What the Boss Makes..Led by Intel's Craig Barrett...
Here's an interesting article about "THE 10 most highly paid bosses in Silicon Valley"
sjmercury.com
Posted at 3:43 p.m. PDT Saturday, June 12, 1999
What the Boss Makes
Led by Intel's Craig Barrett, top moneymakers of 1998 profited handsomely from options
BY MARK SCHWANHAUSSER
Mercury News Staff Writer
THE 10 most highly paid bosses in Silicon Valley last year provide a snapshot of the valley's financial tools, its history, its mythology -- and its many paths to wealth.
The Class of '98 includes one of the fabled ''Fairchildren'' who has spent the past 16 years quietly building one of the valley's most profitable chip makers. There's an overnight multimillionaire from a start-up in the Internet industry that didn't even exist a half-decade before. There are two execs whose company was consumed in the race for industry position. And, as usual, there are old-timers from Intel Corp. who have contributed to one of the valley's -- if not the world's -- biggest success stories.
The 10 men's compensation came in two basic forms: paychecks and options.
Their paychecks comprise cash, bonuses and a variety of other compensation -- income that can be juggled in one's hands like gold coins. But that pay was dwarfed by paper profits from parlaying stock options.
If these 10 bosses have anything in common, it is this: Their compensation is spiraling toward the stars. Based on compensation information disclosed in last year's proxy statements for 772 bosses at 147 of the largest public companies in Silicon Valley, the top 10 executives received compensation valued at a record $442 million, most of it from stock options. That's up an astounding 65 percent from $267 million the year before -- and up fourfold from $108 million in 1995.
Indeed, one man alone -- Intel Corp. CEO Craig R. Barrett -- rang up a record $116.8 million in compensation that exceeded what the top 10 bosses combined received in 1995.
What is just as intriguing is who didn't make the top 10 list. You won't find eBay Inc. CEO Margaret Whitman, who is worth $1.2 billion but isn't ranked because her Internet auction site didn't ring up enough sales to rank among the 147 biggest companies in Silicon Valley. You won't find execs from venerable Hewlett-Packard Co. because the company forced its top bosses to forfeit millions of dollars in shares for failing to meet performance goals. You won't find Netscape Communications Corp. boss Jim Barksdale, who accepted only $1 in cash but owns almost 5 percent of the company sold to America Online for $10 billion in stock in fiscal 1999.
And you won't find folks who didn't exercise any stock options last year. That includes Intel Chairman Andy Grove, whose compensation over the past seven years was valued at almost $173 million and who has been granted options valued at almost $93 million more, and Cisco Systems Inc. CEO John Chambers, who has exercised almost $126 million in options just since the 1998 fiscal year ended.
Still, the survey demonstrates that there are many paths to wealth for the people who originate, nurture, acquire or manage valley companies.
Obviously, the surest way to profit personally here is to build a high-tech superpower. As such, the top 10 list is dominated by three execs from Intel, the Santa Clara chip-making giant that, with a market capitalization of almost $200 billion as 1998 ended, was by far the investors' favorite in Silicon Valley.
Millions of options for Intel CEO
Barrett sits atop the Mercury News survey because he exercised $114.2 million worth of options he had accumulated during his 24-year ascension from technology development manager to CEO. That was by far the largest of three option plays for Barrett in the past seven years, a period in which his total compensation was valued at $150.4 million.
Joining Barrett in cashing in options piled up during long careers at Intel were Leslie L. Vadasz, a senior vice president and director who exercised $54.8 million of options, and Gerhard H. Parker, an executive vice president who exercised $20.3 million worth. Respectively, their compensation totaled $56.1 million and $21.8 million.
It's not likely to be Barrett's last time among the top 10, either. Last year, Intel granted him and Grove 744,000 shares each that can be exercised between 2002 and 2005. Overall, that gave Barrett a bulked-up portfolio with option grants valued at nearly $118 million at the end of 1998.
If not for Barrett's options windfall, however, he wouldn't have made the top 10 cut. Indeed, as earnings fell at Intel last year, he took a 9.7 percent pay cut that shaved his base salary, bonuses and other compensation to $2.6 million.
Barrett wasn't alone in that regard, either -- not in a year in which profits plummeted across the valley. Among the companies that cut or eliminated bonuses were Advanced Micro Devices Inc., Applied Materials Inc., National Semiconductor Corp., Oracle Corp., Seagate Technology Inc. and 3Com Corp. But one of the most talked-about compensation takeaways involved Hewlett-Packard Chairman and CEO Lewis E. Platt, who did not make -- and never has made -- the Mercury News' top 10 list.
For the year, Platt earned $1 million in base salary. Because HP missed short-term performance goals, he took home only 80 percent of a $1 million bonus. And because HP missed long-term goals, Platt forfeited 52,500 shares -- or 75 percent -- of restricted stock that was to vest under a three-year compensation plan. To the accountants, that translated into a forfeit of $2.4 million, based on 1996 prices. When he gave them up last November, however, they were worth $3.1 million.
As costly as it was to Platt, it provided a lesson that can be overshadowed by the focus on multimillionaires: Compensation can -- and should -- depend upon performance.
''Our intent was not to send a message to the valley,'' said James Otieno, HP's director of executive compensation and services. ''If the valley gets something out of it, great. Or if the nation at large gets something out of it, that's great. . . . We are simply saying from HP's perspective, 'What is the right thing to do here?' ''
Speaking Out
The importance of tying pay to performance is the main reason John Gifford, chairman and CEO of Maxim Integrated Products Inc., was the only boss in the top 10 to agree to an interview for this story. All others declined, though a senior executive did speak on behalf of Robert Half International Inc. Two who resigned from their company could not be reached for comment.
Gifford typically declines interview requests, and he says pay surveys are ''myopic and superficial and naive'' because they can lead readers to equate the one-time windfall of exercising options with a year's salary. But he agreed to talk this time because he believes such surveys focus attention on compensation abusers and neglect compensation success stories like Altera Corp., Xilinx Inc., Sun Microsystems Inc., Cisco . . . and Maxim.
In particular, he criticizes AMD boss W.J. ''Jerry'' Sanders, who was a co-founder with Gifford at AMD and a former ally at Fairchild Camera & Instrument, a company that employed the eventual founders of Intel, National and others. Although Gifford's $40.1 million options-fattened compensation dwarfed Sanders' $1.8 million cash paycheck last year, over the past seven years Sanders has taken home $69.4 million to Gifford's $67.9 million.
Despite the comparable long-term compensation, Gifford runs a chip maker that is one-fifth the size of AMD. Maxim's $178 million in profits ranked it as the valley's 13th-biggest profit-maker last year, while AMD lost $104 million. In addition, Gifford boasts that Maxim's market capitalization has ballooned from $5.7 billion at the end of 1998 to $7.7 billion last Friday, while AMD's has dropped from $4.2 billion to $2.5 billion.
''Jerry Sanders should be maligned, should be attacked, as far as I'm concerned. . . . It's hard for me to understand how his shareholders can tolerate that,'' Gifford said. Speaking more broadly of abusers and ''nonsensical'' pay packages, he added, ''It irritates me. I am incensed by it. It reflects on the rest of us.''
Over the 15 years since he founded Maxim, Gifford estimates he has taken home about $150 million. And he sees nothing to feel guilty about.
''The number that is irrefutable (when you're trying to determine) whether someone is overpaid or underpaid is: What did he return to shareholders year over year? Maxim has grown over 49 percent for the past 10 years,'' Gifford said. ''If you go from a four-page business plan to, in 15 years, an $8 billion asset that employs 3,000 people, that makes you feel good.''
Of course, there are no guarantees of continued success in this valley. William L. Larson has landed in the top 10 the past three years and taken home almost $80 million of compensation the past four years as he used bold acquisitions to transform Network Associates Inc. into a $990 million software conglomerate. In April, however, Larson gave in to pressure from the Securities and Exchange Commission to restate earnings from 1997 and 1998. At the same time, Larson surprised Wall Street by acknowledging that first-quarter sales were slowing and that prospects were shaky for the remainder of the year. Since the beginning of the year, Network Associates' stock has tumbled 78 percent from its 52-week high in December, closing Friday at $14.44 a share.
Not too bleak
As bleak as things appear for his company, though, Larson could challenge for a top 10 rank in next year's salary race. In January, he exercised and sold 200,000 shares for a gain of $9.1 million.
Although stock options accounted for 94 percent of the pay for the top 10 bosses, it's not always the compensation tool of choice. Harold M. Messmer Jr. compensation package as chairman and CEO of Robert Half totaled $19.8 million, giving him more than $75 million the past seven years. But unlike most of his Silicon Valley counterparts, Messmer derived 44 percent of his 1998 compensation from restricted stock awards, and 43 percent from options.
That's unusual in the valley, with only 10 out of 147 firms in the survey using restricted stock at all. Robert Half hands out restricted stock that vests over four years to 50 to 70 employees for two principal reasons: as a ''golden handcuff'' to keep them from jumping ship and to provide an immediate pocketbook connection to the company's long-term performance.
Some compensation experts question whether restricted stock is the most effective tool to achieve the latter goal, however. For one thing, it cuts corporate profits. But more philosophically, some contend options are more effective in making an employee think like a shareholder.
Robert Half figures options and restricted stock awards each have strengths and weaknesses. ''That's why we need . . . not just one, not just the other, but a combination,'' said CFO Keith Waddell.
The top 10 list is also remarkable because it chronicles the arrival of the Net's nouveau riche. While execs such as Sun Chairman and CEO Scott G. McNealy took home $48 million in compensation -- $45.1 million from options accumulated since he co-founded his computer maker 17 years ago -- an Internet executive made the top ranks with wealth piled up over less than three years.
Scrub's salary
True to a start-up's bootstrap budget, Gary Valenzuela, the chief financial officer of Yahoo Inc., got a $170,000 salary -- $2,000 less than the lowest scrub on a major-league baseball roster -- and not a cent of bonus money. But he exercised $16.4 million of his options vested since he joined Yahoo two months before it went public in April 1996. That left him with almost 1.4 million more shares that have vested or could do so over time.
While Yahoo ascended, however, two other men on the list marked their company's departure, the result of a wave of mergers and acquisitions that seems to reshape the valley and industries on an almost daily basis. John McCartney and Ross W. Manire helped build U.S. Robotics Corp., an Illinois-based company that 3Com gobbled up in 1997 in an $8.5 billion stock deal that was then the largest in data-networking industry history.
McCartney, who served as USR's president before joining 3Com, resigned in March 1998, taking with him a severance deal worth almost $6.3 million and $86,293 for ''personal time off.'' But the bulk of the valley's No. 2 compensation package came from exercising more than $71 million of options. Manire, a senior vice president, took home the valley's No. 6 paycheck by exercising $23 million of options before resigning.
In their case, at least, the U.S. Robotics tombstone could read, Rest In Prosperity.
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Contact Mark Schwanhausser at mschwanhausser@sjmercury.com or (408) 920-5543.
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