Big home builders lay off staff, CEOs still receive huge paychecks

Laying off staff, fattening exec pockets

With new home sales rates bouncing up and down, the big builders are in a state of adjustment. Some are cleaning house, others are closing their eyes and writing blank checks to their executives. D.R. Horton, the largest builder in America laid off 53% of their staff as recently as 2007. Horton saw a 55% increase in home sales in the first quarter of this year, exceeding forecasts that they would see a decline in sales, according to KansasCity.com.

In Q1 of 2010, Horton earned an impressive $11 million, perhaps justifying the major increase in executive pay, namely D.R. Horton founder Don Horton who made $17.6 million between 2007 and 2009, and whose annual compensation rose from $2 million to $7.6 million according to Reuters. Reuters reports that Horton’s CEO also saw a “similar pay hike” and both will see raises in base salary this year.

Why not give fat paychecks?

Why not give the executive gobs of money if in Q1 they beat all expectations, stocks are doing better and earnings were over $11 million? Perhaps because in 2009, total losses were at $91 million and since 2007, Horton has lost over $3.9 billion.

Also perplexing is the 53,099 closings Horton saw in 2006 fueling Don Horton to predict 2010 breaking 100,000 closings despite 2009 only closing 16,703 homes. The decline in sales doesn’t appear to support Horton’s model of expansion and acquisition and their pricing set to compete with foreclosures.

Horton isn’t alone in rewarding builder CEOs

D.R. Horton big bonuses aren’t new by any means, in 2005 alone, Horton and CEO Tomnitz each banked cash bonuses of nearly $13 million.

Horton isn’t alone in padding executive pockets. KB Home paid CEO Jeffrey Mezger $6 million in his first year for “cutting debt and headcount and improving the company’s customer satisfaction levels. The company lost $929.4 million that year,” according to Reuters.

The average annual compensation in 2007 and 2008 for CEOs of the 10 biggest builders was $6 million.

Not all builders are following suit

Meritage Homes Corp CEO Steven Hilton took a voluntary pay cut and turned down his bonus during the worst years of the housing crisis. Hilton’s compensation fell 29% between 2007 and 2009 to $2.5 million, well below the average CEO compensation.

Candice A. Donofrio, Fort Mohave, AZ Realtor said, “Big bonuses to CEOs after laying off half the staff, to me, is the mother of all negative investments into the future of a company.”

“A CEO who accepts that bonus while laying off half their staff is, quite frankly, unethical since he demonstrates a lack of regard for those who have given him their loyalty under his leadership,” said guerrilla marketing specialist, Mark Eckenrode.

Kansas City reporter Mitchell Schnurman said, “What’s more, Washington helped CEOs secure those bonuses. An accounting change known as the “net operating loss lookback” was particularly helpful here. The lookback, which has been on the books for years and was extended in 2009, allows businesses to recoup old taxes by reducing a past profit by the amount of a current loss.”

Fat paychecks are being cut with the help of politicians and lower level staff got laid off – seem ethical to you?

CC Licensed image courtesy of somewhatfrank via Flickr.com.