Donald Hudgens thinks ConAgra Incds chairman and chief executive officer, Philip B. Fletcher, has it too easy.
Question:
Donald Hudgens thinks ConAgra Incds chairman and chief executive officer, Philip B. Fletcher, has it too easy.
“Maybe Pm naive,” says Mr. Hudgens, a retired railroad chemist. uI've never had a high- poweredjob." Still, he contends that ConAgra's CEO should be working harder for his millions.
As a consequence, ConAgra shareholders will vote later this month on Mr. Hudgens' proposal that the company revise a special long-term incentive plan directors approved for Mr. Fletcher last year. Under that plan, the chairman would receive 50,000 ConAgra common sharesfor every percentage point over 10% the company's per-share earnings rise during the nextfourfiscal years.
For example, if earnings grow at a compound annual rate of 14%, as they did last year, Mr. Fletcher would get 200,000 shares ofstock—that is, four percentage points times 50,000 shares. The payout would occur in July 1998. At ConAgra's current price, every 50,000 shares would be valued at $1.6 million.
“They'll do it [exceed 10%] in spite ofany incentive award," Mr. Hudgens says. He has some statistical support. . . . ConAgra's per-share earnings have grown at a 15.4% compounded annual rate; ConAgra's longtime internal goal is for per-share earnings [growth] to exceed 14% a year, on average.
Thus, Mr. Hudgens wants ConAgra to compare its performance with that of other food com¬ panies [instead of its own growth targets] and he has drawn up a list of 13 [competitors]. . . . Moreover, per-share growth must come from continuing operations, the 54-year-old shareholder says.
ConAgra, the nation's largest independent food company, opposes Mr. Hudgens' suggestion. Initially, the company said it wouldn't allow shareholders to consider it at all, only to have the Securities and Exchange Commission disagree.
[SOURCE: Richard Gibson, “ConAgra Holder Is Seeking Changes in Incentive Plan,” Wall Street Journal (September 6, 1994), p. B5. Reprinted by permission of The Wall Street Journal, © 1994 Dow Jones & Company, Inc. All Rights Reserved Worldwide.]
a. Why would managers of ConAgra oppose Mr. Hudgens’ proposal?
b. What is your opinion regarding the payment of bonuses for performance that is merely average?
c. What are the ethical responsibilities of top management and the board of directors in setting the performance criteria that determine bonus payments?
CHAPTER 22 Rewarding Performance 1027
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