Basics

Randall K. Fields founded the company in 1990 and has been its CEO and chairman since its inception. He owns roughly 33% of the company’s outstanding shares.

Concerns

1. High compensation:

• In the recent financial year (2019), Mr. Fields’ total compensation was roughly 38% of the company’s operating profit, or 7% of total revenue.
• In the past four years, the total compensation paid to Randall Fields was 100% cash.
• “All other comp” includes car-related expenses, accounting services, computer expenses and medical premiums.
• The board has the discretionary power to award bonuses to Mr. Fields.

(2) Peculiar employment agreement: Service agreement and employee agreement

Randall Fields serves the company as an employee and also as an independent contractor. Confusing, isn’t it? Let me explain.

a) Employment term – Sales Department Manager

As per his employment agreement, Randall Fields serves as Sales Department Manager of the company. Also, he serves as chairman of the board.

Strange terms:

• The employment agreement allows him to engage in “other business relationships.”
• He can conduct a considerable amount of business activities from his personal residence, and the company pays for telephone lines, computer and other business equipment at his residence.
• The company’s secretary performs limited personal accounting and other related services.
• The annual base salary shall be subject to a percentage annual increase equal to 75% of the percentage annual revenue growth of the company.
• Salary: $50K.

b) Management consulting: CEO

The company has entered into a “service agreement” with Fields Management, Inc. (FMI) to provide executive management services to the company, including designating Mr. Fields to perform the functions of CEO of the company. FMI is 100% owned by Mr. Fields. The company pays a base salary, bonus, and reimburses the costs of a vehicle of his choice, computer equipment, life insurance, stock grant, and retirement annuity.

Overall, it is puzzling that Mr. Fields has an employment agreement as a sales department manager, in addition to working as CEO. Also, given the employment terms which allow him to work from his residence, it is not clear how many hours he works from the office.