KB Home Taps Independent Chairman in Post-Options Scandal Era

Stephen Bollenbach, chief executive at Hilton Hotels Corp., will succeed longtime KB Home leader Bruce Karatz, according to a Los Angeles Times report.

Karatz stepped down November 12 after an internal probe determined that he had picked stock option grant dates that inflated the value of the options awarded to him and other executives (See KB Home CEO Retires Following Stock Options Investigation ). The stock option scandal forced KB Home to restate seven years of financial results, accounting for $36 million in understated compensation.

Also at this week’s annual meeting, director Ray Irani was reelected to the board over the objections of the California Public Employees’ Retirement System (CalPERS), the giant pension fund that owns less than 1% of KB Home’s shares. CalPERS has a policy of opposing chairs of compensation committees at companies from which the CEO has departed under an option-backdating cloud.

Irani, chairman and CEO of Occidental Petroleum Corp., was head of the board’s compensation committee that agreed to the stock option grants under Karatz. During the last three years at KB Home, Karatz earned more than $232 million, much of that in stock options, according to the news report (See  Corporate Carnage Continues in Stock Options Scandal with Monster Firing ). Since the backdating scandal, KB Home has revamped its policy for granting stock to executives, putting the responsibility in the hands of independent board members instead of management.

CalPERS spokesman Clark McKinley told the Los Angeles Times tbat CalPERS had endorsed nearly all of the policy changes sought by the home builder, including a proposal that passed requiring shareholder approval of executive severance agreements.

Bollenbach, a former Walt Disney Co. chief financial officer, plans to step down as Hilton’s CEO at the end of the year after more than a decade in the post, according to the Times report. He will remain a co-chairman of the Beverly Hills company’s board through 2010.

Other KB Home directors winning reelection were Ronald Burkle, founder of private investment firm Yucaipa Cos.; CBS Corp. President Leslie Moonves; and Luis Nogales, a former media executive who heads a private equity firm.

Two shareholder proposals were also approved at the annual meeting: a proposal by the AFL-CIO Reserve Fund, Washington, calling for performance-based stock grants for senior executives, and a proposal by the Trowel Trades S&P 500 Index Fund, calling for shareholder approval of severance grants to senior executives that exceed 2.99 times their base salary and bonus.

Shareholders defeated a proposal by the $1.9 billion International Brotherhood of Electrical Workers Pension Benefit Fund, Washington, calling for directors and top executives to hold through their tenures 75% of all KB Home shares they obtained by exercising options or grants.

Shareholders also passed board proposals calling for the annual election of all directors and the end of an 80% supermajority voting requirement for corporate actions.