Heartland's Gold Star Management

By Will Ashworth | April 20, 2010 AAA

CEO compensation continues to be a hot topic with investors. A great site for following the good and bad practices of publicly traded companies is Footnoted.org, now part of Morningstar (Nasdaq:MORN). Using SEC documents, it ferrets out pertinent information from these filings (most can't or won't spend the time) and then reports to its readers the reasons why the information is relevant. Busy financial professionals find it indispensable.

Recently, it highlighted the CEO compensation of trucking company Heartland Express. Russell Gerdin's base salary in 2009 was $300,000. His total compensation was also $300,000. Gerdin received no additional stock awards or cash bonuses. Heartland's board felt that Gerdin's 42% ownership stake was enough incentive to keep working hard. For this, Footnoted.org gave Heartland a gold star. Stick around and I'll highlight a few other reasons why Heartland does things right. (To read the original article, see Why You Shouldn't Jump On Columbia's Mountain.)

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Heartland & Peer Group

Company Market Cap 10-Year Annual Return CEO 2009 Compensation
JB Hunt (Nasdaq:JBHT) $4.7B 27.2% $706,000
Landstar System (Nasdaq:LSTR) $2.2B 20.1% $1.78M
Con-Way (NYSE:CNW) $1.9B 3.5% $3.4M
Knight Transportation (NYSE:KNX) $1.8B 20.2% $1.4M
Werner Enterprises (Nasdaq:WERN) $1.7B 10.6% $1.6M
Heartland Express (Nasdaq:HTLD) $1.5B 18.2% $300,000

Doing What's Right
Heartland might not have the best performing stock in the trucking industry but it's not from a lack of shareholder concern. By paying its executives a reasonable but fair wage, the board sends a clear message that it's interested in all stakeholders, not just the named executive officers. When repurchasing shares, it's careful about the price it pays for its stock. Between 2007 and 2009, it bought back $101.2 million at $13.49 a share. The average trading price of its stock during this period was $15.95, meaning the company paid $2.46 a share less than its average-trading price, saving shareholders $18.5 million. Those savings came in handy when it paid a $2 a share special dividend in the second quarter of 2007. Possessing one of the strongest balance sheets in the industry including a truckload of cash and no long-term debt, it gave back $197 million to shareholders. That's what I call good corporate governance.

Running Smoothly
Despite revenues dropping 26.6% in 2009 to $459.5 million from $625.6 million and operating income dipping 19.4% from $98 million to $79 million, it still managed to generate cash flow from operations of $101.1 million or 22% of revenue. The economy has shaken the trucking industry severely. Having said this, Heartland is one of the most conservatively financed businesses out there and its focus on customer service will pay handsome dividends as the economy recovers. Named one of Forbes Magazine's 200 Best Small Companies in 2009 for the eighth consecutive year, Heartland's figured out how to deliver freight on time while controlling fuel costs and the other expenses that come with operating a trucking company. It's not as easy as it sounds.

Bottom Line
I'll admit this article doesn't wade very deep into Heartland's financials or the inner workings of its operation. Perhaps I'll do so at another time. What I do know is that employees and shareholders alike should be very proud of their company. This is a well-run business, which quite rightly deserves a whole bunch of gold stars. (Find out what this winning manager did to grow one of the biggest companies in the world. Refer to Management Strategies From A Top CEO.)

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