienced and highly independent board that exercises its oversight role with
great care and diligence as evidenced by the fact that we self-identified and
have begun to review the potential accounting issue through our internal
examination and the oversight process led by the audit committee and independent
institutional holders that have voted against its pay is Vanguard, the company’s
second-largest holder. By contrast,
BlackRock, Hain’s biggest shareholder, voted
its investors’ shares in support of Hain’s compensation at the 2014 annual
meeting, the most recent year for which a breakdown by shareholders is
Last year, the
company tweaked its compensation in response to the shareholder fury. Hain said
it would extend the pro-rata vesting period for restricted stock grants to three
years from two, increase the proportion of equity compensation to cash and “seek
to eliminate” the double dip in pay that resulted from its use of identical
performance metrics in two incentive plans.
Judging by the
numbers, Hain shareholders viewed these changes as too little, too late. After
they were announced, the company received its highest negative vote on pay.
compensation consultant told them to give investors a few things,” Mr. Elson
said. “The fact that they’re now listening, albeit a little bit, is a good
thing. But when you get into high double digits on pay votes, a board that
ignores that is making a terrible mistake.”
The pay of Hain’s
chief hit my radar screen three years ago when Equilar, a compensation analysis
firm in Redwood City, Calif., identified
problems with the peer groups the company
used for pay purposes.
benchmark their pay against a group of companies in their industries. Most of
Hain’s chosen peers had higher revenue than the company and half had larger
market capitalizations, Equilar found. After Hain tilted the playing field in
its favor, Mr. Simon received far more than the median pay awarded to chief
executives at those larger peers.
Ms. Anthes said
the company’s changes to its pay programs were made in consultation with its
stockholders and corporate governance experts; the modifications “respond to
their input and clearly align pay with performance,” she added.
It is unclear when
Hain will produce its full-year financial results. Having identified the
accounting error, it said it would issue its scrubbed report as soon as
But the accounting
problem isn’t likely to improve its relationship with shareholders. Their anger
may boil over at its as-yet-unscheduled annual meeting this fall.
Even before Hain’s
recent problems, three of its directors came under fire from shareholders. They
are the members of its compensation committee: Richard C. Berke, a former
executive at Broadridge Financial Solutions, an outsourcing provider; Scott M.
O’Neil, chief executive of the Philadelphia 76ers and the New Jersey Devils; and
Adrianne Shapira, chief financial officer of David Yurman Enterprises, a
designer jewelry maker, and a former equity research analyst at Goldman Sachs.
At last year’s
meeting in November, more than one-third of the votes cast withheld support for
the three directors. That kind of dissent is rare in the boardroom.
Through the Hain
spokeswoman, the directors declined to comment.
itself in its filings as a leader in corporate governance that has “consistently
demonstrated our longstanding willingness to listen and respond to our
stockholders’ concerns.” Really?
United States companies are a pretty easygoing bunch most of the time. It
typically takes a lot to get them agitated. But when they do protest, corporate
board members should know better than to ignore them.
A version of this article appears in print on August 21, 2016, on page
BU1 of the New York edition with the headline: Bloated Pay Came Before
© 2016 The
New York Times Company