* For an explanation of the different approaches used by the AFL-CIO and the U.S. Securities and Exchange Commission to calculate total compensation, click here.

IN TOUGH TIMES, CEOS MOVE PERFORMANCE GOAL POSTS

Toll Brothers Inc., the nation’s largest luxury home builder, benefited from the housing bubble that collapsed in 2007. Now, because of an expanded tax break in the proposed federal budget, the nation’s 13 largest builders, including Toll Brothers, could collect billions of dollars more by offsetting recent tax losses with taxable profits earned in previous years.[1] Toll Brothers and other big home builders stand to collect $2.4 billion in tax refunds this year under existing law.[2]

The company has not treated its shareholders as kindly. For starters, the term “pay for performance” takes on a whole new meaning at the Horsham, Pa.-based company, whose stock plummeted more than 70 percent from its all-time high of $58.25 in July 2005 to $17 on March 20, 2009. As the housing market cratered in 2007 and it became clear that Robert Toll, the founding chairman and chief executive officer, would not qualify for a bonus under the existing plan, the company decided to move the performance goal posts.

Further, because of the steep drop in the company’s stock price, the home builder repriced “underwater” stock options in 2008. Toll Brothers’s executive pay program includes other provisions not in the best interests of shareholders, such as a “golden coffin” for Toll, that let stock options continue to vest on their normal vesting schedule even after his death. Restricted stock awards also would fully vest immediately upon his death.

The company’s pay practices earned the company a failing grade from The Corporate Library, an independent corporate governance research firm.[3] The compensation awarded to Toll rated a “High Concern” from The Corporate Library.[4] Even as the company lost $297.8 million for the fiscal year ended Oct. 31, 2008, Toll received $8.8 million in total compensation for the year. That’s twice as much as the $4.6 million median compensation for CEOs of a peer group.[5]

Toll’s 2008 compensation dropped 44.3 percent from the $14.4 million he received for the fiscal year ending Oct. 31, 2007, but he isn’t hurting. He collected $46,800,368 in 2008 by exercising and selling some stock options.[6] In addition, the board of directors promptly gave him another $7,360,143 in new stock options.[7] Last December—early in the 2009 fiscal year—Toll received $130,000 worth of restricted stock units to make up for a 10 percent drop in compensation.[8] He now owns some 15 percent of all the shares in the company.[9]

The shareholder-unfriendly Toll Brothers’ pay practice—the new bonus plan that moves the CEO’s performance goal posts—squeaked through at the March 2008 annual shareholder meeting by only 55 percent of the votes. Rather than linking Toll’s bonus to the company’s net income, the new plan is tied to a percentage of the company’s income before taxes and bonus, revenues of at least $1.5 billion and several squishy factors such as “management enhancement and efficiencies and financial market visibility and access.”[10]

Toll did not receive a bonus for the fiscal year ended Oct. 31, 2007, when the previous bonus plan was in place, but would have collected a $6.6 million payout had the new plan been installed—even while shares lost nearly one-third of their value.[11]

Paul Hodgson, director of research at The Corporate Library and a leading authority on executive compensation, noted that the new Toll Brothers' scheme virtually guarantees excessive bonus payments.[12]

RiskMetrics Group Inc., Glass Lewis & Co. and Proxy Governance Inc., the leading proxy advisers, strongly opposed the change. “It appears the company's driving motivation behind the change is to ensure Toll continues to receive cash incentives even when the company's financial performance is suffering,” according to Proxy Governance. “We find it galling that the company would seek shareholder approval for a change to its CEO bonus plan at a time when the company is struggling," Proxy Governance said in its recommendation to shareholders.[13]

Toll did not collect a cash bonus for fiscal 2008. But he could collect as much as $25 million (in cash and stock awards) for the fiscal year ending Oct. 31, 2009.[14]

Because of the fall in the company’s stock price, the stock options became worthless since they could only be exercised at prices above the current levels.[15] The United Brotherhood of Carpenters and Joiners was among institutional shareholders who voted against an options exchange plan at Toll’s 2008 annual meeting.[16]

And, at a time when the stock market’s collapse has wiped out the retirement savings of millions of working Americans, the executive compensation committee of Toll Brothers approved a 10 percent increase in retirement benefits for top executives last year.