Last year’s bumpy ride at trucking giant YRC Worldwide Inc. flattened the CEO’s wallet considerably, according to the company’s proxy statement to shareholders.
James Welch’s pay dropped sharply, though just how much it fell depends on who’s measuring the fall.
Officially, the report to shareholders showed that Welch’s pay totaled $3.4 million in 2016, counting salary, bonuses, stock awards and other forms of compensation, though in 2016 he received no bonus. That was nearly 35 percent less than in 2015 when he earned $5.22 million.
But the $3.4 million total included a big stock award that Welch later had to forfeit. Exclude that and his total pay fell 59 percent.
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A company spokesman acknowledged Welch’s drop in pay and said it was because “we didn’t perform as we expected.”
Specifically, Welch and other executives were in line to earn cash bonuses and stock awards totaling millions of dollars. Collecting, however, depended on how well YRC Worldwide fared financially.
The Overland Park-based company reported a $21.5 million profit last year, far greater than its $700,000 profit in 2015. Even in reporting those results in early February, Welch said that the company had fallen short.
“While we did not make the progress we had planned for in 2016, I would nevertheless categorize our overall results as steady,” Welch said during a conference call with analysts and investors.
Those results were not enough, as executive compensation was riding on two other financial yardsticks.
Specifically, Welch and other executives might have shared in a cash bonus pool of $2 million, $4 million or up to $8 million depending on one measure. It is called ebitda and measures corporate earnings before subtracting some costs such as interest expenses and taxes. The higher YRC’s ebitda, the bigger the bonus pool the executives would share.
Instead, YRC Worldwide missed even the target for the $2 million bonus pool. The report to shareholders said “we did not achieve the performance necessary to fund the consolidated incentive pool,” and no bonuses were paid.
“It’s supposed to work that way,” said Brandon Rees, deputy director of the AFL-CIO Office of Investment that looks at executive compensation.
Welch had collected $1.77 million under the same bonus plan in 2015.
Under a stock grant program, Welch received $2.52 million in stock awards in 2016, according to the report to shareholders. The grant helped boost his total compensation to $3.4 million.
Half that amount was a time-based grant, which means he stands to collect the shares free and clear over the next three years, though he will owe taxes on them.
The other half, however, was tied to another yardstick that measured the company’s performance, specifically its return on invested capital. Again, YRC Worldwide fell short. The report to shareholders noted the missed mark and said “all performance stock units granted in 2016 were forfeited.”
Compensation totals that shareholders saw, however, included the forfeited shares. Odd, but that’s how compensation reporting rules work according to Rees and Paul Dorf, who tracks CEO pay at Compensation Resources.
Dorf said he’ll be watching next year to see whether YRC Worldwide’s 2017 proxy statement alters the 2016 compensation to exclude the forfeited shares. He said other companies with different but similar circumstances have restated previous compensation totals that way.
“We actually see that quite often,” Dorf said.