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Battle Brews at DMA: CEO Kimmel Paid too Much?

9/6/11

By Ken Magill

Gerry Pike is on another crusade to slap the Direct Marketing Association’s leadership around.

And just like his 2009 battle—which involved multiple issues—the hot-button issue for this feud is the DMA chief executive’s salary, bonuses and how they were negotiated.

However, he has no discernable support from the board of directors. Granted he had little support from the board when he launched his last battle—one that he went on to win with a settlement under which he and two people of his choosing would become board members.

But the difference between that board and this one is that this board includes at least four members aside from himself he had a hand in picking.

According to multiple sources, Pike was given between 30 and 40 minutes to speak at a board meeting in May.

He was reportedly highly critical of DMA CEO Larry Kimmel’s contract and how it was negotiated.

According to Pike, Kimmel’s bonuses are too easy to get and his contract was negotiated without transparency.

According to a board member who asked not to be named, after Pike spoke, the head of the compensation committee said: “I don’t know what you’re talking about. I’m looking at his contract and I can tell you he’s only going to get about half his bonus this year.”

According to another board member who asked not to be named, the board then took a vote on an issue with three components: That they stood behind how the search committee operated in finding and negotiating with Kimmel, that they agreed with Kimmel’s pay structure and that they stood behind Kimmel as CEO.

According to Pike there weren’t three components. The vote was on his motion to “recalibrate” Kimmel’s contract.

In any case, when asked to vote every member cast his or her vote to stand behind Kimmel’s contract.

“It’s not like he lost 34 to six,” said one board member. “He lost 39 to one.”

According to documents obtained by The Magill Report, the actual number was 33 to one. However, there seems to be some contention over whether the one nay vote—Pike’s—was a vote or an abstention.

Nonetheless, the board voted unanimously against Pike.

Hence, his newest proxy fight.

Pike last week sent emails to an unknown number of DMA members asking for their proxy votes in an effort to get a so-called Say-on-Pay resolution put on the ballot at the DMA Oct. 2 annual meeting.

Adopting Pike’s Say-on-Pay resolution would require DMA to:

*Report senior executive compensation directly to membership annually,

*Grant members an advisory vote-of-approval,

*Disclose ‘golden parachute’ provisions,

*Reveal the independence of compensation committee members and advisors,

*Report its pay-versus-performance requirements,

*Recover money wrongly paid in incentive compensation or lost through fraud or malfeasance,

*Report top executive pay versus median employee pay.

“This is the corporate standard for thousands of American companies,” said Pike in an interview with The Magill Report. “The DMA often makes the declarative statement that they are leaders. I don’t think they should be caught bringing up the rear on a good-governance issue.

Pike said his beef is not with Kimmel.

“This is not about Larry, Louis, Jim or Jane,” he said. “This is about good policy. It’s about following the rules. It’s about serving the best interests of members,” he added.

In order to explain the motivation for his current battle, Pike referred to his last.

“In 2009 members were emphatic that they wanted compensation at the DMA to be taken out of the back room, brought into the boardroom and done transparently,” Pike said. “And they were rather dramatic in their reaction to finding out the stratospheric levels of pay for the top spot at DMA.”

As of mid-2008, former DMA president John Greco’s compensation was reportedly $840,000.

“In 2010, inexplicably, history repeated itself,” Pike said. “The DMA wrote a stratospheric contract and did so without bringing the contract forward to either the compensation committee, or the executive committee, or the board.”

He added: “When this [Kimmel’s] contract came forward, I was on the executive committee. I never saw the contract. … I was on the board. I never saw the contract. After six months of pick-and-shovel work and digging up the contract myself, finally the board was given a single-page analysis of the contract. Those numbers were stunning.”

By asking for DMA members’ proxy votes, Pike said: “I am going to membership and saying: ‘Here’s your opportunity to have input, to have insight, to open the windows, let some fresh air and prevent this recidivist behavior, and more importantly have something that indicates how your dues are prioritized within the association that you as members own.’

“Because, obviously, if all the money’s being shoveled upstairs, there’s not much money at the staff level to service the needs of membership,” Pike said.

One board member disagreed with Pike’s characterization of the process under which Kimmel was hired as lacking transparency.

“The search committee narrowed it down to their favorite candidate,” the board member said. “They said: “Here’s his bio and here’s the kind of deal we’re going to make with him. We would like to get board approval to make this kind of deal with him with these parameters around it.’

“The board voted every other board member opposed to Gerry, whatever the number to one, to go ahead and negotiate the deal within those parameters. The deal came in with those parameters. The contract was ratified.”

According to Pike, the contract was not ratified.

To illustrate what he believes is the disproportionate nature of DMA chief-executive compensation structure, Pike referred to a New York Times report that had Smile Train CEO Brian Mullaney making $678,058 on $91 million in revenue and assets.

However, the board members interviewed for this piece said it was unfair to contrast Kimmel’s pay to the CEO of a charity. Rather, they said, Kimmel’s pay and bonus structure should be compared to that of the CEOs of other advertising trade organizations, taking their size into account.

“We’re the largest of them all by far,” said one board member.

According to documents obtained by The Magill Report, Kimmel’s base salary for fiscal 2011, which ended in June was $485,000. According to Pike’s analysis of Kimmel’s contract, Kimmel compensation for fiscal 2011 had the potential to hit $785,000 if he hit certain marks, one of which was that the DMA bring in $23 million in revenue.

According to Internal Revenue Service tax filings, in fiscal year 2009—the most recent year for which tax information was available on Guidestar.org—Randall Rothenberg, president and CEO of the Interactive Advertising Bureau drew a base salary of $444,248, a bonus of $150,000 and other benefits of $23,651 for a total compensation package of $617,899.

The IAB’s total revenue in fiscal 2009 was $11,445,447 and total expenses were $10,002,143, according to its tax form 990.

According to the American Marketing Association’s tax records for 2010—the most recent available—CEO Dennis Dunlap drew a base salary of $326,703, bonus and other compensation of $37,709 and retirement and other deferred compensation and benefits of $24,320 for a total of $388,732.

The AMA’s total revenue for that year was $13,914,835 and expenses were $13,481,673, according to its 990.

According to the American Association of Advertising Agencies’ 2009 tax record, CEO Nancy Hill drew a base salary of $453,971 and other compensation of $28,166 for a total of $482,137.

The organization’s total revenue for that year was $14,596,137 and total expenses were $14,753,266, according to its 990.

According to the Association of National Advertisers’ 990 for 2008, CEO Robert Liodice drew total compensation of $570,270. His base was $441,870, according to the 990.

A note from Guidestar accompanying the ANA’s 990 said its version of the form contained some inaccurate data, including the omission of some compensation information that the ANA reported. Guidestar said it is working with the IRS to get an accurate 990 for the ANA for that year.

As a result, Liodice’s pay may have been higher than reflected in Guidestar’s current records.

The ANA’s total revenue for that year was $15,608,018 and total expenses were $16,582,003, according to its 990.

According to a summary of Kimmel’s contract put together by Pike, Kimmel’s base salary for fiscal year 2011 was $485,000.

If the DMA’s net income for fiscal 2011 was equal to or greater than $23 million, Kimmel’s base salary for fiscal 2012 will be raised 5 percent to $509,250, according to the summary.

There are tier-one and tier-two bonus possibilities under which Kimmel can earn a maximum of $785,000 and $859,000 in the first two years of his contract, respectively, according to the summary.

Kimmel has the opportunity to earn $2.953 million over the course of his three-year contract, according to the summary.

However, in order to get that figure, Kimmel must trigger a so-called $400,000 “super bonus” in the third year, which requires him to grow the DMA’s annual revenue to $35 million, a figure the DMA hasn’t come close to hitting since 2008.

“In order to get the super bonus, he’d have to grow the DMA 60 to 80 percent,” one board member said.

Pike’s main beef beyond procedural issues seems to be that Kimmel’s bonuses and raises start kicking in at $23 million in 2011, or $2 million less than what he said was the DMA’s 2010 performance.

And since the bonuses are awarded on a percentage-of-growth basis, each one is awarded on an artificially lowered bar because the original trigger figure is low by $2 million, Pike contends.

According to multiple sources, the DMA has grown under Kimmel’s watch for the first time since 2006.

According to a financial summary obtained by The Magill Report, the DMA’s revenue for fiscal 2007 was 38.6 million. Over the next two years, revenue plummeted to $30.7 million in 2009.

One board member recalled seeing projections last May that said if the DMA continued on the trajectory it was on, it would have fewer than 2,000 members and less than $20 million in revenue at the end of fiscal 2011.

Projections in the summary obtained by The Magill Report had the DMA generating $23.5 million in revenue in 2010.

The board member who saw the $20 million 2011 projection estimated this year the DMA should report some 2,400 members and $25 million in revenue for fiscal 2011.

“We went out and got the right guy and we’re paying him appropriately,” the board member said.

Moreover, the board member said, Kimmel had written into his contract that if he couldn’t stem the DMA’s losses in his first year, he’d forego his 12th month’s pay.

“He came here because he’s passionate about the DMA. He believes in it,” the board member said.

The board member said the DMA has eliminated, going forward, the types of six-figure retirement benefits that are paid to former presidents, such as Bob Wientzen.

“Kimmel has no golden parachute,” the board member said.

According to Kimmel and the two board members interviewed for this piece, Pike hasn’t paid his dues for 11 months.

Pike denies this.

“There are three things I would answer to [on that]: The first is no individual owes dues at DMA. DMA does not have individual membership. Secondly, I am a voting member of DMIX [Direct Marketing Idea Exchange] of DMA. You can go on the DMA website and you’ll see me listed there dues paid in full.

“The third one has to do with DMSA [the company sources say hasn’t paid dues in 11 months] DMSA informed the DMA that it would not pay a million-dollar salary to a non-profit association, which DMA is. We had asked for six months to see a CEO contract that was never revealed and DMSA refused to renew its dues not seeing the contract. But I am a member of DMA through DMIX of which I am the voting member.”

When asked to elaborate on DMSA’s structure, such as if there were partners and employees, Pike declined other than to say “it consists of more than me and one partner” and that he is managing director.

The board members also said Pike offered to serve as the DMA’s CEO for a dollar a year but that his offer didn’t get past the search committee.

Kimmel called Pike’s allegations “arguably slanderous.

“He’s suggesting malfeasance when there is none,” Kimmel said. “The rest of the board was there [at the May meeting] and heard him. And every single one of the rest of the board said ‘no.’ The story is he’s wrongheaded. Talk to 39 board members and ask them.”

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Terms: Feel free to be as big a jerk as you want, but don't attack anyone other than me personally. And don't criticize people or companies other than me anonymously. Got something crappy to say? Say it under your real name. Anonymous potshots and personal attacks aimed at me, however, are fine.

Posted by: Ken Magill
Date: 2011-09-06 20:13:47
Subject: Rick C

Oh, and by the way, this is not remotely an emotional issue for me. I've been a reporter for more than 20 years. You found an error, not point of ignorance. Thank you again for pointing it out, though.
Posted by: Ken Magill
Date: 2011-09-06 20:08:20
Subject: Rick C

Oh, shoot. Good catch.
Posted by: Rick C
Date: 2011-09-06 19:13:53
Subject:

Please mention first + last name of individuals the first time you are talking about them by name in articles. It opens the article up to a broader audience and makes it at least appear more journalistic than targeted. Realize this must be an emotional issue for you, but journalism 101, etc.
Posted by: David James
Date: 2011-09-06 15:35:01
Subject: DMA Exec Pay and the Future of the DMA

As an industry, we have made the classic mistake - comparing the DMA and other associations' pay. That is how Wall Street and big company CEOs get overpaid. Supposedly, we spent the past few years as a nation working to stop this silly habit. I think the DMA Board just went along and did not give it much thought. Supposedly, the last economic downturn and the greater responsibility by Boards was supposed to stop, or at least slow this stuff. Well we may have missed out on our own association. I realize the Board is part-time and all but when direct marketing is seeing such a major transformation of its basic industries and the regulation of them, we should be picking someone to help guide us - not overcharge. Where is the stepped up legislative outreach? What about more outreach to this industry in major change?

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