Pt 2 IBD article
investors.com
Contract Provides Perks If AMD's Sanders Ousted
Date: 7/1/99
Author: Russ Britt and James DeTar
Some analysts and investors continue to call for Walter Jeremiah ''Jerry'' Sanders III's ouster, but doing so is easier said than done.
Second of two parts
The chairman and chief executive of chipmaker Advanced Micro Devices Inc. has been unable to pull his company out of the red for four years running now. Sanders critics point out that Compaq Chief Executive Eckhard Pfeiffer was ousted this year after five lackluster - yet profitable - quarters.
Sanders' reputed confrontational manner and lavish lifestyle are often under fire. He's been criticized for lacking focus. And he may be depriving AMD of promising new business by betting so much on PC chips, analysts say.
''I think it makes sense (for Sanders to leave),'' said Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray. ''But I'm skeptical it will ever happen.''
There would be roadblocks. First, Sanders has a sympathetic board. Second, at age 62, Sanders doesn't want to leave the company as anything other than a winner, company insiders say.
Sanders wouldn't comment for this story.
''I absolutely have not heard anybody at the company with that opinion (that Sanders should leave),'' said AMD spokesman Scott Allen. ''He is the leader. He has been the leader from Day One.''
In any case, AMD would find it expensive to get rid of Sanders if he didn't want to leave.
Compensation experts say that, under his employment contract, Sanders could get $20 million to $25 million - three years' salary and numerous other perks - if he were removed.
Four Silicon Valley compensation consultants offered comments recently on the package. One called it ''one-sided'' in favor of Sanders. Said another, ''He can't lose.''
Among the perks: continued use of a chauffeured car five years after termination. He also gets to use his Beverly Hills office - near his Bel-Air mansion in Southern California -with an AMD- provided secretary for five years.
''This is one of the most lucrative and generous employment contracts in Silicon Valley,'' said Joseph Richard, president of J. Richard & Co. in Half Moon Bay, Calif. ''(It's) not a good model for Silicon Valley.''
Sanders employment contract, 33 pages long, runs through 2003. It's comparable to a few large companies in other sectors, consultants say. But it towers over Silicon Valley tech contracts.
There is little comparison, for example, to archrival Intel Corp. Executives there get no employment contracts or guaranteed severance packages.
Intel Chief Executive Craig Barrett's base salary was $454,200 for 1998, less than half of Sanders' $1 million.
But incentives and stock options put Barrett's total compensation at $116.8 million. Sanders, who presided over AMD's third losing year, received $1.8 million in total.
Sanders can receive up to $5 million a year in bonuses. If he's entitled to more, that amount carries forward. So he's able to get - and has received - a bonus in losing years. He can get 500% of salary, plus a carryover. But AMD vice presidents have their bonuses capped at 100% of salary, with no carryover, say the compensation consultants.
Such a bonus system hurts morale, says Graef ''Bud'' Crystal, a Santa Rosa, Calif.-based compensation consultant. ''As workers see bloated pay packages,'' he said, ''it causes a lot of them to ease up on the accelerator.''
At this point, though, Sanders isn't gaining much wealth on stock. AMD shares have been mired in the midteens. The board last granted the CEO stock options in 1996, 2.5 million shares at $14.75 apiece.
AMD's board has come under fire for rubber-stamping many of Sanders' motions. Big investors have called for Sanders' removal and a shakeup of what they call a handpicked board.
The board had been half outside directors, half insiders, until former Digital Chief Executive Robert Palmer joined it this year. But critics say he's a friend of Sanders and will do little shaking up.
R. Gene Brown, an AMD director since 1969, defends the board and Sanders. He says Sanders' pay package fits his job. In fact, Sanders ''could use'' a corporate jet for all the traveling he does, Brown says, but goes without this perk.
Brown denies that directors rubber-stamp Sanders' initiatives.
''If you sat in on some of the board meetings, you would observe a different pattern of behavior,'' Brown said.
Not even Sanders is expected to survive, however, if AMD's new Athlon chip fails. The chip is supposed to bring AMD up to the same technological level as Intel. The company has invested $5 billion in new factories and research to produce the Athlon. The chip is needed to help bolster AMD's bottom line.
If Sanders falters, who will succeed him? Atiq Raza, the company's president and chief operating officer, is the likely candidate. Raza was technology chief at NexGen, which AMD bought for its K6 technology. The K6 chip helped AMD increase market share this year.
But there are concerns about Raza's ability to keep the troops disciplined. Other potential successors may come into play, particularly if Athlon fails. Both Raza and Sanders may go, in that case, says one former AMD executive.
''I think (the board) will have to take a hard look at it,'' the executive said. ''I think whoever is running that company, it's going to be very, very challenging.''
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