Biglari gets huge pay raise at SNS

[wabuffo]

http://idea.sec.gov/Archives/edgar/data/93859/000009385909000036/form8k624.htm

 

On June 19, 2009, the Compensation Committee of the Board of Directors voted unanimously to increase the salary of the Chairman, President and Chief Executive Officer, Sardar Biglari, to $900,000 per year effective immediately.  Mr. Biglari’s previous salary had been $280,000.

 

This is not very Buffett-like behavior is it?  

 

wabuffo

[Parsad]

I sent him an email:

 

Hey Sardar,

 

Congratulations on the raise, and I'm sure you deserve it, but be prepared for some pointed questions by shareholders for the compensation committee.  And no, Buffett's salary with inflation doesn't come to $900K per year.  :)

 

All the best,

 

 

Sanjeev Parsad

 

Corner Market Capital Corporation

Suite 1620, Box 36

1140 West Pender Street

Vancouver, BC  V6E4G1

 

Then again, if the company is earning $5-6M per quarter again by the AGM, I don't think too many people are going to care.  Most will realize how much work this turnaround really took and the amazingly short span of time he did it in.  Cheers!

 

[Parsad]

Wabuffo, I didn't even read the filing and went simply by your quote, but the other half of that filing was this:

 

On June 24, 2009, the Company closed on a transaction repaying in full all sums due and owing under, and terminating, the Amended and Restated Note Purchase and Private Shelf Agreement between the Company and The Prudential Insurance Company of America originally dated as of September 20, 2002, as amended.  The Company’s payment included $12.1 million in principal and interest and $0.5 million of yield maintenance premium.

 

So either they've sold some properties or used some of the cash hoard, but SNS has no long-term debt any longer other than lease obligations.  They still have the remaining $17M on their line of credit.  Cheers!

[link01]

hmmm. not sure yet what to make of this. wonder will he be getting a similar pay raise at west?

 

on the one hand he holds 3 top executive positions: chairman, pres, & ceo. on the other hand, no matter how hard he works (and i'm sure its harder than most) he still must divide his time between west, sns, & the lion fund. at what point does he lose effectiveness? in his defense, i think what he's achieved in just a short time has been remarkable.

 

and, of particular interest to me lately: will his pay raise incentivise him to finally write a shareholders letter so that all shareholders get the benefit of his thoughts, plans, & commentary, & not just those who can attend the annual meetings?

[OracleofCarolina]

Congrats to Sardar! I hope he folds the Lion Fund and WEST

into SNS.

[ragu]

[...]wonder will he be getting a similar pay raise at west?

 

link,

 

Seeing as he has gotten no salary/bonus at Western from 2006 through 2008 for his duties as President and Chief Executive, I'd say he's probably due a pay raise.   

 

Best,

Ragu

[frog03]

 

Ridiculous increase in salarly, especially in light of his other duties and the size of the company.  Would Warren get himself a raise of this nature?  Biglari is no Warren...

[prevalou]

he is no Prem who earns a 600 000$ salary within a  bigger company.

Why not distribute a dividend like Prem did.

[link01]

[...]wonder will he be getting a similar pay raise at west?

 

Seeing as he has gotten no salary/bonus at Western from 2006 through 2008 for his duties as President and Chief Executive, I'd say he's probably due a pay raise.   

 

 

[...]wonder will he be getting a similar pay raise at west?

 

Seeing as he has gotten no salary/bonus at Western from 2006 through 2008 for his duties as President and Chief Executive, I'd say he's probably due a pay raise. 

 

 

very true, ragu,  tho i was talking with a bit of tongue in cheek. ofcourse, a similar salary at west would be out of the question given its small size & the fact that $900k per yr there would consume 40% of its owners earnings.

 

and yes he deserves a pay raise. so does web & prem, among probably just a very few others. i didnt see one of this magnitude coming tho. like them, i really thought sardar was content to pay himself by building the long term shareholder value of the co's he is both captain of & the largest shareholder in...and by believing he would.

 

that said, i still think sardar ticks more boxes in the 'buffett-like' categories than anyone else i know of except perhaps prem watsa.

 

i'm anxiously waiting for his shareholder letters for both sns & west. am i the only one antsy on that score?

[Partner24]

No, Biglari is not Warren, nor Prem Watsa nor Steven Markel.

 

Biglari is Biglari. It's important for people to make a clear difference in all of them. It's not because you write intelligent and well written letters like Warren that you necessarely have his talent, his fiduciary aptitude and his ethic. Everybody is unique and when you think otherwise there is someone who is overrated and the other one is underrated for each trait of their respective personality and aptitude.

 

That being said, even if everyone is unique, you can compare them if you want to. You can look at the track record of all of them, their respective compensation and make your own conclusion about all of them.

 

Cheers!

[ragnarisapirate]

obviously, Biglari is Biglari, and not Buffett... he has essentially taken over 3 companies (and been on the verge of being hostile, too)-very unBuffettesque. It isn't as if his Lion Fund letters have not screamed this in the past.

 

Granted, I have not been in on their conversations or anything. Maybe he is a lot different in those situations.

 

Does anyone think that his massive raise is a subliminal way of saying 'hey guys... there is a bunch of good news getting ready to come out!'? or am I reading too much into this?

 

My thinking is in line with what Sanjeev said in his email to Sardar; I can't imagine that he would have taken such a raise without a damned good reason for it (as if keeping the company from being insolvent isn't good enough).

 

 

[prevalou]

Does he pass the buffett test on retained earnings and market value at Western Sizzlin ? Has his fund a good track record?

[maxprogram]

As an owner of Steak n' Shake, obviously I would rather pay Sardar Biglari less for doing the same job. In fact, if I could pay the management teams of all my current holdings less (and still be assured their performance is up to par), I most certainly would.

 

As an owner of Berkshire Hathaway, I couldn't be happier to pay Warren Buffett only $100,000 a year for his services to the company. But if for some strange reason the board decided to raise his salary to $30 million a year, I wouldn't mind it a bit, and I don't think too many other Berkshire shareholders would mind. Everyone knows Buffett is worth way more than that to Berkshire.

 

Biglari hasn't had the time to completely prove himself yet. But what he's done so far has shown the potential to create a huge amount of value for these companies, and not at the expense of shareholders, employees or other stakeholders.

 

We don't yet know the reason for the raise. There could be many reasons, some less "honorable" than others. As an owner, I would like to see some sort of explanation for the pay raise, even if it's just "better performance." (See Chapter 35 in Robert Cialdini's new book.)

 

Also, to put the new pay into perspective, below is the 2008 CEO/Chairman compensation for restaurants of similar size. (If the Chairman role is split, I combine the two salaries. Includes option & stock grants.)

 

$9,207,748 -- Ruby Tuesday

$6,137,152 -- Landry's Restaurants

$4,610,310 -- California Pizza Kitchen

$3,188,864 -- Red Robin Gourmet Burgers

$2,605,941 -- Denny's Corp.

$2,172,416 -- BJ's Restaurants (includes both co-founding VPs)

$1,386,016 -- Ruth's Hospitality Group (includes old CEO fired in 2008)

$400,000 -- Luby's Inc.

$383,071 -- Frisch's Restaurants

[Smazz]

I dont own SNS but it wouldnt sit well with me.

The optics alone are not good but.. I suppose if he would have tied his salary to targets as bonus - def could be justiifed. Thats just a big sum for a small company.

[nodnub]

max,

 

I couldn't agree more.  Thanks for putting it into perspective for everyone.

 

The previous comparisons to WEB's 100,000 salary is a fallacy.  He is the richest man in the world doing what he loves. They do not need to pay him. That is not a market price for his skills.  He can make the sacrifice of taking a low salary because any potential salary is inconsequential to him. It is the same reason that Bill Gates does not buy windshield insurance for his cars.

 

Even if offered, I would not accept any position running a public company for $100,000/year. It's not worth the increased public scrutiny on your private life, the armchair ceo shareholders, the level of responsibility you have in every waking moment.  It would be enjoyable, but it would require certain sacrifices.  You are kidding yourselves if you think Sardar has not made a lot of sacrifices in his personal life in the last year.  

 

Cheers!

[Parsad]

I don't have a problem with Sardar's salary.  If the company is turning around as early progress is showing, paying him $900K a year would be a hell of a lot cheaper than any future bonuses the compensation committee could have granted him going forward.  I remember when Prem added the dividend, there was a huge outcry on the MSN Board over it.  That he was already getting $600K a year!  Today, everyone on this board would agree that Prem Watsa is significantly underpaid, dividend or not.

 

So, I don't have a problem with Biglari's salary, because I also agree with a previous comment that this guy is unreal.  I have alot of confidence in my own investment abilities, and the MPIC Fund I, LP has blown the lights out in such a tough period for the investment industry.  But the mix of investment ability, determination and entrepreneurship in Biglari is rare.  Something I can only dream of!

 

That being said, I would have preferred if the compensation committee had brought on the raise in a gradual fashion, along with improvements in the business.  For example, they could have doubled his salary this year with improved numbers, and then increased it to the same level they have now set it at if next year's numbers were also improving.  To spring a tripling of his salary on investors whose share price is still stuck below where Biglari himself even bought, was probably not a wise decision by the compensation committee.  Let's see where the numbers are at the AGM...with this guy, if he accepts this pay package, I would think it is probably because things are improving markedly.  Cheers!

[bookie71]

Does anyone know what percentage of SNS he owns?

Thanks

Chuck

[prevalou]

he is no Patrick Byrne. Salary=0, bonus=0, but big shareholder like Prem and Warren

[Parsad]

he is no Patrick Byrne. Salary=0, bonus=0, but big shareholder like Prem and Warren

 

No slight to Patrick, but Biglari in one quarter has made as much as OSTK's total earnings.  Two different businesses, and one was having a complete heart attack.  The turnaround at SNS has been incrediby impressive by anyone's standards.  The last company I saw turn around like this was ironically McDonalds under Jim Cantalupo.  Even the turnaround at Fairfax which was spectacular in itself, took a few years to get going.  Cheers!

[prevalou]

one swallow does not make a summer

 

the road can be bumpy for SNS

[link01]

a few posters have commented that comparisons to buffett are unfair, that every one is unique. true. that goes without saying. but frankly i think anyone who is compared to buffett as opposed to virtually any one else, whether it be jack welch, or (gasp!) ken lewis or carl icahn, should consider it an honor no matter how much they are bound to suffer by comparison. when people STOP comparing you to the best, that's when you know you've fallen from grace.

[prevalou]

as you said SNS and overstock don't have the same business model and it is difficult to compare one quarter earnings  of SNS with total losses of Overstock.

Overstock looks more like Level 3 where it is necessary to reach a critical mass. After all Amazon was not profitable during a couple of years.

 

but what i find interesting to compare are salaries of CEOs who have a big stake in their company.

[Parsad]

Big stakes by management are important, and you can make comparables regarding salary.  But ultimately share price is based on increases in intrinsic value. 

 

So far Biglari has stabilized deterioriation, and strengthened the balance sheet.  He's cut costs, increased efficiencies and the business should now be profitable each quarter...in other words intrinsic value is on the upswing.  I'm not sure you can say this about Overstock or Level 3.  The economics are changing for Level 3, but they have yet to do anything to decrease cash burn.  Overstock had one profitable quarter, but they need to show that the business can sustain itself without burning through cash. 

 

Both Level 3 and OSTK have to show that they can increase intrinsic value without going back out to the capital markets for injections.  Sardar has improved operations with existing assets and cash flows.  There was no injection of capital.  The business is now self-sustaining...the next step is growth.  As I said, two different business models in different positions, but clearly SNS has a model that is already increasing intrinsic value.  Cheers! 

[Smazz]

not to get into a pissing contest but I didnt like the FFH dividend then, I dont like it now. I dont think the dividend should be used primarily to pay a specific few individuals. I am all for salary and bonuses justified by performance. The line about everyone gets paid the same isnt really a true indication of what really transpires and we all know that.

Just because someone is good at what they do does not mean they should be able to do whatever it is they want.

I like Prem what he does for shareholders on the whole - I just didnt (and dont) like that particular strategy.

 

Just think what WEB could have/ would have done to shareholders if he wanted to get paid the same way.

[Parsad]

I agree with you Smazz, but Prem and Sardar never said that they were only going to get paid what Buffett & Munger got.  I guess it comes down to a personal choice for CEO's.  I think we all are more critical simply because Buffett set the bar.  So if Buffett only takes $100K, then we don't expect others to take significantly more. 

 

At the time when Buffett's salary was set at $100K, that would have been a pretty significant sum in today's dollars.  To him, he didn't spend more than a $100K a year, so what the hell would he need more for.  The guy pretty much hoarded his dollars until the donation to the Gates Foundation.  Perhaps, Prem and other CEO's plan on utilizing more of their wealth for outside activities, rather than wait till late in life.  We don't know.  But at least the dividend was the same for all shareholders, and the increases gradual.

 

I'm not sure too many people begrudge Biglari getting paid more, but the optics of a tripling of the salary is what got to people.  Especially since the stock price is still relatively stagnant to where it was before he took over.  As I said, let's see what happens over the next couple of quarters before the AGM.  He's been pretty aware of what things look like from the shareholder's perspective, so I would assume things are humming along relatively well for this to all come about now.  Cheers!