You'll Never Guess for Whom the Bonus Tolls

Even normally low-key independent research firm The Corporate Library couldn't help but add the descriptive "Shock! Horror!" to its headline alerting analysts to the absence of an annual bonus last year for Toll Brothers' chief executive Robert Toll.

Perhaps homebuilding executives shouldn't be surprised at slimmer paychecks amid the sharp turndown in the industry. But Toll did receive only $9 million in 2007 — compared with $29 million the year before — not to mention that 2007 was the first year since 1991 that he received no bonus.

But what really got The Corporate Library going was that the Horsham, Pennsylvania, company, which posted a $96 million loss for the quarter ending January 31, seems to have insured that its chief executive will receive a bonus this year, no matter what happens.

The luxury home builder's compensation committee said in a recent 2008 proxy statement that its redesigned incentive plan means the chief executive would receive a bonus of 2 percent of company income before taxes and bonus — capped at $25 million, according Paul Hodgson, the Corporate Library's senior research associate.

Noting that Toll has received nearly $200 million in compensation since 1993, Hodgson questioned whether further incentives would work because Toll also holds more than 17 percent of the homebuilder's outstanding stock, a chunk worth 452 times his base salary.

"Cash salary, bonus and stock option profits are not the only sources of income for Mr. Toll even though the company appears never to have paid a dividend," Hodgson wrote.

Awarding its chief executive on the basis of the company's net income appears to have been the formula since the company was floated in 1986, Hodgson observed.

He said such a reward system "might have been appropriate for the first five years of the company's history" but it doesn't work for an established homebuilder.

He also questioned the independence of the board's two-person compensation committee — one of whose members is Carl Marbach, a 17-year board veteran.

The committee seems to be saying, Hodgson wrote in his analyst alert, that even though the homebuilding industry has gone into a downward spiral, "we want to be able to give Mr. Toll his annual bonus, without having to do it under the table, because he has come to expect it."

When companies should be seeking to tie pay and performance more closely, Hodgson said he hoped that Toll's plan is "not a harbinger of things to come this proxy season."

by Elizabeth Olson