One of my favorite themes in the Dell LBO pseudo-battle is the cognitive dissonance between Dell's need to tell its shareholders how screwed it is, for the purpose of convincing them to vote to sell at the somewhat underwhelming price of $13.65, and its need to simultaneously tell everyone how good it is, for most other purposes. Like, just, self-esteem for one thing, but also things like getting financing and avoiding a MAC1 and not making prior performance statements sound like lies. Today Ronald Barusch has a delightful Dealpolitik column pointing out another important purpose, which is: paying management a lot for their excellent performance:
Last week Dell Inc. filed its annual compensation committee report. ... There were raises for all of the top executives other than Mr. Dell, the chief executive. And everyone was granted bonuses. ...
Each of the top officers was ranked at 100%, from a range that can vary from 0-187.5%, in terms of their individual performance. 100% indicates that individuals meet specified objectives, including those relating to “Strategic and transformational objectives relating to each executive officer’s function or business unit, including the degree to which the executive officer is driving change in support of Dell’s transformation.” The objectives are set so that “The Committee believes that the achievement of these performance objectives would correspond to meaningful improvements for the organization and are reasonably difficult to attain.”
Company performance is considered as well and this percentage was set at 70%, from a range that can vary from 0-150%.
Consider the transition of those pseudo-numbers: 100% performance by executives translates into 70% performance by the company translates into, um, this:
Imagine if they'd been slacking!
Actually the comp looks sort of fair; the total comp in Dell's Summary Compensation Table for the named executives is down about 22% year-on-year, and so coincidentally is the stock price. So everything sort of works out more or less fine, though it's justified with 26 pages of fudged metrics.2 Director comp, incidentally, ran about $300K for a year of, to be fair, hard and unrewarding work.3
Speaking of unrewarding: Carl Icahn and Southeastern filed their proxy for Dell late last week and it ... didn't say much? This is an odd sort of takeover battle where, on the one hand, Dell is proposing an actual takeover, with money and not having your stock any more, while, on the other hand, Icahn and Southeastern are sort of gesturing vaguely in the direction of a ghostly leveraged recap. But their proxy doesn't advocate the recap, or fill in any details of what it would look like, how much shareholders would get, or how it would be financed. Nor does the brief "Background of this Solicitation" section suggest that Icahn and Southeastern have been hard at work lining up financing for their deal since lobbing it half-baked at Dell.
Basically the argument is not "our levered recap is a better deal than Silver Lake's LBO"; it's "vote down Silver Lake's LBO and trust Carl Icahn to do better by us." I ... guess? Anyway if you vote down the deal, there'll be a delightful proxy fight, with various Icahn and Southeastern director nominees, possibly a CEO, who knows. Part of me is rooting for them to win, just to see the FY2014 compensation discussion. "Our target performance was to execute a leveraged recap that delivered more than $13.65 of value to shareholders. So, about that ..."
Dealpolitik: Dell on Its Management: The Tales of Two Filings [WSJ MoneyBeat]
1.Oh not really.
For Fiscal 2013, Dell achieved non-GAAP operating income of $3.973 billion, which fell between the threshold [$3.897bn, 50% bonus] and target [$5.097bn, 100% bonus] performance objectives, and achieved net revenue of $56.94 billion, which fell between the threshold [$55.73bn] and target [$64.73bn] performance objectives. Non-GAAP operating income is calculated in the manner described above. The results for the Corporate Scorecard [various operational stuff] fell below target performance objectives established for the year, resulting in a Corporate Scorecard modifier of 80% [which makes up 25% of the score, with revenue and non-GAAP operating income being the other 75%]. Based on this level of corporate financial performance and Corporate Scorecard performance, the corporate bonus modifier would have been set at 63% of target. The Board, however, does not believe setting performance at 63% of target is consistent with performance for Fiscal 2013 given the weak global macro-economic conditions that impacted demand for Dell's products and services. A primary driver of the downward trend of the bonus modifier is the related downturn in the global technology market that was not predicted by Dell at the beginning of the year. Dell's annual plan for Fiscal 2013 assumed industry client growth at approximately 5%. However, industry growth was much softer than expected and many of Dell's peers experienced similar unexpected declines in revenue and operating income. Based on a balanced assessment of Dell's performance for Fiscal 2013 taking into account the weakening global macro-economic environment, the Board exercised its discretion to approve a final bonus modifier at 70% of target.
I get 61% but who's counting these fake numbers really
3.Ooh here's a rabbithole:
Dell provides directors personal computers and equipment for their use in connection with their Board service and for personal use. Dell also provides from time to time personal technical support to directors.
I couldn't resist looking up Apple's equivalent benefit:
In addition, under the Company’s Board of Directors Equipment Program, each Non-Employee Director is eligible to receive, upon request and free of charge, one of each new product introduced by the Company, and is eligible to purchase additional equipment at a discount.
No tech support required! And now I guess they're all getting a pile of, like, Mac Pros and stuff?