Shareholders: Huffy's Downsizing CEO Should Downsize Own Pay

Press Release
For Immediate Release - April 24, 2000
Contact: sgarnett@ufenet.org">Stacie Garnett
(617) 423-2148 x19

Update . . . 4/27/00

Preliminary Vote Results

% voting YES: 12.7%

Note: Shareholder resolutions face a variety of obstacles. For this reason, it is considered significant if a resolution garners at least 5% of the vote. Votes over 10% indicate exceptional shareholder support for an issue.

Filers of "social-issue" resolutions generally don't expect their resolution to receive a majority vote and be adopted by management. Rather, filers use these resolutions to get management's attention, and to raise the issue with other shareholders. They hope to achieve a vote sufficient to allow them to return the next year.

According to SEC rules, a resolution must receive 3% of the vote the first year it is filed, 6% in year two and 10% thereafter in order to be included on the proxy the following year.

Shareholders: Huffy's Downsizing CEO Should Downsize His Own Pay

"During a year when hundreds of employees lost their jobs and shareholders lost two-thirds the value of their investment, isn’t it only fair that executives should exercise restraint and freeze CEO pay?"

– Scott Klinger, Responsible Wealth

Shareholders will present a resolution at Huffy’s annual meeting on Thursday, April 27, in Dayton, OH, calling on the company to freeze CEO pay during periods of downsizing. If costs must be cut, Responsible Wealth is urging executives to share in the sacrifice.

In 1999, Huffy closed two plants, including one in Farmington, MO, eliminating 600 jobs.

The Farmington plant was closed just two weeks after its economic development agreement with the state of Missouri expired. Huffy had sapped thecommunity of $1.5 million in grants, $5 million in low-interest loans, and $20 million in municipal bonds with the promise of creating new jobs. However, Farmington got the short end of the stick with jobs that were low paying and insecure. Huffy no longer manufactures any bicycles in the United States.

Shareholders have also suffered during this restructuring. Huffy’s stock lost more than two thirds of its value in 1999 and, due to a default on the company’s credit agreement, dividend checks bounced.

In 1999, Huffy showed restraint in its executive compensation. Officers each saw a modest raise in their salaries of 3 to 4 percent, but none received any bonuses and all received lower levels of stock options. Responsible Wealth supports this restraint and would like to see it established as a permanent part of the compensation philosophy. However, in 1998, after eliminating almost 1,000 jobs, CEO Don Graber saw his cash compensation rise 11.4 percent over 1997, the kind of inequity the resolution seeks to prevent.

"We want to keep Huffy cycling down the right road in terms of executive compensation. We need to put the brakes on CEO pay while workers are losing their jobs and profits are slipping," said Scott Klinger, Co-director of Responsible Wealth, who will present the shareholder resolution at the meeting, to be held at the Doubletree Hotel in Dayton.

Huffy began its restructuring and cost cutting in 1998. In July, 1998 Huffy closed its Celina, Ohio plant, eliminating the jobs of 975 employees, many of whom had decades of service with the company. Yet while cost cutting on the factory floor was disrupting the lives of workers, costs in the executive suite rose handsomely.

Despite these restructuring efforts, Huffy continues to face significant problems. Huffy lost more than $33 million in 1999. In fact, studies show that downsizing often has a negative financial effect. According to a 1992 study by the American Management Association, only 44 percent of firms that downsized saw a rise in operating profits. At the same time, 77 percent suffered declining employee morale.

The shareholder resolution is one of 14 filed by Responsible Wealth to encourage companies to share rewards more widely. Responsible Wealth is a growing network of over 450 business owners and investors in the top 5 percent of income or wealth in the United States. Responsible Wealth is affiliated with United for a Fair Economy, a national non-profit that spotlights growing economic inequality.

Click here for a copy of the resolution.

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