Finance and Economic

The typical analyst research note is not page-turning reading: Turgid prose, heavy on numbers and financial jargon.

This one was different.

In a March 9 report on Furniture Brands International, veteran analyst Budd Bugatch of Raymond James took the company’s management and board to the woodshed.

The issue: Incentive payments to seven top executives, amounting to more than $10 million, at a time when sales were shrinking and the company was dipping into red ink. Bugatch called the pay "excessive, unreasonable and disheartening."

"The company is not alone in the industry in dealing with hard times," wrote Bugatch. "But the leadership of this company — starting at the boardroom and extending through the executive suite — is not, in our opinion, acting responsibly or in the interests of all of the company’s stakeholders."

Disagreement about Furniture Brands’ executive compensation practices was one reason T. Scott King resigned abruptly from the company’s board of directors in February. King had been a member of Furniture Brands’ human resources committee.

The company defended the long-term incentive plan, which was established almost three years ago.

The payments were based on free cash flow, rather than on profitability or the company’s stock price payday loan online. Furniture Brands executives have been preaching the mantra that "cash is king" in a rough economy. The goal of the two-year incentive program was to stabilize Furniture Brands and position it for future growth, according to the company.

In any case, the payment of "extremely high bonuses" was the primary culprit in forcing Furniture Brands to use $9 million in cash from operations in the first quarter, Stifel Nicolaus analyst John Baugh wrote this month.

The company’s board of directors planned to re-evaluate the company’s executive compensation for this year and 2010, Chairman and Chief Executive Ralph Scozzafava said this month during a conference call with analysts. Scozzafava, who received a $3 million incentive payment, defended the company’s previous payment structure, calling it "absolutely well structured."

"Our philosophy here is that we pay for performance," Scozzafava said. "And we’ve had big elements of our compensation structure not pay out. Our short-term incentive programs haven’t paid out in a couple of years."

Source