SEKRI execs defend salaries, bonuses

Executives at a local non-profit organization established to hire disabled workers are defending high salaries and lucrative bonus packages in the wake of a series of reports critical of the way similar companies do business.
Tom Fields, Executive Director of Southeastern Kentucky Rehabilitation Industries, Inc., (SEKRI) said top brass and directors at his company have anticipated questions about executive salaries and worker pay for months.
Over the weekend The Oregonian, a daily newspaper based in Oregon, published a series of articles that scrutinized contractors who utilized the Javits-Wagner-O’Day (JWOD) program – a federal law that awards contracts to charity organizations who employ high percentages of disabled workers.
SEKRI is the fourth largest contractor receiving federal contracts from Javits-Wagner-O’Day with total sales of nearly $76 million annually. And the company’s executives have been given handsome raises in recent years to go along with the rise in profits.
According to federal tax reports filed for the 2003 fiscal year, Fields was paid $164,807 in compensation, plus $5,406 into employee benefit programs and deferred compensation. The company’s 13-member Board of Directors approved a $483,454 salary for 2004 with $11,452 in benefits and deferred comp. The bump in pay works out to a 293 percent increase in pay.
The Company’s No. 2 executive, Administrative Director Jim Page, made $94,943 in salary in 2003 (plus $13,918 in benefits and deferred compensation), then received a 371 percent pay increase for 2004 in base pay – $352,307.
Though asked Tuesday, the company would not release executive compensation figures for 2005.
Fields defended the raise and said that executive pay is based on industry standards for companies of similar size and for executives with similar responsibilities. A third-party firm provides recommendations to the company’s board of directors regarding compensation.
“I am fairly paid. I appreciate every penny I get. I earned every bit of it and then some,” Field said. “For this area … that might be an excessive amount of money. I know what the perception is, but I don’t have a problem with what I’m being paid.”
But at least some of the members of the company’s current Board of Directors may be considering a change in the way executives at the company are paid.
Currently, a large portion of salaries for top execs comes in the form of a bonus based on profits. Those bonuses were relatively negligible when Fields took over the company in 1996 as it teetered on the edge of bankruptcy with only 100 employees. Now, SEKRI is a thriving, 1,300 employee-strong manufacturing giant with eight facilities in southeast Kentucky and northern Tennessee.
“When the plant wasn’t doing much in sales, then it wasn’t a lot of money,” one board member, who wished to remain anonymous said. “You take two percent of $500,000 in sales, let’s say, and it’s not a lot for bonuses. But you take two percent of $100 million and that’s $2 million … that’s a lot of money for bonuses. Actually, the board has been a little bit in the dark on this. I had no idea bonuses were distributed like this.”
Charles Buchanan, a member of SEKRI’s Board of Directors during the 2004 pay raise, said he had no idea salaries were that high among company executives, even though he approved the financial boost.
“I’m not aware that it was that much,” he said. “Sometimes it’s so complicated, I just don’t understand it. I really don’t know what’s going on down there … I don’t know if anybody around here is close to making that kind of money.”
Buchanan said the topic of executive salaries was discussed on at least one occasion among board members, but doesn’t recall the nature of the discussion.
Other current and former board members who voted for the increases either wouldn’t comment or could not remember any details about pay increases.
Local accountant Nancy Mitchell, a member of the board in 2003, said she was too busy filing tax returns to address the question. Another board member, financial consultant James Norvell, deferred all questions to Fields.
Local attorney James Tomaw, vice-chair of the board in 2003, said he doesn’t recall the raises being so large, but defended the salaries.
“Yes, that’s a very nice raise,” Tomaw said. “I can say I don’t think it would be excessive for a CEO of a company of that size.”
When asked about executive pay raises as compared to regular laborers, Fields said he did not have exact percentages. He said workers make an average of $8.25 and hour, not including cost of benefits and added that many improvements were instituted shortly after his arrival at SEKRI in 1996.
In the Oregonian series, reporters point out that many disabled workers are making less than minimum wage because of laws that allow for decreased salaries because of decreased worker production. Fields said he scrapped that system and brought all SEKRI employees up to no less than minimum wage. Also, workers who had essentially no fringe benefits now have health, dental, vision and life insurance, 12 holidays off work, up to three weeks vacation, a 401k program and better working conditions. In 1996, SEKRI’s sole plant was deteriorated with out-of-date equipment and no air-conditioning.
He added that the company, which was relying at times on bake sales to keep the doors open, is now an $80 million industry with a payroll in excess of $17 million. All of SEKRI’s plants produce apparel for the U.S. Armed Forces through government-backed JWOD contracts.
Fields said he was paid only about $40,000 when he started with the company. His salary, he contends, is till about 40 percent below executives at similar size companies with comparable profit margins.
“The overall performance of the company is an amazing success story,” Fields said. “I think the board is very well satisfied with what’s happened here.”
Federal regulators, focusing on companies that benefit from JWOD, proposed in 2004 a $207,000 salary cap for executives. Fields said he opposes this move. The idea died before inception.
Former SEKRI Board member Pat Huff said she was in favor of the large salary increases for top execs because she feared the company would lose talented leaders if they weren’t paid well.
“When somebody brings a company in bankruptcy to $80 million a year, it really doesn’t seem that excessive,” she said. “I’m sure Tom Fields could have gotten a job at any factory. We would have lost him to some other company if we hadn’t given him a big raise.”