Toll Brothers CEO receives controversial bonus

March 12, 2008 2:31:48 PM PDT
Shareholders of Toll Brothers Inc. on Wednesday approved a compensation plan designed to award bonuses to the chief executive even when the housing market is slumping.

The Horsham-based luxury home builder did not disclose how many votes came out in favor of the plan. But a shareholder activist group said executives disclosed at the shareholders meeting that it was at least 50 percent. Media were barred from attending the event.

CEO Robert Toll didn't get a bonus for 2007 as the housing market slumped. But under the new CEO bonus plan, the company said, he would have received $6.56 million.

The CEO bonus plan "pays him simply for existing," said Jennifer O'Dell, deputy director of corporate affairs for the Laborers' International Union of North America, a union whose pension funds own at least 200,000 shares of Toll Brothers. "You should pay CEOs for performance."

The CEO bonus plan widens the criteria under which the CEO could earn a bonus, taking into consideration factors such as gross revenue, cash flow, issuance of new debt, acquisition of companies, overhead cost cuts and worker morale. The bonus will be capped at $25 million a year.

Toll's officers and directors collectively own nearly 25 percent of the common shares, with Robert Toll holding a 17.44 percent stake.

Toll Brothers said executives were tied up at a meeting and were not available for comment. At Toll's suburban Philadelphia headquarters, executives were hunkered down inside the building. The union, whose members own stock, said only about a few dozen people attended the shareholders meeting.

The California State Teachers' Retirement System and the New York State Common Retirement Fund have opposed the CEO bonus plan. They own 355,000 shares and 488,200 shares, respectively.

Proxy advisory firms such as RiskMetrics Group's Institutional Shareholder Services and Proxy Governance Inc. also have come out against the plan.

"The new plan could continue to provide high or a minimum level of bonus payments despite lackluster or even negative financial performance," according to the ISS report on Toll Brothers.

In previous years, Toll has been ranked among the nation's highest-paid CEOs. In 2007, he received $7.1 million in total compensation for fiscal 2007, according to a proxy statement filed with the Securities and Exchange Commission. But he didn't get a bonus on top of his $1.3 million base salary, which has remained the same for four years.

At the shareholders meeting, Robert Toll, his brother Bruce, and CFO Joel Rassman also were re-elected as directors. The builder did not disclose the vote count, but union members who attended the shareholders meeting said each of the three received at least a 67 percent favorable vote.

Shareholders said executives didn't elaborate on the extent of joint venture losses, which the builder described in an SEC filing this week as potentially "significant" if its partners cannot or become unwilling to meet their obligations.

Toll Brothers has entered into joint ventures to develop land with partner companies.

Shares of Toll Brothers have been falling in the past year after hitting a high of $35.64 in February 2007. On Wednesday, the stock fell 33 cents to $19.87 in late afternoon trading.

Tom Maresca, an 81-year-old shareholder of Toll, said he expected the stock to be weak given the housing malaise. He said he took the opportunity to buy more stock.

"I took advantage of what was happening in the industry and I bought some shares," he said. "I'm sure they'll appreciate for me after the (housing) inventory gets sold off."

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