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Walter digs deep so CEO will stay

Walter Industries' board is eager to have retiring chief Don DeFosset stay until a replacement is found.

Published March 5, 2005

Walter Industries wants its retiring CEO to stick around until an external search for a successor is complete, and it's willing to pay him handsomely to do so.

Don DeFosset's pay - he earns $725,000 a year and is eligible for a performance bonus worth up to $1.3-million - apparently wasn't sufficient.

So in an agreement struck this week, Walter's board agreed to give its eager-to-leave chief a package of incentives worth $2-million to $3-million. They include:

Twenty-four months of salary, regardless of how long the search for a successor takes ($1.45-million).

An extra one-year bonus ($725,000).

Two years' worth of health insurance and other benefits.

A $2,000-a-month car allowance for two years ($24,000).

Country-club and luncheon-club memberships for two years.

Job-placement support (up to $250,000).

DeFosset, 56, announced late last month that he planned to retire as the Tampa company's chairman, CEO and president, citing unspecified "personal reasons." General counsel Vic Patrick called negotiations over DeFosset's retirement plans cordial and said the board believed it was in the company's best interests to hang onto its CEO during the search for a successor.

"Don's flexibility was incredible," Patrick said. "He doesn't want to be working."

"The message to successors and shareholders is, "We reward performance,' " added Joe Troy, Walter's senior vice president for financial services. "Don's done a hell of a job here. . . . When he started, the stock was $7.40 a share, and today it's over $40. That's over a $1-billion increase in market cap."

In a separate sign of good fortune during DeFosset's watch, Walter on Friday raised its 2005 earnings projection 30 cents to a range of $2.50 to $3.10 per share. The company, whose lines of business include home building and coal mining, cited better-than-expected pricing on recent coal contracts for the increase.

Walter's stock closed Friday at an all-time high of $40.25, up $2.68 per share, or 7 percent. It was the Tampa Bay area's fastest-growing stock last year.

DeFosset's original employment contract with Walter Industries, dated November 2000, described only two circumstances under which his departure would lead to extra payments: if he were fired without cause or if the company demoted him or slashed his pay. Nothing was said about how a voluntary retirement would be handled.

Does that silence suggest DeFosset was entitled to nothing under the original contract? Far from it, Patrick said. The contract simply left the issue to be negotiated.

Elliot Schwartz, research director at the Council of Institutional Investors, whose members include the Florida State Board of Administration and other pension funds, said it wouldn't be the first time a publicly traded company paid its CEO extra to hang on until a successor was found.

But he said he found the arrangement odd.

"They're paying him, in essence, both preretirement and postretirement salary," Schwartz said. "His value as a leader, adviser and so on didn't just leap by that much because he said he was leaving. So it does kind of make you smell that there's something not being said."

Schwartz added that he hoped Walter's board made its decision about DeFosset in executive session, from which DeFosset and other insiders would be excluded.

Walter's board recently increased its pay by 50 percent. On Feb. 17, board members voted to raise the basic quarterly fee for nonemployee directors from $7,500 to $11,250.

Walter has a history of making large payouts to exiting CEOs. In 2000, a year when the company lost four CEOs before DeFosset took over, the company paid one ousted chief executive $3.9-million and his successor $2.4-million.

Scott Barancik can be reached at 727 893-8751.

[Last modified March 5, 2005, 00:41:15]

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