Goose-Egg Salary Tests Waters of Executive Compensation

Article excerpt

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, he 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, 1.6 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 in 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 the 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 at Renaissance Capital Corp., a new-issue research firm in Greenwich, Conn. 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 be 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. …


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