Questionable Board Oversight at Callaway Golf

Callaway Golf manufactures and sells golf clubs and golf balls, and related-golf accessories, under the Callaway Golf, Odyssey, Ben Hogan and Top-Flite brands, to pros such as two-time Masters champion Phil Mickelson, and amateurs alike. Chief Executive George Fellows describes himself as a part-time golfer -- and not a particularly talented one at that. In an interview with The Economist last April, he said "he identified more with people who are average golfers infinitely more than he did with professionals."

Callaway's ambitious business strategy, Fellows explains, is to appeal more to these dabblers, not least by designing equipment that makes golf easier "for people like you and me, who don't play the same game as Phil Mickelson, and never will." Fellows may not play like a pro in The Masters, but he can certainly keep up with them at the country club scene. Despite stewarding a mixed financial performance at Callaway, George Fellows received compensation valued at $4 million in 2008, according to an analysis of the the 2009 regulatory proxy statement filed with the SEC. The bulk of Fellow's pay package valuation is his base salary of $923,654 and restricted stock/option awards valued at about $2.7 million.

Begrudge no man looking to cop free Top-Flite balls or a Big Bertha Diablo driver. What does ruffle my crewcut, however, is when senior management is reimbursed in direct contradiction to stated policies. For example, Fellows was rewarded total cash payments (salary plus non-equity incentive compensation) of $145,269 and $134,007 in 2008 and 2007. Of particular interest, Fellows also received from the company -- in each year -- a payment of $66,500 to assist him with travel expenses "not otherwise reimbursable under the Company's policies." Aside from obscuring the true nature of the payments [DISCLOSED: auto allowance, $12,000 annual payment; annual country club dues, $21,000; spousal travel and related-taxes of $6,200 paid], it calls into question the board's governance policy. If the travel expenses were not covered under stated policy, why then were they paid at all -- two years running now?

There are those who might say: "Don't sweat the small stuff." But, really--ain't it all small stuff? I guess Mr. Fellows would rather us let him take a few "mulligans" on those questionable travel reimbursements.