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YTB Moves to Performance Based Compensation

July 21, 2010 By: George Dooley

YTB International, Inc., the controversial multilevel marketing firm based in Wood River, IL, reports it has changed the company's executive compensation program, transitioning to a performance-based incentive program. At the same time, YTB has added to the complexity of its operations by changes in its "termination" policy for its top corporate officers.

YTB’s move on compensation— made public in a press release— is effective for the 2010 fiscal year and rewards company executives who are entitled to incentive compensation if YTB achieves growth. The key executive officer beneficiaries of the program are Lloyd Tomer (former chairman), J. Scott Tomer (chairman) and J. Kim Sorensen.

YTB’s release did not mention a severance plan for Sorenson, which could offer him and the two Tomers an amount equal to two years’ annual base salary. The severance plan was noted in the Securities and Exchange Commission (SEC) filing.

"In exchange for participation in the Incentive Plan and the Severance Program, Mr. J. Kim Sorensen entered into a Termination of Employment Agreement with the Company dated July 19, 2010, pursuant to which Mr. Sorensen’s employment agreement with the Company dated January 1, 2008 was terminated," YTB said.

John Frenaye, a YTB critic and knowledgeable source commented on the transactions. "I am not sure what to make of it," he said. "On the surface, it seems like it may be an exit strategy for the top three executives. It is retroactive so Lloyd 'Coach' Tomer, who 'resigned' to become a 'master distributor' this past winter, will be able to cash in on the severance."

Frenaye noted that, with a $1.9 million dollar payment on the YTB headquarters property due on August 31 to FH Partners and a reported $1 million in cash at the end of March, "it may very well be setting the founders up to maximize their earnings in case the business continues to deteriorate."

"While Coach Tomer is no longer an 'employee,' he is still pulling the strings as an independent contractor," Frenaye said. "It is possible Scott Tomer and Kim Sorensen may take that same route shortly. From what I gather, this severance package essentially guarantees a two-year income plus a bonus. Plus if they are compensated as contractors it will likely be on top of that compensation."

YTB’s second quarter financials are due shortly, and Frenaye feels these numbers may shed some more light on the recent filing. YTB reported a loss for the first quarter of 2010 following losses for the past two years.

At the end of March, there were 34,487 YTB agents, Frenaye estimates, some of whom sell travel,  but with drop outs this could now be as low as 28,000.

Travel Agent Asks for YTB’s Comments

On the compensation issue, YTB said: “Effective for the 2010 fiscal year, certain company executives are entitled to incentive compensation if the company achieves growth in the number of business owners at fiscal year end compared to the beginning of the fiscal year; if the company meets or exceeds certain financial objectives established at the beginning of the fiscal year; or if the executives meet or exceed certain personal or departmental financial and budgetary objectives established at the beginning of each fiscal year."

"The changes to the compensation structure are a sign to our independent marketing representatives and business owners that we are focused on being financially responsible and are indicators of YTB's commitment toward success," Robert M. Van Patten, YTB CEO commented. "This program places more responsibility and accountability on each executive and motivates the Company's executives to continue to strive toward increasing shareholder value,"

Details of the plan were revealed in a filing with the SEC. The objectives under the incentive plan includes several categories, all pegged at 25 percent: growth in business owners; free cash flow; earnings before interest, taxes, depreciation, amortization, discontinued operations and excluding impairment charges; and discretionary objectives.

The discretionary objectives represent a list of specific tasks to be accomplished by the participant during the year. "The discretionary award target will track the weighted average of the company’s free cash flow target and the pre-tax operating income target," YTB said.

 "Each objective is assigned a points allocation," states YTB’s SEC filing. "Actual performance will be compared to the objectives and a percent of completion will be calculated. The total percent completed based on a 100% total will be multiplied by the award level and then multiplied by the base pay of the participant to determine the total award. The total award cannot exceed 25 percent of the Company’s free cash flow for the year. Executive officers’ awards are based on 50 percent to 75 percent of the respective executive officer’s base salary. A participant can earn up to 150 precent of the target award if actual performance exceeds the established objectives by 150 percent."



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