Unfunded pension obligations are behind a multi-million-dollar payout due to HCR ManorCare’s former president and CEO — even though the company has filed for Chapter 11 bankruptcy.
Paul Ormond, who left ManorCare in September 2017, is owed $116.7 million under the prepackaged bankruptcy plan by which Quality Care Properties, Inc. (NYSE: QCP) will take over the Toledo, Ohio-based skilled nursing provider. But despite the bad optics of the arrangement, the amount is not connected with ManorCare’s bankruptcy, according to Toledo newspaper The Blade.
A major portion of Ormond’s pension was unfunded, Irving Levin Associates, Inc., partner and health care consultant Stephen Monroe explained to the publication. ManorCare acknowledged as much in 2016, admitting to an unfunded executive pension liability of $115.3 million, according to an SEC filing by landlord QCP in April 2017.
Many company boards provide executives with compensation plans that include bonuses, stock options, long-term rewards, and supplemental retirement funds that defer compensation, The Blade explained. While some companies require a structured yearly pension payout, others allow lump sums. Stanford University professor David Larcker, an executive compensation expert, told the publication that pension liability related to executive compensation has become a major problem.
“These supplemental retirement plans, which in truth are going out of business because shareholders have complained about them in public companies — some of them can be astronomical sums because they can be based on the last three of four years of salary and bonuses,” he told The Blade.
QCP has said it would pay Ormond’s claim.
Ormond had asked for immediate payment of his $100 million deferred settlement package when ManorCare’s issue with paying rent to QCP emerged, the New York Post reported in June 2017.
QCP agreed to pay Ormond $60.7 million from a previously frozen senior executive retirement plan, $9.8 million from a replacement retirement plan, $42 million from a management savings plan, and $3.9 million in severance, documents showed.
While the Post suggested the payment came from a package Ormond received from private equity firm the Carlyle Group, which bought ManorCare in 2006 for $6.3 billion, Larcker indicated to The Blade that the amount to Ormond was high because of his 32 years with the company.
Before the buyout, in which Ormond received $17.3 million, he received a compensation package of $19.8 million in 1998, $16 million in 2003 and $11.5 million in 2004. During those years, he deferred much of his compensation to ManorCare’s retirement plans. In 2006, he put $3.3 million into his pension, The Blade said.
Genesis HealthCare, Inc. (NYSE: GEN), by contrast, has eliminated executive retirement plans, The Blade observed. While Genesis CEO George Hager, Jr. received about $2 million in stock and salary in 2017, Genesis’ SEC filing said there are no “significant perquisites or retirement programs” under executive compensation.
Written by Maggie Flynn