CEO-Friendly Provisions Are Today’s Filing Season Find

For February 28, our forensic accounting needles in a haystack come from a medical device company with some unusually generous benefits for its CEO.

Analyst Peter Apockotos found two unusual items in Masimo Corporation’s (MASI) 2018 10-K.

On page 37 of the financial footnotes (page 119 overall), MASI discloses the terms of its employment agreement with CEO and founder Joe Kiani. Notably, if the company fires Kiani, he gets $293 million (4% of market cap) in severance. For comparison, when the similarly sized Molina Healthcare (MOH) fired its CEO in 2017, he received just $23 million in severance pay.

On page 22 of the financial footnotes (page 104 overall), MASI discloses that it makes its corporate aircraft available to Kiani for lease on a time-sharing basis throughout the year. According to MASI’s proxy statement, Kiani is the only employee permitted to use the corporate aircraft for personal travel. MASI also pays for security services for Kiani during his personal travel, and it pays travel and lodging costs for his family when they accompany him on business trips.

Kiani’s compensation also appears unusually high when compared to MASI’s peers. In 2017, Kiani received $14.2 million in total compensation. By comparison, West Pharmaceutical Services (WST), the company in MASI’s listed peer group with the closest market cap, paid its CEO just $4.8 million in 2017 and its top 5 executives a combined $11 million.

MASI’s unusually high compensation, severance obligations, and perks for its CEO raise questions about the independence of its board and its commitment to the fiduciary duty of maximizing value for shareholders.

The Power of the Robo-Analyst

We analyzed 147 10-K filings yesterday, from which our Robo-Analyst[1] technology collected 16,613 data points. Our analyst team used this data to make 3,500 forensic accounting adjustments with a dollar value of $1.6 trillion. The adjustments were applied as follows:

  • 1,358 income statement adjustments with a total value of $112 billion
  • 1,534 balance sheet adjustments with a total value of $686 billion
  • 608 valuation adjustments with a total value of $767 billion

We believe this research is necessary to fulfill the Fiduciary Duty of Care. Ernst & Young’s white paper, “Getting ROIC Right”, demonstrates how these adjustments contribute to meaningfully superior models and metrics.

This article originally published on February 28, 2019.

Disclosure: David Trainer, Peter Apockotos, and Sam McBride receive no compensation to write about any specific stock, sector, style, or theme.