Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

See related case examples of

Dell Inc.

appraisal rights for intrinsic value realization

and

Walgreen Co.

stock buyback policies

"Fair Access" Home Page

"Fair Access" Program Reference

For graphs of specific company and related industry returns, see

Returns on Corporate Capital

For graphs of specific company voting for the past 5 years, see

Shareholder Support Rankings

 

 

 

Forum distribution:

Observations that both executive pay and accounting unrelated to business performance

 

Source: The New York Times | Fair Game, August 19, 2016 column

 


Business Day

Bloated Pay Came Before Hain Celestial’s Error


Fair Game

By GRETCHEN MORGENSON    AUG. 19, 2016


The Hain Celestial Group is a maker of natural and organic foods and beverages.

The Hain Celestial Group, via PR Newswire

 

 

The Hain Celestial Group is a maker of natural and organic foods and beverages. Credit The Hain Celestial Group, via PR Newswire

The Hain 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.

Investors have dumped shares in the company, based in Long Island, wiping out $1.5 billion in market capitalization.

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.

Clearly, investors were stunned by Hain’s statement. Maybe they shouldn’t have been.

 

Fair Game

A column from Gretchen Morgenson examining the world of finance and its impact on investors, workers and families


A Simple Test to Dispel the Illusion Behind Stock Buybacks Aug 12

Investors Get Stung Twice by Executives’ Lavish Pay Package

Jul 8


How to Gauge a C.E.O.’s Value? Hint: It’s Not the Share Price

Jun 17


Fantasy Math Is Helping Companies Spin Losses Into Profits

Apr 22


BlackRock Wields Its Big Stick Like a Wet Noodle on C.E.O. Pay

APR 15


In Yahoo, Another Example of the Buyback Mirage

Mar 25


Stock Buyback Plans, Seen as Shareholder Boon, Can Backfire

MAR 11


FASB Proposes to Curb What Companies Must Disclose

Jan 2

2016


Valeant Shows the Perils of Fantasy Numbers

OCT 30

2015


Safety Suffers as Stock Options Propel Executive Pay Packages

SEP 13


Why Putting a Number to C.E.O. Pay Might Bring Change

Aug 9


Tech Companies Fly High on Fantasy Accounting

Jun 21


Stock Buybacks That Hurt Shareholders

Jun 5


Shareholders’ Votes Have Done Little to Curb Lavish Executive Pay

May 16

2015


When the Stock Price Hides Trouble

Oct 12

2013


An Unstoppable Climb in C.E.O. Pay

Jun 30 2013


See More »

   

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.

“When you see overcompensation, it’s usually indicative of failure in other areas,” said 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.

Unlike some 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 59 percent.

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.

Mary Celeste Anthes, a Hain spokeswoman, said in a statement:

Hain 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 external counsel.”

Among Hain’s 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 available.

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.

“Obviously, their 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.

Many companies 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 possible.

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.

Hain characterizes 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?

Shareholders of 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 Hain’s Error.

 


© 2016 The New York Times Company

Performance and Shareholder Support

The following graphs of corporate performance and of shareholder voting support for executive compensation are presented for the company addressed in the article with relevant market comparisons.

Full-size graphs of these and other companies you may select can be generated on the Shareholder Forum's websites for Returns on Corporate Capital™  and for Shareholder Support Rankings™. Definitions of both analyses are presented below.


♦ ♦ ♦

♦ ♦ ♦

Returns on Corporate Capital™ are a performance measurement developed in a Shareholder Forum workshop project, and are calculated from the company’s SEC reports of its GAAP-defined net income plus interest expense and income taxes, divided by its prior year’s ending balance of total assets less current liabilities other than interest-bearing debt. Comparative averages for the company's industry are based on aggregate amounts for all reporting Russell 3000 companies in the six-digit Global Industry Classification Standard (GICS), excluding the amounts for the subject company.

Shareholder Support Rankings™ analyses are produced by The Shareholder Forum from research data provided by Equilar, Inc., calculated as the percentage of total votes cast for, against and abstaining in advisory “Say on Pay” shareholder approvals of executive compensation.

© Copyright 2012-2016 The Shareholder Forum, Inc.

 

 

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to access@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.