Insurance and Media & Marketing

Auto auction board hikes own pay: Adesa Inc. also sent executive packing with full-sized severance

July 18, 2005

Vehicle auction giant Adesa Inc., which already pays one of the richest sums to its directors of any local company, has jacked up its annual board retainer 50 percent.

Meanwhile, the Carmel-based company also has disclosed details of a severance package it paid to Executive Vice President James P. Hallett worth more than $1.3 million, not including the value of his stock options.

Both events were disclosed in documents filed recently with the Securities and Exchange Commission.

The eight-person board of the nation's largest publicly traded vehicle auction chain raised the annual director retainer to $30,000 from $20,000, effective June 1.

With the pay hike, the minimum an Adesa director would earn is $77,500 vs. $67,500 last year. Those amounts include Adesa common stock granted to each director at a value of $47,500. That amount was not increased.

Adesa also boosted, by a smaller percentage, retainers paid for directors who sit on and chair various committees.

The retainer paid to its lead independent director also rose-to $83,000 from $73,000.

Adesa ranked third last year on IBJ's list of highest-paid directors-behind only Eli Lilly and Co.'s $93,937 base and Conseco Inc.'s $140,000 minimum.

Both of those firms are far larger. Adesa has annual revenue of $928 million. That compares with $4.3 billion for Conseco and $14 billion for Lilly.

Adesa said its benchmark is broader.

"Every year, we take a look at national averages and at how companies of similar revenue size to Adesa compensate their board members. This year, we made an adjustment based on the market data we reviewed," said company spokeswoman Julie A. Vincent.

She also noted the work conducted by the board to spin off Adesa last year from its parent, Minnesota-based Allete Inc.

Still, "that's pretty pricey for a company Adesa's size," said Matt Will, associate dean of the business school at University of Indianapolis. "For comparison purposes, they're on the high end of their peer group," at the least.

Boards at a number of companies have justified pay hikes in recent years, citing the tougher oversight requirements under the Sarbanes-Oxley Act, said Brandon Rees, the AFL-CIO's compensation expert.

In principle, pay hikes may be justified if the firms "are truly being more accountable," Will said. "But I have a complaint. [Companies] haven't been doing it. We haven't been getting what we've been paying for."

Measuring director performance is difficult. Rees said shareholder rights groups increasingly have been gauging commitment by measures such as whether a director sits on multiple boards-a sign that focus on a particular company might be blurred.

Adesa's directors come largely from the auto industry. For example, director Wynn Bussmann was a corporate economist for Stuttgart, Germany-based DaimlerChrysler until 2001 and retired last year as a senior vice president of global forecasting for Westlake Village, Cal.-based J.D. Power and Associates.

Adesa's stock performance since its June 2004 initial public offering has been modest. The shares have been trading lately marginally above the IPO price of $24.

In May, Adesa booted Hallett and handed his responsibilities to CEO Dave Gartzke. The management paring is part of a cost-control campaign now that Adesa no longer has Allete to lean on. But Hallett was sent packing with the equivalent of 16 months' pay-a salary of $598,290 and incentive bonus of $298,000.

The company also will pay his supplemental executive retirement plan, worth $388,565, restricted stock worth more than $400,000, and $42,050 in life insurance, plus hand him the title to his company car. Hallett also will be permitted to immediately exercise his vested stock

options, although the value of those shares

wasn't immediately available.
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