Opinion ID: 1619901
Heading Depth: 1
Heading Rank: 2

Heading: The Target Bonuses

Text: Scrushy next argues that his employment contract with HealthSouth governed the payment to him of target bonuses, notwithstanding the provision for bonuses in the annual proxy on Form 14A. Scrushy contends that HealthSouth was contractually obligated to pay his annual and monthly target bonuses, and, he says, he is entitled to retain those funds. Scrushy relies on paragraph 5(b) of his employment contract. The employment contract Scrushy executed in 1998 states, in pertinent part:  Annual Target Bonus. The Company shall provide the Executive with the opportunity to earn an annual target bonus (the `Annual Target Bonus') equal to at least $2,400,000. The amount of the Annual Target Bonus will be reviewed at least annually by the Compensation Committee for consideration of appropriate merit increases and, once established at a specified amount, the Annual Target Bonus shall not be decreased during the Employment Period. . . . The Annual Target Bonus will be payable in the event that the Company's operations meet the annual performance standard set forth in the Company's business plan, as approved by the Compensation Committee in each year of the Employment Period (the `Business Plan'). In the event that the Company's operations meet the monthly performance standard set forth in the Business Plan, an amount equal to one-twelfth (1/12) of the Annual Target Bonus (a `Monthly Target Bonus') shall be payable within five days following the date the Company's internal monthly financial statements have been completed. In the event that any Monthly Target Bonus shall not be paid during the course of such calendar year because the relevant monthly performance standard was not met, such Monthly Target Bonus shall again become available for payment if the Company attains its annual performance standard for such calendar year. In the event that the annual performance standards are not met, Executive shall nevertheless be entitled to retain all amounts theretofore received in respect of any Monthly Target Bonuses paid during the course of such calendar year. . . .  Scrushy's other employment contracts had similar provisions. Scrushy argues that pursuant to paragraph 5(b) the target bonuses were separate from the annual incentive bonuses available to senior management; he also argues that the target bonuses did not relate to HealthSouth's annual income. The trial court's order states: 6. No bonuses were to be paid for any year to any executive, including Scrushy, except out of the bonus pool that was capped at the lower of (a) 10% of Net Income or (b) the extent to which actual Net Income exceeds budgeted Net Income. HealthSouth required a two-step process, the first to determine the amount available in a bonus pool to be paid to executives (including Scrushy) and the second to make bonus awards from that pool. HealthSouth never disclosed that any bonuses were ever paid to Scrushy outside of the pool. . . . . 12. Scrushy had two employment contracts with HealthSouth during the years 1996 through 2002, the first dated April, 1986 and the second dated April 1, 1998. These employment contracts provided to Defendant Scrushy the `opportunity' to earn bonuses on the same basis as other qualifying executives of HealthSouth. This Court specifically finds these employment contracts between Scrushy and HealthSouth did not guarantee the payment of any type bonus to Defendant Scrushy. To the contrary, any bonuses payable to Mr. Scrushy would come out of the same bonus pool as was available to all other qualifying executives and which has been identified in paragraph 5 above [which quotes the Form 14A disclosure]. (Emphasis in the trial court's order.) We agree with the trial court's conclusion. Paragraph 5(b) of the employment contract merely provides Scrushy with the opportunity to earn an annual target bonus. (Emphasis added.) It is clear from the Form 14A disclosure that a total incentive bonus pool available for the company's executives and management personnel provided the funds from which all bonuses were to be awarded. That disclosure also contained the following unequivocal statement: No bonuses are payable unless annual net income exceeds budgeted net income. Without annual net income, Scrushy could not have had the opportunity to earn the target bonuses that were the subject of paragraph 5(b) of his employment contract. Because Scrushy's employment contract could not have obligated HealthSouth to pay bonuses when the company not only had no annual net income, but had, in fact, sustained an annual net loss, the employment contract supplements and does not contradict the provision for bonuses in the annual proxy on Form 14A, and the trial court correctly did not consider the provisions in the employment contract in determining that Scrushy was not entitled to keep the funds. [1]