At least now we know why the Maytag (NYSE:MYG) repairman looked so glum in all those commercials. At the same time the company was freezing wages for employees and asking them to resign voluntarily in a cost-cutting move, it was also issuing executives stock options worth millions of dollars.
Maytag has been involved in a restructuring effort throughout the year. It has already laid off 20% of its 5,800 employees, consolidated product divisions, and seen sales of its Hoover line of vacuum cleaners slide. Earnings for the third quarter were also off 80% from last year. While competitors Whirlpool (NYSE:WHR), General Electric (NYSE:GE), and Electrolux (NASDAQ:ELUX) have been sagging a bit as well, Maytag, it seems, is stuck in the spin cycle. Increased foreign competition, higher steel costs, and higher costs for petroleum-based resins used to make appliances were blamed for the poor performance.
To continue its cost-cutting efforts begun this year -- which have reportedly saved the company $30 million, with projected savings of $130 million next year -- Maytag is freezing the pay of salaried employees and is asking others to "voluntarily" quit in exchange for a severance package. The catch is that Maytag is offering no incentive to leave voluntarily: Employees receive the same package whether they quit or they're canned.
Yet in a move that is sure to make both repairmen and any remaining employees glum, top executives received stock options worth millions of dollars, because they weren't receiving any bonuses this year. CEO Ralph Hake alone was granted 97,000 at a price of $19.88. In all, over 140,000 shares of options were granted to executives at $19.88 (the stock price is around $20 now). Maytag said the grants were coincidental to the restructuring plan, as the compensation committee generally grants options in November, but the grants are designed as a long-term benefit and can't be exercised before November 2007. Certainly that's comforting to the employees being forced out.
Apparently the company believes the cost savings will be working, as it is offering cheery predictions for earnings next year, predicting them to be $1.50 to $1.60 per share. Analysts were expecting earnings to be $1.50 per share.
Indeed, companies in crisis need to make the tough choices, and that includes letting workers go and shutting plants. Yet it would instill greater confidence in the necessity of the cuts if at the same time Maytag weren't rewarding executives with stock options for their poor performance so far. It's enough to make the Maytag repairman feel even more that he's truly "Ol' Lonely."
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Fool contributor Rich Duprey never feels alone when he has a Coors Light close by. He does not own any of the stocks mentioned in this article.
