Dick's Being a Good Sport

You have to wonder why companies go to such great lengths to negotiate employment agreements with executives. After all, in the end, those agreements aren’t any more permanent than the picture on an Etch-a-Sketch.

Employment agreements commonly spell out what executives are entitled to -- salary, benefits, appurtenances of the office -- as well as what happens in the event an executive is fired, quits, or otherwise loses his or her sinecure with the company. Typically, when someone is fired or quits, they lose their benefits. When there's "good cause,” however, the executive subject to the forced retirement gets all of those benefits and more.

At least that's the way it's supposed to be. However, all too often, companies renegotiate the contract and give away the store to the departing executive, usually because he's quitting for some greener pastures.

The latest example of this “agree but change later anyway” mentality is Dick's Sporting Goods (NYSE: DKS  ) , which had negotiated a series of agreements with the CEO of Golf Galaxy when it bought out the company early last year.

The golf industry was undergoing some major shifts at the time, and companies all across the sector were falling on hard times. Fortune Brands (NYSE: FO  ) , which currently derives about 17% of its revenue from golf through sales of Titleist golf balls and Cobra golf clubs, was seeing segment sales flatline at the time Dick's bought Golf Galaxy. Fellow club maker Aldila (Nasdaq: ALDA  ) has been seeing sales steadily erode for years, and Callaway Golf (NYSE: ELY  ) hasn’t been up to par, either. Even surf and skate clothes maker Quiksilver (NYSE: ZQK  ) has offloaded its Cleveland Golf brand, which it acquired when it bought Rossignol skis.

Still, Dick’s found value in the purchase of Golf Galaxy and offered CEO Randall Zanatta a $355,000 base salary when he signed on, topped off with benefits, stock options, restricted stock, and bonuses -- all typical of such agreements. Like other agreements, Zanatta’s called for him to give up most of those benefits if he left for any reason other than a good one.

Yet if you read the renegotiated employment agreement Dick's filed on Friday after the market's close -- always a good time to find companies trying to sneak stuff through -- you'll find that Zanatta is voluntarily leaving Dick's ahead of the minimum time frames set up by the original agreement. In other words, he's just quitting. But the sporting-goods store has renegotiated the contract to give him almost the same benefits as if he had been unfairly let go: accelerated vesting of stock options exercisable at $27.295 a share (Dick's is currently trading at just under $18 a stub), a lump-sum payment of two times his base salary (or more than $700,000); and a continuation of benefits for two years.

Today the industry looks a little better, though there are conflicting signs that its appeal may still be waning. Still, Dick's hasn't been performing so well that it can afford to lavish bennies on departing execs at will.

Since Dick's hasn't offered any reason for Zanatta's decision to leave, investors can only assume he's doing so on his own terms. That should require him to forfeit the benefits he hasn't yet earned to date. But instead, the company is simply transferring shareholder wealth to enrich him. Dick's isn't the only company to renegotiate a departing executive’s contracts, only the latest -- and investors shouldn't tolerate it, particularly when the company filed the news after the markets had closed for the weekend.

Take a swing at Dick's with these related Foolish articles:

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 03, 2008, at 4:20 PM, galaxygopher wrote:

    Give me a break. Zanatta is not leaving "voluntarily". I guarantee he is being forced out thanks to the giant monster that is Dick's Sporting Goods.

  • Report this Comment On July 09, 2008, at 3:08 AM, Poopdik wrote:

    " other agreements, Zanatta’s called for him to give up most of those benefits if he left for any reason other than a good one."

    Shutting down company HQ and moving the whole thing to Pittsburgh, isn't that a good enough reason?

    Why do you even care what DSG does in this situation? Is there a point to what you wrote? Maybe you were you just really happy with that clever pun of a title you came up with and you decided it was cause enough for an article.

    Please, grace us with a response.

  • Report this Comment On July 09, 2008, at 12:42 PM, galaxygopher wrote:

    Nice name (poopdik). When you are out of Jr. High maybe then I will grace you with a response.

  • Report this Comment On July 11, 2008, at 6:07 AM, Poopdik wrote:

    I was hoping the author of the article would offer a retort. I wasn't talking about you, galaxygopher. Clearly you work at Golf Galaxy and graduated from the U of M. I am agreeing with you. FYI, I am only in pre-school. Rich Duprey can suck a fat one.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 676683, ~/Articles/ArticleHandler.aspx, 10/21/2016 12:51:56 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,111.88 -50.47 -0.28%
S&P 500 2,138.01 -3.33 -0.16%
NASD 5,249.11 7.28 0.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 12:36 PM
DKS $56.47 Down -0.24 -0.42%
Dick's Sporting Go… CAPS Rating: ***
ALDA $4.01 Down +0.00 +0.00%
ALDILA, INC. CAPS Rating: *****
ELY $10.65 Up +0.09 +0.85%
Callaway Golf CAPS Rating: ***
FO.DL2 $0.00 Down +0.00 +0.00%
Fortune Brands CAPS Rating: *****
ZQKSQ $0.00 Down +0.00 +0.00%
Quiksilver, Inc. CAPS Rating: **