The Harley-Davidson “Green Value Proposition”

I’ve reached the stage of life where any compliment I get about appearance or physicality is accompanied by “for your age!”

After indulging in that “rant” about China and not posting for a few weeks some wonder if I caught the “COVID.”  No, but I’ve been waist deep in the fine art of Harley-Davidson apathy, trying to get back on track… So, let’s talk about exec salaries and how the year+ of the pandemic “rained money”… and not the eco-dollar benefits of any ‘Green’ initiative.

First, let’s establish a baseline. According to “Google”, the average Harley-Davidson salary ranges from approximately $25,000 per year for a Parts Specialist to $133,555 per year for General Manager. Average Harley-Davidson hourly pay ranges from approximately $9.08 per hour for Automotive Detailer to $39.94 per hour for Tool Maker.

Now let’s double-click on the 2020 Harley-Davidson top executives compensation:

Harley-Davidson’s current chairman, president and CEO Jochen Zeitz’s total compensation was $9.4 million in 2020 — Remember way back in April 2020 when Harley-Davidson said that its then acting president and CEO Jochen Zeitz and the company’s board of directors would forgo any salary or cash compensations? They pushed out a news release with the typical “aren’t we great” statements along with how the rest of Harley-Davidson’s executive leadership would take one for the team and also see a 30% reduction in salaries and most salaried employees in the U.S. would see a 10%-20% salary reduction.

So, “forgoing” a salary and/or cash compensation REALLY means collecting $9.4 million!

Where do I sign up?

But wait, there’s more… 2020 was the same year in which the motor company also paid over $4.1 million in severance to former president and CEO Matt Levatich, a serial overconfident exec who created unambiguously bad managerial optimism, which resulted in over 20-quarters of financial loss. In addition, two other executives departed with the same illness, let’s call it Managerial Optimism Flu (MOF).

Specifically, Matt Levatich received a lump-sum severance payment of $2.15 million in 2020, according to the company’s April 9 proxy statement. In 2020, the company also paid Levatich $343,572 in salary and stock awards valued at $5.45 million. Levatich also saw a $653,000 increase in the value of his pension and nonqualified deferred compensation earnings that brought his total compensation in 2020 to $8.7 million, according to the proxy statement.

Mr. Zeitz was named to the CEO position in May 2020. So, for his eight (8) months as chairman, president and CEO, his total compensation of nearly $9.4 million was more than the $7.6 million Levatich received in all of 2019, which was Levatich’s last full year in the job. Zeitz’s salary in 2020 was $1.68 million compared to Levatich’s $1.08 million in 2019. Zeitz also was paid a $1 million bonus, stock awards valued at $5 million, non-equity incentive payments of $1.5 million and other compensation of $206,233.

I’m surprised that line workers didn’t shout from the roof-top that they would “forgo” any salary too!

A couple of other former executives who received large severance payments of note were former CFO John Olin and former senior vice president and COO Michelle Kumbier. Olin left the company in July 2020. He was paid a lump sum of $1.34 million, according to the proxy statement. For six (6) months of filling that position, he also received $374,421 in salary and stock awards valued at $1.75 million in 2020. Michelle Kumbier received a lump sum of $660,000, according to the proxy statement. You might recall that this payment was previously publicly embargoed then it was disclosed; described as a “settlement” after she threatened litigation connected to ‘unspecified events’ related to her departure in April 2020. For the four (4) months in her position, Kumbier was paid $223,385 in salary in 2020 and stock awards valued at $1.58 million.

According to this report; CEO compensation surged 14% in 2019 (most current data) to $21.3 million.  They now earn approximately 320 times as much as a typical worker.

It’s been widely documented how exorbitant CEO pay is and how it’s a major contributor to rising inequality in the U.S.  The Harley-Davidson payouts might sound like a big cash layout, because — well, it is!

Wait. Mr. Zeitz grabbed the handlebar, replacing the “More Roads” strategy with a hard-nosed approach he called “Hardwire” and what if he turns around the company you ask?  Well, that is exactly what shareholders and the board expect…until or unless he doesn’t then it will be the next exec firing. And another multimillion-dollar severance package paid to the outgoing Harley-Davidson CEO.

There’s that apathy thing creeping back in again.  Big payouts.  It’s routine. It’s a pattern.

Full Disclosure: I don’t own $HOG shares. That said, I do watch the stock and the brand’s activities very closely, as it is of course a massive presence in the motorcycle industry, and as of late, has had its struggles.

Photo courtesy of Harley-Davidson

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If I Have To Explain It

MV Agusta - F4

I’m not sure who said it, but there’s an old saying about Harley-Davidson, that goes something like: “if I have to explain it, you wouldn’t understand.”

So, on the day I left for Sturgis (August 6th), Harley-Davidson announced it had concluded the sale of its subsidiary, MV Agusta, to Claudio Castiglioni and his wholly owned holding company, MV Agusta Motor Holding, S.r.l.   You may recall that in October 2009, under the new leadership of CEO Keith Wandell, H-D announced its intention to sell MV Agusta as part of a NEW corporate strategy and to focus resources on the Harley-Davidson brand.  In fact, Mr. Wandell was in route to Minnesota on this announcement day so his handlers undoubtedly had everything all wrapped up prior to his departure ride to Sturgis.

The divesting announcement came 2 years (almost to the day) after it completed the $108M purchase acquisition of MV Agusta on August 8, 2008.  Then CEO Jim Ziemer said of the purchase:

“We are thrilled to welcome the MV Agusta family of customers and employees into the Harley-Davidson family of premium motorcycle brands,” … “Our primary focus with this acquisition is to grow our presence and enhance our position in Europe as a leader in fulfilling customers’ dreams, complementing the Harley-Davidson and Buell motorcycle families.”

The divesting announcement didn’t include the sale price but its 8-K filing with the Securities and Exchange Commission revealed the company essentially paid MV Agusta’s former owners to take it back.  In the filing Harley stated it “contributed 20 million Euros to MV as operating capital” that was put in escrow and is available to the buyer over a 12-month period. The buyer was Claudio Castiglioni, who, with his brother Gianfranco, ran MV Agusta for years before selling it to Harley two years ago.  In the filing Harley also said it received “nominal consideration” from the buyer. In a subsequent interview the company said the specific amount it received was $3 Euros (~$3.98 USD)

In 2008 most of us were stymied by the purchase of MV Agusta.  As a maker of expensive and exotic, high-performance sport bikes at minimum it overlapped with the Buell products and even worse was the company never explained how MV could attract younger buyers to H-D.

Here are my questions.  How many laid off workers equal the cost of this poor decision and why hasn’t the Board of Director’s been held accountable for one of the worst business decisions in H-D history?  Yeah, they’ll likely tell me “if they have to explain it I wouldn’t understand…”

I previously blogged about H-D going Italian HERE.

Footnote:  There is a certain level of incompetence from the old time management at H-D and they should-have-known-better.   It’s not the first time Harley-Davidson has had a hard time with an Italian acquisition. In the 1960s it bought a stake in Aermacchi, a maker of small off-road bikes as a way to expand into new markets. Eventually it bought the whole company, but that move also eventually failed and Harley sold Aermacchi in the late 1970s. The sellers and buyers: the Castiglioni brothers.

UPDATE: September 11, 2010 — Not previously made public, but buried in the Sale and Purchase Agreement filed with the SEC is a provision that H-D retains control of any press releases and statements about the sale for a year from the August 6th closing date.  Why?  Maybe the fact that H-D forgave a $103M Euro receivable… basically money it had loaned MV Agusta for operations.  The sale agreement specifies that the receivable transfers to Castiglioni for $1 Euro!!  Shareholders need to hold the board and management responsible for this “BARGAIN:”  H-D paid $108M, then put $20M Euro in escrow for Castiglioni when they “sold” it back; forgave $103.7M Euro’s lent to MV Augusta and wrote off $162.6M on the company.  Q3’10 will include more losses due to tax liabilities…does it ever end?

Photo courtesy of MV Agusta.

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Six Million Dollar Man

Keith E. Wandell, CEO Harley-Davidson

$6.4M to be exact. 

May 1st through the end of 2009 marked eight months on the job for Keith E. Wandell, the CEO of Harley-Davidson Inc., and for that privilege he was delivered a pay package valued at $6.4 million, according to the Associated Press.  

The company ended the fourth quarter with a loss of $218.7 million, its first quarterly loss in 16 years.  In addition, management spearheaded a slashing strategy which included massive employee layoffs, closing of factories, negotiated union concessions under the threat of plant re-location and shuttered or sold unwanted brands.

But, talk about an obsession with fairness!  

The board delivered a pay package to Mr. Wandell with a base salary of $650,025 from his start date and he received a bonus of $780,030 and stock and option awards valued at $4.9 million at the time they were issued.  He also received other compensation worth $22,515, which includes a cash payment of $19,733 instead of perquisites.  In total it was valued at $6.4M.

For those in the job market who survive on high-end discretionary spending by consumers, might take a moment of pause and wonder if Mr. Wandell’s approximately $26,700 per day compensation package is just a bit tad excessive?

True it was during a time that management seemed caught like a deer in the head light as they watched the company’s outbound shipments decrease by more than 25%!  I’m not taking shots at the employees.  These executive compensation issues have been around for a long time, and much of the company performance blame lays right at the feet of management and specifically the previous CEO, Jim Ziemer, who takes the golden parachute award for world-class nonperformance during his last year.  Talk about setting up his predecessor with competitiveness and cost structure issues. 

But, is it an excuse for the CEO to say, ‘Hey, the board gave it to me.’ Or should CEOs be responsible too and provide leadership when compensation packages defy economic logic?!  Mr. Wandell is a very capable executive who chalked up impressive business success.  Yet, significant rewards for great results can still be attacked. Especially if the rewards for CEOs and their teams become extraordinarily high with no link to performance – and shareholders are left holding the bag – then it undermines people’s confidence in the company itself.

What are the results at H-D?  But, it’s only been 8 months you say.  Exactly my point.  The one bit of positive news on H-D that I found is that the daily average on HOG’s stock value has risen about 20% since Mr. Wandell has moved in and taken the helm.  

Photo courtesy of H-D. 

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