When the CEO’s Son Makes $3 Million, I Worry

It’s peak proxy season, the time of year when America’s publicly traded companies make a slew of disclosures related to their annual meetings. Which means it’s a great time to witness a phenomenon that would be heart-warming were it not happening at shareholders’ expense: the generosity that top executives and directors show toward their relatives.

Transactions with “related parties,” which include both relatives of and entities controlled by company insiders, have a long and checkered history. After the 2001 implosion of Enron, which used such transactions to mask its financial shenanigans, the Securities and Exchange Commission began requiring better disclosure on anything exceeding $120,000. As a result, proxy statements often include interesting information about the relatives of top executives or directors who are on the payroll or have other business dealings with the company.

Take Lowe’s Corp., which disclosed this month that two relatives of CEO Marvin R. Ellison — his sister, Sylvia Ellison, and his brother-in-law, Timothy Lollis — had both been working for the company since 2020 and were paid $116,000 and $170,000 that year, respectively. The big-box retailer also disclosed that Christopher McFarland, a brother of Executive Vice President Joseph M. McFarland, had been hired in June 2019 as an installation merchant and was paid $230,000 in 2020. In last year’s proxy filing, Lowe’s said that it had no related party transactions since 2017.

Skechers, the California-based sneaker company, disclosed that four children of CEO Robert Greenberg, as well as two children of COO David Weinberg, have been on the company payroll for years. The company began reporting this in 2004, but back then the rules required it to specify only that the kids made more than $60,000. Now we know that Jason Greenberg and Joshua Greenberg made $3.3 million and $2.6 million in 2020, respectively.

At Nu Skin Enterprises, a multi-level marketing company that sells skincare products, President Ryan Napierski’s brother, Cade Napierski, received $689,000 in salary and benefits in 2020. CEO Ritch Wood’s brother, Ryan Wood, was paid $404,000.  Eric Lund, a brother of Board Chairman Steven J. Lund, got $144,000. None of those numbers include the stock options and restricted shares that the men also received.

Sometimes one must look beyond the proxy statements to find well-compensated relatives. Castle Biosciences, a biotech focused on skin cancers, recently disclosed in a separate 8-K form that its newly named chief operating officer, Kristen Oelschlager, had both a daughter and a son-in-law on the company payroll. Allysa Oelschlager and Joshua Albers made $337,000 and $344,038 in 2020, respectively, a big increase from their 2019 salaries of $152,859 and $170,237. The disclosure was new because the elder Ms. Oelschlager had not previously been an executive.

None of the companies — Lowe’s, Skechers, Nu Skin or Castle — commented when contacted by email. 

To be clear, there’s nothing illegal about hiring your kids or spouse or sibling when you’re an executive or a director at a publicly traded company. But to me it sets off alarms, especially when those relatives are making hefty salaries and getting generous option awards. What are the chances that a relative happens to be the person best qualified to deliver results for shareholders? Will their performance be subject to the same scrutiny as other employees? And what do such personnel choices indicate about how the company is run more broadly?

Part of the responsibility of being a publicly traded company and selling stock to investors ought to be higher standards for dealings with related parties. But as long as the SEC requires companies only to disclose these details — often deep within a filing that few people pay close attention to — expect the kids and other assorted relatives to stay on the payroll.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

©2021 Bloomberg L.P.

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