Hovnanian CEO Gets Performance Bonus as Company Value Drops 76%
By Bob Ivry
Feb. 5 (Bloomberg) -- Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, gave its chief executive officer a 20 percent pay raise in 2008, including an almost $1 million performance bonus, as the company lost three-quarters of its market value.
Ara Hovnanian, who runs the Red Bank, New Jersey-based company his father founded 50 years ago, received compensation of almost $10.3 million last year after getting $8.5 million in 2007, according to a filing with the Securities and Exchange Commission. The figures include stock options of $7.34 million from 2008 and previous years, which the company says are worthless because the shares have fallen.
Homebuilders are struggling through the fourth year of the U.S. housing recession, cutting jobs, slashing prices, selling land and renegotiating debt payments. Ara Hovnanian’s performance bonus was based on generating cash, Chief Financial Officer Larry Sorsby said in an interview. The company had $838 million in cash on Oct. 31, the end of fiscal 2008, after finishing fiscal 2007 with $12 million, he said. That qualified Ara Hovnanian for a $979,302 bonus, Sorsby said.
“We were focused on cash because we’re trying to create liquidity to weather the downturn the homebuilding industry finds itself in,” Sorsby said in an interview. “Ara’s salary did not go up a single penny in 2008 and the $7.3 million in stock options is worthless. All the options he’s received are underwater.”
Hovnanian shares fell 3 cents to $1.63 at 11:23 a.m. in New York Stock Exchange composite trading. The shares declined 76 percent last year through yesterday and have dropped 98 percent since the peak of $73.19 in July 2005.
In 2008, Hovnanian received a salary of $1.09 million, unchanged from 2007, and other compensation of $9.16 million for a total of $10.25 million, according to the filing.
Moody’s Investors Service put Hovnanian on review for a possible downgrade yesterday.
The New York-based debt rating company said it expected 2009 and 2010 will be tougher for Hovnanian to raise cash or borrow money due to the deteriorating market for new homes. Moody’s rates Hovnanian bonds below investment grade.