say on pay

Beazer chief forced to cough up $7 million

March 3, 2011: 4:00 PM ET

Here's a new one: Beazer Homes CEO Ian McCarthy is actually doing something for his shareholders. Not that he had any choice in the matter.

McCarthy agreed Thursday to return a $7 million bonus he received from Beazer (BZH) for fiscal 2006. The payment allows McCarthy to settle a suit the Securities and Exchange Commission brought to recover incentive pay McCarthy got while Beazer was committing a big accounting fraud.

Beazer looking run down

The SEC said McCarthy agreed to pay $6.5 million in cash and return some restricted stock to settle a case brought under the Sarbanes-Oxley law of 2002. That law gives companies the right to claw back pay issued to top executives when a company's books were being cooked, regardless of whether the executive had any culpability in the accounting fraud.

McCarthy wasn't charged in the SEC's accounting-fraud case against Beazer, which the company settled in 2008. The agency is still pursuing a civil suit it brought the next year against the company's chief accounting officer at the time of the fraud.

Under Sarbanes-Oxley, McCarthy was liable to repay his 2006 bonus as well as any stock sale proceeds he garnered that year after Beazer admitted in 2008 that it had overstated its profits by manipulating cost accounts and improperly recording financings as sales.

McCarthy received $7.1 million in bonuses that year, including $5.7 million in stock. No doubt intent on diversifying his holdings for the sake of his family's financial security, he also managed to make $7.3 million by selling off some of his rather large holdings of Beazer stock -- at much higher prices than prevail now, needless to say.

So all told McCarthy owed Beazer shareholders $14 million for the company's stay in fraudville. You wouldn't think that would be an unbearable burden for a guy who made $21 million that year and $18 million over the previous two.

But showing the great leadership he has displayed throughout his career, McCarthy simply declined to repay his company, prompting the SEC suit to recover funds due Beazer under Sarbanes-Oxley.

And you would have to say that the gamble paid off for McCarthy: Owing $14 million in bonus and stock-sale profits, he gets off by paying just half that.

Of course, this isn't the first time McCarthy has short-changed Beazer shareholders. He received $21.8 million in compensation between 2007 and 2009, according to the company's SEC filings. This for a period in which the company lost $1.2 billion and saw its shares plunge 89%.

There are signs Beazer shareholders are catching on to this trend. Given a vote on the company's executive pay arrangements under the Dodd Frank Act, they soundly rejected Beazer's pay plan -- even though McCarthy and other insiders no doubt voted to keep their ridiculous, money-losing gravy train rolling.

That is not something you see every day. Beazer didn't respond to a request for comment.

"Shareholders are signaling they are going to be looking very carefully at the link between pay and performance," says compensation watcher Andrew Liazos of McDermott Will & Emery in Boston. In Beazer's case, it is high time.

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