Is MBIA's Executive Compensation Fair?

In the MBI forum, CT Programmer recently commented favorably on CEO
Brown's performance: "I could kiss Jay Brown. He's doing an incredible
job taking a company that everyone said was gone, and building it back
up bit by bit." I too think Jay Brown is doing a good job, and thought
it would be apropos to talk about what his rewards will be if and when
the rebuilding job is complete.

Part of Brown's compensation is
in the form of a grant of 1,634,000 shares of restricted stock,
received 5/01/2008 when the stock stood at $11.74. The grant is subject
to the following terms: "The restricted stock will vest fully if, on or
before 2/18/2013, the average share price of MBIA's (MBI)
common stock over any twenty consecutive trading days is at least $40
per share." Lesser prices get lower vesting: $16.20 gets 0%, $20.96
gets 20%, 25.72 gets 40%, 30.48 gets 60%, and 35.24 gets 80%. Amounts
in between are pro-rated.

On the
first quarter conference call, Brown encouraged owners to regard the
"analytical adjusted book value," 42.15 at the time, as the fair value
of their shares. So, as you can see, all he has to do is get the shares
to trade at their fair value and he will have a very nice payday, 65
million.

All he has to do is get the shares to trade at their fair value. It
is not really all that easy: he has Ackman, Moody's, S&P, Fitch,
Dinallo, Mr. Market, the credit crisis, demoralized staff, apathetic
analysts, hostile news media, disgruntled shareholders, etc., to
contend with. Meanwhile we have the end of the credit rating and bond
insurance system as we know it. It was not that long ago that double
donuts seemed like a possible outcome.

Often
we read articles bemoaning the excessive compensation management
receives: they send all the jobs to China and then pay themselves
millions while honest working folk starve and freeze, or eke out a
meager livelihood as wage-slaves for WalMart. They mismanage a company
into bankruptcy and then depart with golden parachute payments while
loyal employees lose their pensions. So on and so forth, and some of it
true.

But
as far as I'm concerned, Mr. Brown works for me, and if he can get my
stock up to $40 by 2/18/13, I will be only too happy to see him get his
reward. It's pay for performance, pure and simple, and if he gets
partial results, he will be rewarded pro rata., fair and square. I like
the pay plan: it aligns his interests with mine; I too would like to
see MBIA shares trade above $40. If he can make that happen he has
earned 65 million. After all, it is not an easy task he has ahead of
him, and he has made a very promising start.

Implication for Investors: look for MBIA to trade over $40 per share by 2/18/13.