Unorthodox pay package puts Biglari on defensive

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Sardar Biglari’s latest audacious move is giving pause to even some of his staunchest supporters.

Biglari, chairman and CEO of Biglari Holdings Inc., the Texas-based parent of Steak n Shake, rolled out a hedge-fund-style
compensation plan for himself late last month that could put staggering sums in his pocket.

Suddenly, boo-birds were everywhere. “Big Liar should be fired,” wrote a message board poster. “Biglari
is showing just how far management can go to rip off shareholders,” added a columnist on the Motley Fool investing website.


Sardar Biglari mug Biglari

This wasn’t the first time the 32-year-old investor has tossed aside the public company playbook. He renamed the business
this year after transforming it from a stodgy restaurant operator into an investment vehicle pursuing profit in fields as
diverse as insurance and auto-parts retailing.

Through it all, he’s cast himself as a champion of shareholders. And he’s trashed the legions of American companies
that pay their management richly even for rotten performance.

But the new plan is spurring howls of hypocrisy. On April 30, Biglari Holdings announced it bought the general partner of
Sardar Biglari’s San Antonio-based hedge fund for the value of its assets. And in the same regulatory filing, Biglari
Holdings said it would begin paying Sardar 25 percent of any increase in the company’s annual book-value growth topping
5 percent.

The Motley Fool columnist, Richard Gibbons, called it “one of the sweetest compensation arrangements I’ve ever
seen at a public company”—one that would cut deeply into shareholder returns.

In the exotic world of private hedge funds, where wealthy investors pay huge sums in hopes of landing staggering returns,
the formula probably wouldn’t raise many eyebrows. But critics say it’s overly rich in the public company realm.
And they say it sets the performance bar too low.

Boosting book value 5 percent “is unexceptional,” said Ken Skarbeck, managing partner of Aldebaran Capital and
a columnist for IBJ. “To pay a bonus on top of that is excessive.” He noted that the pay is in addition
to the $900,000 annual salary Biglari receives.

Negative reaction to the pay arrangement has contributed to a swoon in Biglari Holdings shares. The stock now trades at around
$330, down more than 20 percent from its peak of $418 in early April.

But now Biglari is rushing to his own defense. In a three-page letter to shareholders May 6, he noted the agreement requires
that he use at least half his after-tax bonus to buy additional Biglari Holdings shares, further tethering his fortunes to
those of other investors.

“In other words, I am obligated to reinvest continually in BH. The premise coincides with my belief that stocks should
be purchased with earned cash rather than be gifted,” he wrote.

He noted that he didn’t accept grants of stock or stock options when he became CEO in August 2008—awards that,
with the tripling of the company’s stock price, would be worth many millions of dollars now.

“While some would argue that investors didn’t sign up” for the unconventional compensation approach, Biglari
wrote, “that logic is filled with holes because the major premise is predicated on the error that a company should never
change its corporate strategy or direction.

“That is exactly the kind of view that plagues most CEOs leading a turnaround. They inherit a team that fears to slay
sacred cows and constantly defends a failed path. They insist, ‘That’s the way it’s always been done.’”

If Biglari Holdings breaks new ground by not following the pack, he wrote, “well, we at least advanced business civilization.”

Susan Bayh cashes in

Susan Bayh’s lucrative career as a corporate director reached a high point late last month when Seattle-based
Dendreon Corp. won regulatory approval for its prostate cancer treatment Provenge.

The approval of the first therapeutic vaccine to treat any cancer capped a 15-year odyssey for the biotechnology firm and
caused its shares to rocket higher.

Susan Bayh mug Bayh

Insiders—including Bayh, a director for seven years—jumped in to capitalize. She pocketed a profit of $2.5 million
by exercising options to purchase shares at an average of $9 each, then selling them for $53 apiece.

Bayh, 50, wife of Sen. Evan Bayh, has made big money as a director in recent years. She serves on five public company boards,
including those of locally based Emmis Communications Corp. and WellPoint Inc. WellPoint alone paid her $326,000 in cash and
stock awards in 2009.•

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