I don't follow NDB stock at all. This WSJ article indicates that the share price is depressed, and that some groups think the stock is undervalued, but neglects to say why the stock is not as appreciated as its competitor's. Anyone know why? Revenue growth seems good (according to the article).
interactive.wsj.com
August 24, 2000
Despite Slump in NDB Stock,
CEO Gets Hefty Pay Increase
By AARON ELSTEIN
WSJ.COM
How did National Discount Brokers Group Inc. Chief Executive Arthur
Kontos get to be one of the best-paid executives in the online brokerage
industry?
A pay raise of 134% that brought his
compensation to $8.2 million for the fiscal
year ended May 31 wasn't due to NDB's
stock performance. Shares in the Jersey City,
N.J., firm lost nearly half their value during
that period amid a broad slump in online-brokerage stocks.
But thanks to a package that links his compensation to the growth in NDB's
pretax profits, Mr. Kontos's salary and bonus more than doubled from $3.5
million a year earlier. His pay would have been higher had he not waived an
additional $2.4 million in bonus for which he was eligible.
His compensation puts him in the ranks of CEOs at considerably bigger
firms.
For example, Charles Schwab, chairman and
co-chief executive of the eponymous San
Francisco online brokerage that is the biggest in
the business, received a total of $9 million in
salary and bonus in 1999, according to Charles
Schwab Corp. filings. And J. Joe Ricketts, chairman of Ameritrade Holding
Corp., got $489,000 in salary and bonus last year. Both Messrs. Schwab and
Ricketts earned considerably less than the year before, when they were
granted hefty stock-options packages. Unlike NBD, shares of their
companies rose during the year the executives took a pay cut.
A spokesman for NDB said Mr. Kontos was unavailable for comment, and
the company declined to discuss his compensation.
Mr. Kontos's pay package is unusual for a top Wall Street executive, says
Joan Zimmerman, an executive vice president at G.Z. Stephens, a New
York executive recruiting firm, because his pay is determined mainly by his
ability to boost sales at his firm. It doesn't measure his effectiveness in
increasing returns to shareholders.
To supporters of Mr. Kontos, he deserves his package because he has
played a key role in turning NDB from a profitable-but-obscure market
maker in technology stocks into one of the nation's biggest and best known
online brokerages. "It's his operation," says Eva Radtke, an analyst at
Prudential Securities. "He's the one who gets credit for making the firm
what it is today." NDB is the fifth-largest online brokerage firm. In addition
to its online brokerage operations, an NDB subsidiary is the sixth-largest
market-maker of Nasdaq Stock Market shares.
Among NDB shareholders, there are two views on whether NDB's board is
compensating Mr. Kontos too lavishly.
"It sounds like a lot of money to me, paying the CEO over $8 million," says
Carl Dorf, portfolio manager with Pilgrim Investments Inc.'s Bank and Thrift
Fund, which owns 47,800 shares in NDB. "The unanswered question with
online trading is how much it will continue to grow," he adds, and "it seems
early in the game for Mr. Kontos to be cashing out so big."
But Tom Barton, general partner at
White Rock Capital Management, a
Dallas hedge fund that is one of
NDB's largest shareholders, says Mr.
Kontos deserves to be rewarded.
White Rock Capital owns 326,900
NDB shares, or a 1.9% stake. Mr.
Barton says Mr. Kontos is a savvy
deal-maker, an important skill at a
time when the online brokerage and
market-making business is expected
to consolidate, as shown by the
investments in NDB by Deutsche
Bank AG, Europe's largest bank. "I
don't know how that's not a great
deal," Mr. Barton says.
Mr. Kontos collects $300,000 a year in base salary, and he gets 10% of the
firm's first $10 million in income, and 15% of income over $10 million in
bonus. In the fiscal year that ended May 31, the company reported pretax
income of $62.8 million, compared to $34.8 million a year earlier.
In any case, the market has been hard on NDB's stock. In the 12 months
covering Mr. Kontos pay package, his firm's share price had dropped 46%,
to $25 from $46.50 a year earlier. In contrast, shares of Schwab rose 37%
and Ameritrade's stock was up sixfold during the year covering their
executives' pay packages.
At 4 p.m. in Nasdaq Stock Market trading, NDB shares fell $1.25 to $34.50.
Some major market players evidently think NDB's stock is undervalued. In
June, Deutsche Bank agreed to pay $45.31 a share, a 62% premium over
NDB's market price at the time, to acquire three million shares in the online
brokerage, boosting its stake to 19.4%.
Write to Aaron Elstein at aaron.elstein@wsj.com
KJC |
