Remember Jill Barad, the former CEO of
? Remember the severance package of roughly $50 million she received after being canned? Remember the media circus that ensued? Well, management doesn't seem to have learned much from the experience.
To be fair, Mattel has come a long way since Barad departed in February 2000. In fact, its stock has rebounded about 65%, to nearly $19. After instituting an aggressive cost-cutting program and writing off its money-losing The Learning Company subsidiary, which it
sold in the third quarter of 2000, the company has turned in decent numbers. On Oct. 18, it reported third-quarter earnings of 48 cents a share, 2 cents more than the average consensus estimate and 7 cents ahead of the comparable period last year.
Toying With a Recovery
But Mattel continues to dole out exorbitant compensation to its well-fed management team. Just take a look at the company's latest proxy statement, which was filed April 9. Why the proxy? As I said in
an Oct. 18 column, the proxy explains management's compensation agreements in detail. In Mattel's document, you'll learn:
- After Barad left the company, Mattel paid special "retention" bonuses of $215,000 each to Matthew Bousquette, president of Boys Entertainment products; Neil Friedman, president of Fisher Price brands; and Adrienne Fontanella, president of Girls/Barbie. It also paid $60,000 as a retention bonus to Chief Financial Officer Kevin Farr. Incidentally, this compensation was on top of average base salaries of more than $700,000.
Mattel continues to be a source of loans for its management. Last year, it made a $5.5 million loan to its current chief executive, Robert Eckert. Interest on that loan accrues at 7% a year, and the note is due in May 2003. The catch? If Eckert stays with the company, the loan and all interest due are forgiven, as is any federal or state tax liability. That's on top of the $788,000 salary he earned in 2000. Not too shabby, huh?
Bousquette, Friedman and Fontanella each received $1 million loans from Mattel on Oct. 29, 1999, and a second loan for $2 million each on April 7, 2000. The loans are payable in October 2002, and interest accrues annually at 7%. Again, if they stay with the company, all loans, interest and taxes are forgiven.
CFO Farr received a $500,000 loan from Mattel in February 2000 and another half-million-dollar loan in April 2000. If Farr is with the company when the loan is due in February 2003, the debt will be forgiven.
According to the proxy, the purpose of compensation and loans is to "help ensure that Mattel will retain the services of these key executives during a time of management transition and business challenges."
Sure, key personnel need to be retained, especially in a time of uncertainty. But this is pretty hefty money between base salary and loans. The company is paying out the equivalent of 29% of its cash balance as of Sept. 30.
Although Mattel has come a long way during the past year, investors should know exactly where management's loyalties lie -- because it doesn't look like they're with the common shareholder.
In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Curtis welcomes your feedback and invites you to send it to