Exclusive: Herbalife to share more data on pay in investor fight

Wed Feb 6, 2013 3:51pm EST
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By Martinne Geller

NEW YORK (Reuters) - Herbalife Inc (HLF.N: Quote), the embattled nutritional supplements company, is disclosing more information about how much its U.S. distributors earned in 2012 than it did in 2011, though the details are unlikely to satisfy critics like billionaire hedge fund manager Bill Ackman.

Specifically, Herbalife laid out on Wednesday the ranges of gross compensation it pays to distributors at various levels, how many distributors it had last year at each level, and what their average gross payments were.

The shift toward greater disclosure comes in the face of an attack by Ackman, who has a $1 billion bet against the company and alleges that its direct-selling model is nothing more than a "well-managed pyramid scheme". He has said he believes the company's stock price will eventually go to zero.

The new disclosure, to be posted on Herbalife's website on Wednesday, is more open about how much money Herbalife pays its independent sales people, a central theme in the high-stakes debate over the legitimacy of its business.

Herbalife President Des Walsh told Reuters that Herbalife is not a pyramid scheme because its distributors do not get paid anything for recruitment in and of itself. He does agree that recruitment is a path to greater income, since distributors can get payments related to the sales performance of distributors they recruit.

In Herbalife's 2011 disclosure about distributor compensation, it only mentioned payments for those distributors that made it to supervisor level or higher, a group that in 2012 only accounted for 17 percent of all U.S. distributors. It also did not say in 2011 how many people were at each level, describing the level's size only as a percentage of an undisclosed total.

Still, the increased disclosure is unlikely to silence critics like Ackman, who asserts that Herbalife distributors make 10 times as much from recruitment as they do from selling product.

"We believe many of those critics are guided by a profit motive and to that extent it is likely that any information we provide will continue to be criticized, not because of its insufficiency or its inadequacy, but simply because it is not in the interest of these people to accept anything that we say," Walsh said in an interview on Wednesday.   Continued...

Traders work at the post that trades Herbalife stock on the floor of the New York Stock Exchange in this January 10, 2013 file photograph. REUTERS/Brendan McDermid/Files