Jerre L. Stead has every reason to wince when he sees headlines
about the mega-dollar salaries paid to chief executives.
He is a chief executive himself. But when he signed on in August
to take the top post at Ingram Micro Inc., a computer distributor,
positioned himself at the opposite end of the salary spectrum. He
took a cash salary of exactly zero -- goose eggs.
In what may be the most daring pay package in corporate America,
Stead will get nothing but stock options. His deal allows him to
purchase 3.6 million shares of Ingram Micro's stock: 400,000 now,
million in four installments beginning in April 1998 and the rest on
a schedule tied to goals for the stock price and company earnings.
He could, in theory, own 2.8 percent of the Santa Ana, Calif.,
company in five years.
For years, shareholders and analysts have been preaching that
corporate chieftains ought to put more of their pay at risk. Why
should managers be rewarded so handsomely, they ask, if their
performance is not up to par? The surest route to aligning the
interests of chief executives with those of shareholders is to pay
them heavily in stock options, pay experts say.
Although there are a few precedents -- most notably when Lee
Iacocca joined Chrysler Corp. and briefly took a pay package of $1
cash and the rest in stock -- Stead will be the ultimate test.
"It's obviously very gutsy," said Graef Crystal, a San Diego-based
critic of corporate pay practices whose annual lists of overpaid
executives are a thorn in the side of the business elite. Under
Stead's deal, "he makes zero unless the stock rises," Crystal said,
adding, "If the CEOs of America would follow suit, I'd be back
playing the piano."
Stead, 53, may end up very rich, of course. But even now, his
package, which was his idea, has one highly desirable byproduct.
Ingram Micro, a $10-billion-plus division of the privately held
Ingram Industries, is to go public this month, at an expected $14 to
$16 a share.
"There's no question," said Robert Salwen, a compensation
consultant in White Plains, N.Y., that the pay package "will help
initial public offering."
"The first question Wall Street asks in IPOs is: `What stake does
management have?' " he said.
Even on this score, Stead's attention-grabbing deal is a stand-
out. Many companies going public pay managers little cash, loading
them up instead with options that can often be exercised below the
initial price. But "we like his package especially because his
options are at the IPO price," said Kathleen S. Smith, a principal
Renaissance Capital Corp., a new-issue research firm in Greenwich,
Still, Stead's rewards could be stunning. He and other Ingram
managers would not comment because of regulatory restrictions on
impending offerings. But John T. Thompson, vice chairman of Heidrick
& Struggles, the recruiting firm that brought Stead and Ingram Micro
together, pointed out that "if Jerre can triple the stock price in
five years, he'll make over $100 million."
Stead's package is particularly striking when compared with some
other recent deals. In August, for example, when Alex J. Mandl left
the No. 2 post at AT&T to run Associated Communications, a tiny
wireless telephone company with no revenues, he got a $1 million
salary, a $20 million signing bonus, plus an 18 percent equity stake
that may be worth more than $100 million if the company goes public.
Associated paid so much, analysts say, because Mandl brings both
proven executive skills and credibility with investors, which will
crucial if the company goes public. But Matt Ward, a compensation
expert at the Hay Group, a management consulting firm, called the
deal "the ultimate no-risk package."
With some chief executives acting like free-agent athletes,
"whether deals like Stead's will become more widespread is a tough
question," said Donald B. York, managing director of Radford
Associates, a Silicon Valley consultant. …