Jefferies Awards Executive Bonuses After WeWork Shredded Returns

(Bloomberg) -- WeWork's dramatic fall should have deprived top executives at Jefferies Financial Group Inc. their bonuses.

That was until the bank's board stepped in and authorized $10.7 million in cash payouts to Chief Executive Officer Richard Handler and three of his deputies, according to a regulatory filing Tuesday.

Jefferies wrote down the value of its WeWork stake by $182.3 million last year after the co-working company's attempted initial public offering backfired spectacularly. The charge cut an earnings ratio used by the board to determine bonus payouts for senior bosses, effectively denying them their payouts.

But the board, which for years has said there should be a strong link between executive compensation and performance, said the “massive collapse” of WeWork's valuation was “completely unanticipated and dramatic.”

The executives would have been well inside the range for payouts without the implosion, the New York-based firm said in the filing.

Richard Khaleel, a Jefferies spokesman, declined to comment beyond the filing.

Directors routinely reserve the right to adjust awards to cushion for unforeseen circumstances and to keep bosses happy. But they tend to use that discretion cautiously. Adjustments can draw criticism from proxy advisory firms and investors who champion the idea of pay-for-performance.

Bonuses for Handler, President Brian Friedman, Chief Financial Officer Teresa Gendron and General Counsel Michael Sharp are broadly linked to a metric that compares the firm's net income to book value.

Jefferies posted a 5.89% return for 2019, just shy of the 6% threshold that would have triggered the payouts. Excluding the WeWork writedown, the ratio would have been 7.74% -- still below the bank's 9% goal.

Defending the payouts, the board listed other accomplishments, including hiring a new class of investment bankers that's 49% female and the fact that the firm didn't face a major lawsuit or significant regulatory scrutiny in 2019. Ignoring those achievements “would neither provide the right incentives nor recognize what was a successful year,” the board said in the filing.

The compensation committee, which oversees executive pay, is led by Robert Beyer, chairman of private investment firm Chaparal Investments. Former Hasbro Inc. Vice Chairman Barry Alperin, Robert Joyal, who previously ran Babson Capital Management LLC, and Michael O'Kane, who worked at Teachers Insurance & Annuity Association, are also part of the committee.

Read more: Jefferies says investment-banking backlog at a record

Handler, 58, received $1 million in salary and a $4.5 million bonus in addition to the special bonus payout. He collected roughly $43 million in stock that had been granted in prior years, leaving him with a 5.8% Jefferies take valued at more than $300 million.

Despite the recent writedown, Jefferies, which bought into WeWork in 2013, has still made several times its original $9 million investment.

--With assistance from Jenny Surane.

To contact the reporter on this story: Anders Melin in New York at amelin3@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Steven Crabill, Peter Eichenbaum

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