Beazer Homes Directors Sued by Teamsters Funds Over Executive Compensation

Beazer Homes USA Inc. (BZH)’s directors were sued by shareholders who contend the homebuilder’s executive compensation plan shortchanges investors by rewarding managers for shoddy performance.

Beazer’s board didn’t act in shareholders’ best interests when it approved pay raises last year for Chief Executive Officer Ian McCarthy and other executives while the company had $34 million in losses, lawyers for two Teamsters pension funds said in a lawsuit filed today in state court in Atlanta.

The raises “violated the company’s pay-for-performance policy and favored Beazer’s CEO and top executives at the expense of the corporation,” lawyers for the funds said in the complaint, filed in Fulton County Superior Court.

Last month, Atlanta-based Beazer reported a $48.8 million net loss in the first quarter tied to slumping sales of existing homes and a lack of demand for new construction. That followed a net loss of $34 million last year, according to the pension funds’ suit.

Carey Phelps, Beazer’s director of investor relations, didn’t immediately return an e-mail seeking comment.

Earlier this month, McCarthy agreed to return $6.5 million in a clawback of compensation he received while the firm doctored financial statements in the midst of the U.S.’s housing crisis, according to the U.S. Securities and Exchange Commission.

McCarthy, 58, failed to reimburse Beazer for bonuses and other incentive-based pay in the year after the company filed fraudulent financial statements for 2006, SEC officials said.

Beazer Restatement

Beazer restated financial results for the fiscal year that ended Sept. 30, 2006, after the SEC accused the homebuilder of falsifying reports to increase income, according to court filings. Michael Rand, Beazer’s chief accounting officer at the time of the targeted reports, was indicted last year on charges of securities fraud and obstruction of justice.

As CEO, McCarthy certified the accuracy of Beazer’s financial reports and the lack of fraud during fiscal year 2006, the SEC said. He wasn’t accused of participating in the fraud, regulators said.

Lawyers for the pension funds noted that Beazer’s board bestowed pay raises on executives even though the shares fell more than 17 percent in value. McCarthy got a 7.2 percent pay increase to bring his salary to more than $6.8 million, the suit said. Other top executives got pay raises ranging from 37 percent to 150 percent, lawyers for the fund said.

The raises amounted to “windfalls for the Beazer executives responsible for the company’s 2010” losses, the lawyers said in the suit.

The funds filed a so-called derivative suit, which would return any recovery in the case to the company. Insurers covering board members often provide coverage to settle such cases.

The case is Teamsters Local 237 Additional Security Benefit Fund v. Ian J. McCarthy, 2011-CV-197841, Superior Court of Fulton County (Atlanta).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; David Beasley in Atlanta at dbeasley4@yahoo.com.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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