Top MDC execs reap bonuses

CEO and president get $2 million each, despite bad year

By David Milstead, Rocky Mountain News (Contact)

Published December 28, 2007 at 12:05 a.m.

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MDC is awarding its two top executives - CEO Larry Mizel and President David Mandarich - bonuses of $2 million apiece, although the company has posted a year-to-date loss of almost $356 million.

The company, parent of Richmond American Homes, has paid the biggest cash bonuses among Colorado public companies for the past several years, which were boom times for home builders, relying on a formula that gives Mizel and Mandarich a share of the company's profits.

Bonuses for Mandarich and Mizel topped $20 million apiece for both 2004 and 2005. In 2006, as the company's revenue fell 3 percent, net income fell 58 percent, and the stock price fell 6 percent, the company paid the two $9.6 million apiece in performance bonuses.

The bonus plan, approved by shareholders in 1994, gives Mizel and Mandarich a slice of the company's profits if it tops a goal of 10 percent return on equity. And MDC, despite its declining net income in 2006, still exceeded that goal.

This year, by contrast, seems to be a money-loser for the company, and most of its financial metrics have been similarly disappointing.

Its pretax loss, which factors out the tax deduction that comes from losing money, was $556 million.

Revenue has dropped 38 percent, to $2.15 billion. The stock is down 34 percent for the year.

If a company posts a net loss, its return on equity is negative. MDC will fall far short of the plan's 10 percent minimum return on equity that triggers the bonuses.

MDC says the compensation committee of its board acted "pursuant to its discretionary authority" to award the bonuses. Yet the original plan document says "the committee shall have no discretion to increase the amount of any payment determined pursuant to this plan."

Spokeswoman Joelle Lipski-Rockwood said "at this stage, the $2 million has nothing to do with the formula," explaining that the committee's award to Mizel and Mandarich is separate from what the plan calls for.

"That number will get determined once the year-end numbers are determined and released in 2008."

In the bonus plan's first year, 1994, it paid Mizel and Mandarich $700,000 apiece. MDC got much bigger, though, with revenues growing sixfold and net income increasing fifteenfold over 11 years.

The company has noted that from 1994 to 2005, MDC's market cap grew from $94.5 million to $2.8 billion, or about 2,826 percent. The bonuses increased 2,829 percent.

Finance Editor David Milstead can be reached at milstead@RockyMountainNews.com or 303-954-2648.

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