Tofutti Brands Inc. (TOF) – Excessive Executive Compensation

Tofutti Brands

It in no way ceases to amaze me how often I approach across small companies with executives who are paid undue amounts in place of run of the mill results. Almost habitually, these executives own a generously proportioned (often majority) portion of the company, and so a would-be investor ought to recognize with the aim of these levels of compensation will almost certainly persist. Potential catalysts in place of unlocking quantity are consequently minimized, so it is of great consequence in place of quantity investors to consider whether these company are quantity traps.

Consider Tofutti Brands Inc. (AMEX:TOF), a producer of nondairy food products in place of physical condition conscious folks and folks who are lactose bigoted. The company earned $506,000 on sales of $18.6m in its nearly everyone topical fiscal time, a ROE of 12%. The company paid its first in command and CFO a combined $1,086,000, more than twice the company’s remuneration and virtually 6% of revenues. Even worse is the verity with the aim of the CEO’s salary and bonus are noticeably not linked to the company’s performance, as his calculate compensation package was steady in place of 2007 and 2008, despite remuneration declining by 50%. It is stress-free to find out someplace a would-be acquiror may well recognize cost synergies, as the eradication of these two compensation correspondence may well just now triple the company’s remuneration, making the current marketplace cap seem like a bargain. Obviously, on a stand-alone basis the eradication of these two roles may well not occur, however more reasonable compensation correspondence may well simply multiply by two the company’s remuneration, leading to a P/E of a smaller amount than 10.

Unfortunately, it is suspect with the aim of quantity will be unlocked anytime soon, as the first in command and CFO mutually personally own 55% of the company. I consider this to be tantamount to partly the shareholders receiving a dividend by the side of the expense of the other partly, and I am staying away.