HHGregg prevails in appeal over managers’ bonuses

HHGregg Inc. senior managers are not entitled to share in $40 million in life insurance proceeds from the 2012 death of executive chairman of the board Jerry Throgmartin, the Indiana Court of Appeals ruled Friday, reversing a trial court ruling in the managers’ favor.

Dwain Underwood brought a class action on behalf of senior managers at Indianapolis-based HHGregg, claiming Throgmartin’s life insurance proceeds should have factored in earnings that serve as the basis for various levels of bonuses under the company’s annual incentive plan.

Court of Appeals Judge Melissa May overturned a trial court ruling that the managers were entitled to a share of the proceeds under Gregg’s bonus scheme based on 2012 earnings before interest, taxes, depreciation and amortization (EBITDA).

“As the life insurance proceeds Gregg received that year were properly excluded from EBITBA, Gregg was not obligated to pay the bonuses. We reverse and direct entry of summary judgment for Gregg,” May wrote in a unanimous nine-page decision.

“As the parties could not have intended the EBITDA on which the (Total Rewards Statement) was based would include a one-time event in the form of insurance proceeds that did not reflect the company’s performance, Gregg was entitled to summary judgment,” May wrote.

The order reverses a ruling by former Marion Superior Judge Robert Altice, who since has been appointed to the Court of Appeals.

Underwood filed his complaint in March 2013, claiming that the Indianapolis-based appliance and electronics retailer failed to factor the $40 million payout into the calculation used to determine whether employees were entitled to incentive bonuses.

Underwood claimed HHGregg should have paid him a $25,000 bonus based on the company’s fiscal 2012 earnings before EBITA, of $144.4 million.

Instead, HHGregg based bonuses on “adjusted EBITA,” which excluded the life insurance payout.