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I previously warned that U.S. food maker Kraft (NYSE: KFT ) could stumble as it integrated the operations of recently acquired confectioner Cadbury. During the past several weeks, we've seen more than one example of such a misstep, even as Kraft CEO Irene Rosenfeld was treated to a 41% increase in her total 2009 compensation.
First off, Kraft's got creme egg on its face after bumbling a key pension issue. Basically, the company's pre-acquisition due diligence failed to uncover an essential ingredient in Cadbury's pension trust deed. Now, unable to alter without huge cost an agreement under which retiring workers take their pension based on final rather than average salaries, the mac 'n' cheese maker is forcing 3,600 Cadbury employees to either opt out of the pension arrangement or choke down a three-year pay freeze.
I'm wondering what other gems Kraft management might've missed when it was sizing up Cadbury's chocolaty goodness.
Although Kraft hasn't endured public criticism on the pension issue, it has drawn the ire of parliamentary and union members regarding the closing of a factory that it had promised to keep open in the U.K. Offering an olive branch, Kraft agreed last month to not close any more U.K.-based factories for at least two years as well as keep operating a Cadbury research and development facility. Morally, that's probably the right call, but you have to wonder how the agreement will affect Kraft's projected cost cuts and acquisition-related synergies -- key features to the Kraft investment thesis.
Amid these goings-on, Kraft's compensation committee acknowledged CEO Rosenfeld's "exceptional" handling of the Cadbury deal by bumping up her total compensation to $26.3 million for 2009 from $18.7 million in 2008.
As observed on the blog nakedcapitalism.com, it seems a tad early to call this deal a screaming success. Furthermore, it should be noted that Rosenfeld is both CEO and chairman of the board, which means that the board's impression of how Rosenfeld steered the acquisition was likely influenced by none other than Rosenfeld herself.
This point brings up the larger issue of corporate governance. While it's still common practice for a single individual to hold both the CEO and chairman titles, my colleague Alyce Lomax noted that this arguably dangerous arrangement is beginning to lose its stranglehold on corporate America, with Whole Foods (Nasdaq: WFMI ) serving up the most recent example of a shareholder-friendly attitude.
All told, Rosenfeld's pay package runs the risk of casting Kraft in the light of habitual executive compensation offenders such as Chesapeake Energy (NYSE: CHK ) , teen retailer Abercrombie & Fitch (NYSE: ANF ) , and foodservice equipment manufacturer Middleby (Nasdaq: MIDD ) . That's definitely one way to spice up news in the consumer-staples sector, but it's not a strategy I'd recommend.
For a "boring" company that does align management and shareholder interests, I'd check consumer-goods standout Church & Dwight (NYSE: CHD ) . Or, take a gander at some of the world's most investor-friendly companies, which are in a variety of industries.
In the meantime, I'll be interested to see what Rosenfeld has to say about recent blunders -- if anything -- when Kraft reports Q1 earnings next month.