Hovnanian’s pay too high – governance firm
Thu March, 2009
NEW YORK, March 12 (Reuters) – Corporate governance firm Proxy Governance
Inc has recommended that shareholders withhold votes from the directors on
Hovnanian Enterprises Inc’s compensation committee because of the chief
executive’s high compensation relative to that at peer companies.
CEO Ara Hovnanian’s average three-year compensation is 290 percent above the
median paid to chief executives at peer companies, Proxy Governance wrote in
its report.
"The company’s executive compensation is high due to its equity grants and
bonus grants in fiscal 2006 and 2007," the firm wrote. In fiscal 2008,
Hovnanian received about $4 million in total compensation, with about $1.5
million From stock options and almost $1 million in bonus on top of a $1
million base salary.
But Chief Financial Officer Larry Sorsby said that although under accounting
rules the company must report those options as income in the year that they
vest according to the value that they had when they were granted, they are
worthless because the company’s share price has fallen so precipitously.
"Based on our recent stock price, our stock would have to increase by about
800 percent for even the lowest-priced option to be worth anything to Mr. Ara
Hovnanian," Sorsby said.
Hovnanian received a bonus because he increased the company’s cash position
to over $800 million at the end of 2008 from $12 million at the end of 2007,
Sorsby said.
The company is family controlled, which means the family can approve any
proposal on the shareholder ballot with its own votes alone, Proxy Governance
said. "Any shareholder vote on the issue is essentially a protest vote. We
believe that shareholders should use it as such."
On the grounds that Hovnanian’s compensation fell by 31.56 percent to about
$4 million in 2008, rival governance firm ISS Government Services did not
recommend in its report that shareholders withhold votes for the compensation
committee’s members.
"We will, however, continue to monitor the company’s pay practices to ensure
that there is no pay-for-performance disconnect going forward," ISS wrote.
The homebuilders are mired in the worst housing slump since the Great
Depression. Hovnanian’s shares are down about 95 percent from their high on
the year in March 2008. They hit their lifetime high of $73.40 in July
2005. (Reporting by Helen Chernikoff, editing by Gerald E. McCormick)