FairPoint Communications' top executive received $1.2 million in salary, bonus and stock awards last year, including a 30 percent increase in his base salary after the company's purchase of Verizon's landline network in northern New England.
Although Eugene Johnson's overall compensation fell sharply from 2007, the chief executive officer's 2008 base salary was raised to $600,000 by FairPoint's board of directors, according to information filed with the Securities and Exchange Commission. Six other top managers got raises averaging nearly 23 percent.
The Charlotte, N.C.-based company closed in March 2008 on its $2.3 billion purchase of Verizon's phone system in Maine, New Hampshire and Vermont. Beset with technical troubles, FairPoint delayed taking over the network until February. It then wrestled with a difficult transition marked by billing and service problems that angered many customers and have only recently begun to subside.
FairPoint borrowed heavily to make the Verizon purchase and has high debt. The company's stock value has plummeted since the closing, falling from roughly $10 a share to just over $1 now.
The board recently suspended quarterly dividend payments to investors, to conserve cash.
The proxy statement filed last month with regulators offers a first chance to examine FairPoint's process for compensating its leaders since the company became Maine's largest phone provider. The company's operational troubles raise questions about how closely compensation is tied to performance.
The answers aren't clear. The company won't disclose the specific financial targets and metrics it uses in setting performance criteria, saying that information would benefit competitors.
A FairPoint representative declined to be interviewed by the Portland Press Herald/Maine Sunday Telegram. But in an e-mailed statement, the company said its compensation committee actively reviews management compensation to ensure that it's appropriate and based on performance.
In fact, Johnson's 2008 compensation was down substantially from 2007, when his total salary, benefits and stock awards exceeded $2.4 million.
The drop is reflected in national trends, according to a review released last week by USA Today and The Associated Press. The median total compensation for chief executives of Standard & Poor's 500 companies fell 7 percent in 2008, to $7.6 million.
Johnson has been board chairman since 2003 and CEO since 2002. He has said he plans to retire when his contract expires at the end of this year, but he has been nominated for re-election to the board. Shareholders will vote on that and other issues June 3 at FairPoint's annual meeting in Charlotte.
FairPoint also will release its financial results for the first quarter of 2009 today, after the stock market closes.
In a legal statement filed in advance of the annual meeting, FairPoint's compensation committee notes that the 2008 fiscal year was complex for executives, who had to focus on the merger while operating the existing business. Executives got cash incentives for specific actions to advance the merger. But because the company failed to achieve certain financial goals for 2008, the report says, management didn't receive incentive compensation in those areas.
Contributions to executive compensation include salary, annual and long-term incentives, deferred compensation, insurance and retirement benefits. In 2008, base salaries accounted for 33 percent to 50 percent of total compensation. The committee also developed a matrix that identified the target bonuses for each executive and the performance criteria to evaluate performance.
For instance: Eighty percent of Johnson's performance criteria hinge on FairPoint achieving a specified adjusted earnings target. The target is confidential because the company says it could provide guidance to competitors.
Other executives...
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