National Discount Brokers Group
shelled out big time to its two head honchos last fiscal year, paying them cash bonuses of nearly $20 million. But it looks like those gravy days are ending.
Just a few months after rewarding Chief Executive Officer Arthur Kontos with a whopping bonus of $14.45 million for the fiscal year ended May 31, the Jersey City, N.J.-based online and discount brokerage says Kontos will voluntarily take a 20%-smaller bonus this fiscal year. If National Discount Brokers performs comparably to this past fiscal year, that would mean a $3 million cut, the company says.
Kontos' bonus is based on a percentage of NDB's pretax income, which was $62.76 million in fiscal 2000. He receives, in cash, 10% of the first $10 million of pretax income and then 15% of income above that $10 million. He voluntarily gave up $2.4 million of this past fiscal year's bonus, which would have brought the payout to near $17 million.
Meanwhile, Thomas Neumann, who heads the firm's market-making unit,
NDB Capital Markets
, received a $5.5 million cash bonus. NDB is asking shareholders to approve a plan that would significantly trim back that bonus, according to the company's proxy statement filed Tuesday with the
Securities and Exchange Commission
. Under the new formula-based plan, he would have received just under $4 million in cash bonus this past fiscal year -- a 27% decrease.
Shareholders won't vote on Kontos' lower bonus.
Kontos' compensation package, which included a $300,000 salary, isn't the largest in the brokerage industry, but it is comparatively high. For example, industry giant
Co-Chief Executive David Pottruck brought in $800,000 in salary and $8.2 million in a cash bonus last year. But Schwab had $971 million in pretax net income in 1999 -- 16 times more than NDB's. (Pottruck, whose bonus is tied to pretax profit margins and revenue growth, also received options worth $118 million -- something Kontos hasn't received since 1998.)
NDB Chief Financial Officer Daniel Fishbane says Kontos' decision to refuse $2.4 million of the fiscal 2000 bonus and to take a reduction in his bonus this fiscal year is typical of his management style. Fishbane also points to Kontos' stake in the company, which is 13.6% according to the proxy, as a reason behind the move.
The decision to decrease the CEO's payouts wasn't because NDB felt it paid too much this past fiscal year, Fishbane adds. "We thought it was equitable on a longer-term basis," he says.
NDB also is asking shareholders to approve an increase in stock options for officers and employees, from the current 8,000 shares to 1.3 million shares. Stock options are an increasingly important compensation method for companies looking to motivate employees.
"We are still in a dot-com business where options are an important part of compensation. We need to have stock options available to attract employees," Fishbane says.
Kontos, by the way, won't be taking stock options this fiscal year either.