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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.

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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.

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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.

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Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

18 Comments

18 Comments

  1. Benn Rosales

    May 7, 2010 at 12:16 pm

    Absolutely incredible. And here I was actually concerned about the welfare of the home builder in this economy, I guess they’re doing just fine.

  2. BawldGuy

    May 7, 2010 at 2:26 pm

    I wonder, if the $3 Billion loss, had been that much of a profit, would folks be upset if he’d been rewarded with a $30,000 bonus for performance? (1%)

    • Lani Rosales

      May 7, 2010 at 2:50 pm

      Jeff, no one questions if a 500 lb guy eats a salad for dinner, but everyone questions if he eats a 40 oz steak with greasy fries, a side of bacon and a gallon of sweet tea.

      • Benn Rosales

        May 7, 2010 at 3:23 pm

        No, but that sounds like a television show I would watch! Awesome!

  3. Benn Rosales

    May 7, 2010 at 2:54 pm

    BG you once said through me roughly the same thing to the same guy we’re talking about… salary caps are a bitch… rules for you and me aren’t the same for these cats.

  4. Jonathan Benya

    May 7, 2010 at 3:55 pm

    The public is outraged when companies take bailouts and give fat bonuses. Who cares if the builders give out bonuses when they DIDN’T get bailouts? I can be too upset here, DR Horton stock is up over 75% since July ’09 ($8.50 vs. $14.69). obviously cutting their work force has improved profits, sales, and company health, so what’s wrong with the head cheese getting rewarded for that?

  5. Matt Stigliano

    May 7, 2010 at 6:29 pm

    These stories are almost a dime a dozen…Company A’s CEO got paid X million (his bonus of Y million + his base salary of Z million)…it seems you read them all the time.

    I am not an economics or investment brainiac – I like to declare that before I go off on a tangent.

    What I don’t understand about the CEOs making ridiculous sums (and this applies to all companies, not just this situation) is that in bad times they typically don’t take pay cuts, but the minute a profit arrives, everyone pats each other on the back and slips a new $100 dollar bill into their pocket to show their appreciation. What bugs me is that the workers are often the first ones to face layoffs, job cuts, cuts in benefits, hours, etc. Now of course a company is out to make profit, I don’t fault them for that, but is it any wonder that people don’t put a ton of pride into their work? People see no point in caring about their jobs, because when push comes to shove, their job probably won’t care about them. It’s a sad cycle and one we ought to be thinking about into the future.

    Why not find a way to reward workers for their investment – their time? Yes, they get a paycheck, that’s their reward, I know, I know. Time is more valuable than anything in my book (I wish I was a time millionaire). When a company prospers, they should be thanking their workers and making them know they’re desired, appreciated, and most importantly, valuable. They are what the company is built on, without any workers who will run these companies, manufacture their products, and build their profits?

    I know it’s probably Utopian of me to think that there’s a better way – or perhaps I’m a socialist or even a Communist (tongue firmly planted in cheek) – but there has to be something more to work than a time card that the company pays because it has to, not because it deems it as a way to fuel them.

  6. LemonMeister

    November 30, 2010 at 6:54 pm

    It’s that time of the year again for KB Home. KB Home will lay off staff so their C E Owes can still receive huge paychecks and bonuses for the year. The bonuses are due to layoffs more than performance gains from building sound product.

    At the end of the year KB Home are laying off construction superintendents, subdivision sales agents, finance specialists and other employees, a telling sign that metropolitan’s new-home market has taken a radical turn from lousy to worse.

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