Are Fat Cats Slimming Down?
Despite having garnered sizeable base pay and bonuses last year (see Fat Cats Feast, Despite Layoffs), Jozef Straus, CEO of JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) and formerly one of the most highly compensated optical execs, won't be taking home the same this year.
Instead, according to recent filings with the U.S. Securities and Exchange Commission, the board of JDS Uniphase has given Straus a modest 4 percent raise on his base salary, plus "options to purchase 300,000 shares of Common Stock at a purchase price of $112.625." He'll get no bonus.
Last year, Straus was awarded $604,284 in salary and bonuses, plus 9,613,328 in "securities underlying options."
The news is in line with speculation that surfaced last month, in which sources close to the company indicated Straus's compensation would change from last year. But those sources hinted the change would come from Straus himself forgoing some of his enormous pay in light of recent company layoffs and losses (see JDSU Sees Stability, JDSU Writes Off Billions More).
Instead, the explanation for the zero bonus for Straus and other top-level JDSU execs given in the company's latest proxy statement is subtly worded but clear: "Annual bonuses are earned by each executive officer primarily on the basis of the Company’s achievement of certain corporate financial performance goals established for each fiscal year... No bonuses were paid to executive officers during fiscal 2001."
Another highly paid executive in this space, John T. Chambers of Cisco Systems Inc. (Nasdaq: CSCO), also won't be taking any bonus this year. According to Cisco's latest proxy filing, "Mr. Chambers’ 2001 fiscal year incentive compensation was based on the actual financial performance of the Company in failing to achieve designated corporate financial objectives despite attaining a strategic revenue objective measured against competitor performance and a customer satisfaction rating in excess of target." (Emphasis added.)
Presumably, the shortfall cited by Cisco's board pertains to the company's considerable losses and layoffs this year (see Cisco: Tough Quarter in Progress, Grim Reaping: A Downturn Tally).
Interestingly, Chambers' base salary of $268,131 is the lowest on Cisco's senior staff. CFO Larry R. Carter's 2001 base pay is $424,212; and the other three senior VPs all received over $350,000.
The board says this is deliberate: The level of Chambers' pay, according to Cisco's latest proxy statement, is based on "both Mr. Chambers’ personal performance of his duties and the salary levels paid to chief executive officers [in comparable companies], but set below the 25th percentile of the surveyed data in order to have a substantial portion of his total compensation, in the form of variable incentive awards and stock option grants, tied to Company performance and stock price appreciation."
For 2001, John Chambers received options to purchase 6 million Cisco shares at the price fixed on the grant date -- a value well over $100 million. Other top Cisco execs were awarded an average of 600,000 options. That too is carefully planned. The proxy statement indicates that "The option grant made to Mr. Chambers was based upon his performance and leadership with the Company and placed a significant portion of his total compensation at risk, since the value of the option grant depends upon the appreciation of the Company’s Common Stock over the option term."
This tack appears to put Chambers under considerable pressure to take actions that will increase the company's stock value -- and it seems Chambers heartily approves. In April 2001, Chambers requested that his annual salary be reduced to $1. That decision was approved by Cisco's board in May 2001, but the board had already approved the 2001 base salary noted above in July 2000.
Thus, Chambers is set to earn $1 in base pay next year -- and if all goes as he plans, many millions more in company shares.
Elsewhere in the industry, there are signs that corporate execs leaving troubled companies may be taking less-than-golden severance pay. On October 10, Marconi Corp. PLC (Nasdaq/London: MONI) announced it would pay ex-CEO Lord Simpson £300,000, about US$435,000, in severance, with nothing further to come (see Marconi Pays Off Lord Simpson). This negates earlier rumors of considerably larger exit pay for Simpson, who along with former chairman Sir Roger Hurn, resigned under a cloud in September (see Heads Roll at Marconi).
Marconi's press statement seems to indicate that some of the executives involved in its recent management sweep opted out of large settlements. Hurn, for instance, "has not sought or been offered any compensation," according to the statement.
However, John Mayo, the former deputy chief executive sent packing in July (see Mayo 'Resigns' from Marconi) will continue to get pension and benefits, Marconi says, in addition to the £600,000 (about US$870,000) he received in lump-sum severance.
That's relatively small potatoes compared with severance packages of the past, such as the deal done for Richard McGinn, the ex-CEO of Lucent Technologies Inc. (NYSE: LU), who resigned under pressure last year and negotiated the following severance package by early summer 2001: $6.5 million in lump sum compensation, his legal fees paid, $4.3 million in payments for outstanding bank loans, ongoing pension and retirement benefits, stock holdings, and personal office expenses of up to $9,000 per month payable through December 1, 2001, or until he gets another job.
It's too soon to tell just yet whether there's actually a trend afoot to reduce industry executives' severance, annual base salaries, and incentive bonuses. More will be known as proxy statements are issued during the next quarter.
— Mary Jander, Senior Editor, Light Reading