Maui Land & Pineapple Co. had a mixed year in 2007. Net income was up 11.1 percent but its stock price was down 11.9 percent and revenues were off 14 percent.

So why did the Kahului-based real estate and agriculture company give its Chief Executive Officer David Cole a $1 million bonus?

That bonus helped pushed Cole’s 2007 total compensation to $4.1 million last year, making him the second-highest paid CEO in Hawaii last year behind Alexander & Baldwin Inc.’s Allen Doane, who earned $8.4 million.

Cole’s pay raise came after the company said it failed to meet several performance benchmarks that are tied to his overall compensation package.

Stock options are supposed to reward an executive for his company’s performance, said executive pay expert Linda Lampkin. The idea of giving an executive a bonus to cover the declining value of his stock options defeats the purpose of such awards.

“The whole point of stock options is to reward (executives) for performance,” said Lampkin, research director of ERI Economic Research Institute in Washington, D.C.

A company spokeswoman declined comment.

But in its filing with the SEC, Maui Pine described the bonus as a “discretionary cash payment” that company decided to give to Cole after it raised the exercise price on his stock options two years ago.

When Cole was first recruited by the company about five years ago, he negotiated a stock-option plan that gave him gave him options on 133,333 shares with an exercise price of $19.10 a share. That price was well below Maui Pine’s stock market price of $27.60 on the date of the option grant.

In 2006, the company had to raise the exercise price on Cole’s stock options to $27.60 a share, or face significant tax consequences. New rules by the Internal Revenue Service penalize companies that grant stock options whose exercise prices are below the market value.

Under the plan, Cole would have ended up paying more than $1 million more to exercise his stock options. But instead, it’s the company and its shareholders that will end up footing the bill.

This entry was posted on Monday, May 26th, 2008 at 4:00 am and is filed under Biz Bites. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.