Detroit Free Press from Detroit, Michigan • Page 43

SUNDAY, DECEMBER II, 1994 THE DETROIT NEWS 7D 1994 Michigan Corporate Report Card Bottom of the class Executives of these companies paid themselves generously, but stockholders often made little. Gary D. Lewis sold 40,000 Somanetics shares, realizing $179,125. The company said the transactions were made "for personal reasons." But six months later, the FDA yanked the license. Somanetics shares plummeted below $1.

Federal regulators accused the company of falsifying clinical test data. Company executives denied the charges, and in turn accused the government of sabotaging the potentially life-saving device. Even though Somanetics had virtually no revenue in 1993, Lewis was paid $248,816 and received a $200,000 mortgage loan. any payments made by the company will be repaid from policy proceeds, including interest. KMS Industries Inc.

Executives at KMS have sailed above the plunging sales and swelling losses of the Ann Arbor high-technology research and manufacturing firm. It had $900,000 in sales in 1992 and '93 down from $26.5 million in 1989. But $1.4 million in losses didn't crimp executive compensation. Chairman Patrick B. Long received $232,993 in total cash compensation while Terence C.

Liddy, president and secretary, received $167,903. Each received bonuses in 1992 and 93 totaling $55,000 apiece over two years. The compensation plan includes "golden Should Long or Liddy resign their positions, documents say, KMS would continue to provide full benefits to Long for 36 months and to Liddy for 24 months. Following a resignation, Long "would be entitled to receive in a lump sum the amount of (150 percent of) his current salary plus prior year's bonus," according to the documents. Total payout, based on 1993 figures: $311,320.

Should Liddy resign, he would be entitled to a year's pay and bonus, or $153,542. Long did not return several phone calls seeking comment. Liddy referred questions to Long, saying only, "We basically sold all the operating divisions." Renewed Patrick's employment agreement with the company, agreeing to pay him $450,000 annually. Acknowledged there are "no specific defined targets or other criteria which tie company performance with executive compensation." Sold the company's Lear jet for $400,000 to a partnership that includes Patrick. Received legal services from the law firm of Basil M.

Briggs and computer, tax and accounting services from the accounting firm ofjames R. Jenkins. Briggs and Jenkins sit alongside Patrick on the compensation committee. Patrick said, "Those have no bearing on the performance of the company. It wouldn't matter if I was paid $1 million a year and $10,000 a year.

It's very difficult to fight a cartel." Last month, the company agreed to sell 650 oil wells and other properties in Oklahoma, Mississippi, Alabama, Louisiana, New Mexico and Texas for $16.1 million. "We should be profitable by next year," Patrick said. five years. Sales slid from $2.3 million in 1989 to $1.3 million in 1991, before rising to $2.8 million last year. Shares have stayed below $1 since early 1986.

But company directors approved loans to themselves and family members totaling $588,429 as a Nov. 30, 1993, documents show. The directors also forgave a $39,705 loan from the public company to one of their own J. Thomas Paganes. President Robert M.

Paganes called The News's decision to award Tubby's a failing grade "probably correct." He blamed the company's poor performance on former President Alexander P. Bardy. "He was hired to grow and develop Tubby's sub shops and he did everything but do that," Paganes said. Bardy has accused Tubby's, founded by the Paganes family, as continuing to operate for the benefit of family members even after it went public. Paganes would not elaborate on the loans to him and other directors, except to say: "Everything that's been disclosed is by board approval." Thomas Edison Inns Inc.

The tiny St. Clair hotel company that runs, among other things, the historic St. Clair Inn, appears to be stuck: Revenues have hovered just above $14 million for the past five years. Earnings have been tepid. Thomas Edison, tightly controlled by Donald W.

Reynolds, the chairman and majority shareholder, says it hasn't paid "any cash compensation to any if its executive officers during the last fiscal year." But Thomas Edison Inns: Paid $417,335 to Innkeepers Management Co. to manage the St. Clair Inn in St. Clair, the Thomas Edison Inn in Port Huron and Spring Lake Inn in Western Michigan. Reynolds is sole owner of Innkeepers Management.

Extended loans to Reynolds totaling $1.6 million for private business ventures unrelated to the public company. Extended loans to Reynolds and partner William Ehinger totaling $837,308 for additional outside business ventures not related to the company. Ehinger also sits on the company's board of directors. Thomas Edison Inns shareholders have been unable to sell their stock, now worth considerably less than the $10 a share they paid for it several years ago. Several want Reynolds to buy it back.

He said he plans to do that, pending additional financing. Arbor company dropped to $96.6 million in the last fiscal year, from $124.2 million in 1991. Company stock began a steady downward slide as executives scrambled to replace dwindling main-frame software sales with new "client-server" products demanded by customers. "Certainly the decline in revenue and the reduction in profitability are not what management wants for the company" said Chief Financial Officer Kathy Jehle. "When we look at the numbers, what we see today is a very different company.

We see it as an issue of going through a tough business transition, and not one of management not paying enough attention to shareholders." Yet while shareholders bore the brunt of dwindling returns, Comshare's directors repriced the stock options granted to management. Stock options generally are granted executives, directors and sometimes lower-level employees as incentives to improve company performance and drive stock values up. Options can't be redeemed until the stock price rises appreciably, encouraging executives to improve company performance. When the stock languishes, there's little chance of reaching a "strike" price before the option's expiration date unless it's repriced at a lower level. That's what happened at Comshare.

The directors exchanged old options with strike prices ranging from to for new options priced between $9 and $9.25. Jehle defended the move. "That was no big favor to management," she said. "This so-called repricing is really nothing more than giving grants in 1994 at current fair market value." KuYlsisn Inc. $250 By Daniel Howes The Detmil News It didn't pay to be a shareholder in Michigan's lowest-scoring public companies.

Executives of the 11 companies that received failing grades in The Detroit News' corporate report card paid themselves generously, often when shareholders made little if any -money. companies reported flat or declining sales and earnings and posted lackluster stock performance in 1992 and 1993. -In the worst cases, the companies used scarce corporate revenues to make personal loans to executives or family members. In other examples, companies awarded raises' and bonuses to executives who presided over long-term slides in sales and earnings. That performance generally held stock prices down, hurting shareholders.

Here's a look at the companies at the bottom of the class: merican Dental Tech nologies Inc. If you think Lexecutives should suffer along with shareholders, the Troy-based dental laser company is not for you. American Dental hasn't made a profit since 1991. It lost $14.8 million in 1992 and $6.8 million in 1993; sales have been steadily declining. Company stock is languishing.

the company's directors granted President Anthony Fiorillo $1,156,250 in restricted stock last year, driving his total pay to $1,385,515, up from $145,417 in 1. Restricted stock grants generally are not tied to performance goals, and often are considered outright "gifts" to senior executives. guys are making money day in and day out, while the shareholders lose money on a daily basis," said Frank Glassner, a San Francisco-based compensation consultant whose firm, Compensation Design Group, assisted The News in its study of Michigan companies. Diane Miller, American Dental's chief financial officer, agreed that "things aren't going so well." "The (stock) grant was given as an incentive to the CEO," she said. "It was reviewed in early '94 and it was agreed that the grant should be rescinded and replaced with options to strengthen the financial position of the company." Comshare Inc.

$250 200 Corns liars I $201 150 100 $75 UP Computer 50 Software Services 689 690 691 692 693 694 Comshare Inc. The computer software industry took a sudden turn two years ago, slamming Comshare, its executives and shareholders. Sales of the Ann A Company officials, who declined to comment, last spring defended their actions in a story published in The News. Gantos Inc. ChiefExecu-tive L.

Douglas Gantos was paid $525,000 in fiscal year 1993, the same year the Grand Rapids-based women's clothing chain filed for Chapter 11 bankruptcy reorganization. In April 1992, the company hired a new chief operating officer to help with a turnaround. Fourteen months later, Michele Fortune was gone. As a going away present, the company: Forgave her $150,000 mortgage loan. Paid "various separation benefits" totaling $40,000.

Gave her a separation payment of $100,000 half what was agreed to in her employment contract. The remaining payments are being withheld while Gantos is in reorganization. "All the payments to Fortune equal less than the base pay for her second year," company spokesman Frederick Marx said. The employment agreement was negotiated before Fortune became a Gantos officer. Distributors Inc.

The Warren-based discount drug store chain joined Gantos in bankruptcy last week. Sales for a deep-discount drugstore chain, have increased steadily, rising to $722 million last fiscal year from $588.5 million in 1991. But profits have steadily declined, dropping to $5.8 million from $14.4 million in 1991. Stock performance has been dismal. has more significant interlinks between directors and outside entities they control than any company in Michigan, according to The News's study: paid $1,896,000 to Talon Development a real estate and construction development company.

Chairman Randolph Agley, Vice-Chairman Michael Timmis and Wayne Inman, all directors, also are directors and shareholders of Talon Development. director Frank Jerneycic is president of Talon Development. paid Talon $856,000 under a business services agreement designed to provide with risk management, internal audit, benefit plan administration, tax return preparation, information and public relations services. paid Timmis Inman, a Detroit law firm, $317,000 for legal services. directors Michael Timmis and Wayne Inman are senior partners in the law firm.

paid $1,866,000 on store leases to partnerships in which Agley, Timmis, Inman and Jerneycic have interests. Several calls to seeking comment and explanation were not returned; a scheduled interview was not completed. Calls to Timmis Inman, legal counsel, were not returned. Valassis Communications Inc. Peer (roup Valassis Communications Inc.

A raging price war in the newspaper insert business hammered the stock of Valassis Communications, starting in mid-1992. Sales for the Livonia company slid from nearly $670 million in 1992 to $540 million in fiscal year 1994. Net income plunged from $82 million in fiscal 1993 to $5.2 million in fiscal 1994. Still, the company's president and chief executive, David Brandon, was paid more than $1 million in base salary each of the last three years. That's more than double the base salary of CEOs of similar-sized companies in the communications and publishing industry.

A nationwide survey compiled by Compensation Design Group, the San Francisco consulting firm that assisted The News in its study of Michigan companies, found that the average base salary for CEOs of similar companies was $570,350. Valassis spokeswoman Lynn Lid-die dismissed suggestions that Brandon may be overpaid and reasserted the price war the company fought from November 1992 until February 1994. Otherwise, she said, "The company under David's leadership performed exactly as the company promised it would." Tubby's Inc. If there's money to be made selling submarine sandwiches, you wouldn't know it by the Tubby's financials. The tiny Sterling Heights company lost money in four of the last 40 Valassis 20 392 692 693 694 $209.44 '88 '89 '90 -91 "92 "93 NuVision Inc.

Eyeglasses are a tough sell. Flint's NuVision lost $2.3 million last year, barely posted profits in 1992 and 1991, and lost money in 1990 and 1989. Revenues slid as executives closed unprofitable retail outlets. Shares have traded between $2 and $4.50 for four years. President Jonathan Raven acknowledged the company's poor performance, but pointed to NuVision's 1994 results through three quarters as evidence of an upturn.

Yet, NuVision's compensation committee chaired by chairman, chief executive and principal shareholder Eli Shapiro granted bonuses to Raven and Executive Vice-President Stephen Hirsch in 1992 and 1993. Raven is Shapiro's son-in-law. "I had absolutely nothing to do with awarding (them), to be honest with you," Raven said. In 1993, NuVision of which Shapiro owns 40 percent also: Paid $171,000 in annual lease payments for its corporate headquarters to NuWest, a partnership 50 percent owned by Shapiro and his wife, Esther. Raven said the business relationship "existed long before the company went public," was disclosed at the time of the 1985 initial public offering and "the rent is below market." Paid the bulk of $98,000 life insurance premium on a $6 million policy for Eli and Esther Shapiro.

The policy is owned equally by the Shapiro's three children. Raven said 150 trW Somanetics Corp. $300 Peer sZ 200 io-in $75 Patrick Petroleum Co. $160 $56.25 Patrick Potrotoun 88 '89 '90 '91 "92 -93 Patrick Petroleum Co. The Jackson-based oil firm's performance has been dismal: Revenues declined to $9.3 million in 1993 from 13.3 million in 1990; net losses in each of the last four years for a total loss of $50 million; steadily sinking stock price.

"It's very difficult to make a profit in the petroleum industry as an explorationist, especially when prices are controlled in the Middle East," said U.E. "Pat" Patrick, who founded the company 30 years ago. It's been easier for executives to make money. Patrick Petroleum repriced stock options, granted to management that expired in 1993, the third such move in the past decade, although it held the line on salaries. The company, whose compensation committee is chaired by Patrick, also: A 40 Somanetics 91 '91 92 '93 Somanetics Corp.

The Troy biotechnology firm is a red flag for those who think there's nothing but green in new medical technologies. Somanetics planned to make and market a device that would monitor oxygen levels in the brain of head trauma victims. Investors loved the idea, the press trumpeted it and the Food and Drug Administration gave initial approval. In May 1993, after the product hit the market, Chairman About the author Pay-for-performance crusader preaches candor Business writer Daniel Howes was the lead reporter for the Michigan Corporate Report Card. Howes, 33, a native of Canton, Ohio, joined The Detroit News in 1993 from the Roanoke (Va.) Times World-News.

He also has worked for I i'i a By Daniel Howes The Detroit News Frank Glassner spends most of his time knee-deep in computer printouts and financial reports, trying to figure out if corporate executives are earning their pay. But he's also waded into an icy Oregon stream to watch a Native American "fish stunner" do his job. Glassner, an apostle of the pay-for-performance movement, will go anywhere to spread the message that workers at all levels should be paid based on the value they create for the company. So when the Confederated Tribes of Warm Springs asked for help in structuring its payroll, Glassner took the job. The Oregon tribe runs a multimillion-dollar resort and ranch.

Part of the assignment involved working alongside ranchers and fishermen, including candor. Glassner, whose company has offices in Chicago and Boston, said that policy has sometimes forced him to tell the executives who hired him they weren't earning their pay. "You've got to be blindly just like the umpire in the ballpark," he said. "You've got to call it like you see it." Before founding Compensation Design Group four years ago, Glassner directed the national compensation consulting practice for the accounting firm Deloitte Touche. Earlier, he worked for Peat Marwick.

Glassner said an executive compensation plan that best serves shareholders should take into account the competitive marketplace, as well as performance targets for the company and the individual. "You must identify competitive and appropriate compensation levels and all the while develop guidelines that relate pay to performance," he said. harvest salmon. "I probably learned more from that job than any other," said Glassner, chief executive of Compensation Design Group in San Francisco. "I like to think we helped ensure the existence of the tribe.

"To survive in any business today, you must compensate employees fairly while creating an environment that both encourages and motivates people to work at their highest level." Glassner, 40, has also helped giant companies like FMC Corp. of Chicago, Intel BankAmerica Corp. and Toshiba Corp. put together compensation plans that push executives to create shareholder value. The Chicago native has been preaching pay-for-performance since earning a bachelor's degree in finance from the University of Illinois and a master's in organizational behavior from the University of San Francisco.

His cardinal rule in dealing with clients: newspapers in Athens, and Canton. Howes is a graduate of the College of Wooster in Ohio, and has a master's degree in international affairs from Columbia University. Assisting in the research was business writer Joel J. Smith, who has worked at The News since 1970. Smith, a Northern Michigan University graduate, is a specialist in computer-assisted reporting.

Terry Lorant Frank Glassner the fish stunner, who used electric charges to.