Looks like someone else noticed that Tom Siebel's $1 dollar salary is nothing but a thinly disguised ruse:
quote.bloomberg.com
Siebel Systems' CEO Didn't Reduce His Pay Enough: Graef Crystal
By Graef Crystal
Las Vegas, June 11 (Bloomberg) -- Tom Siebel, recognizing the terrible plunge in his company's stock price, cut his salary to a dollar in 2001 and took no bonus at all.
But in the context of his overall pay package, the chief executive officer of San Mateo, California-based Siebel Systems Inc. made only a modest gesture.
Siebel was left with options on 7.95 million shares that were granted during the year. At the time of the grant, the options had an estimated present value of $192.8 million.
As a result, his pay package for 2001 was just 20 percent lower than the $241.1 million he received in 2000. That earlier package included stock options with an estimated present value at grant of $238.6 million.
Last year's pay was quite a reward for someone who presided over a stunning decline in his company's shares. Total return for the stock was negative 59 percent, a lot worse than the negative 12 percent return on the Standard & Poor's 500 Index and the negative 33 percent return on the Nasdaq-100 Stock Index.
`Market Cap' Comparison
This gloomy performance continued into 2002. Through Friday, Siebel Systems' shares delivered another negative return -- this time, one of 35.8 percent.
There was a time when Siebel was a performer almost without peer. Between June 28, 1996, when his company went public, and the end of 2000, the stock's return was 120 percent a year. That was 6.7 times higher than the S&P 500's return and 3.8 times higher than the Nasdaq 100's. For this period, Siebel's company had the third-highest price appreciation among members of both indexes.
In an interview, Siebel pointed out what he perceived as bias in my way of measuring his option grants. He noted, for example, that a comparison in an earlier article of grants for 1998 and 2000 didn't take market capitalization, or value, into account.
Based on the market value of the underlying stock, his option grants rose 6.4 times between the two years even though the total return was virtually the same: 62.3 percent in 1998 and 61 percent in 2000.
In 1998, the company's market cap rose $2.5 billion. In 2000, market cap rose $15.7 billion. To his way of thinking, that much larger increase justified the much larger grant that he received.
Rewards for Declines
That's a fair point. Still, his company's market cap declined by $20.7 billion last year, when his pay package fell only about a third as much in percentage terms as the stock's return. Using his logic, it would appear that his pay didn't drop nearly enough.
Of course, he has taken a hit. The 2001 options were way under water on Friday, when Siebel Systems closed at $17.96. At that price, the present value of those options was $72 million -- 62 percent lower than their value when granted, but an impressive number nonetheless.
Yet Siebel still fits a pattern in company after company I have examined this year. Compensation committees responded to a slumping stock price by granting more and more options during the year, each carrying a successively lower strike price.
On Jan. 2, 2001, he received an option on four million shares at a strike price of $54. By April 4, Siebel's stock had fallen 56 percent. That's when he received his second option grant, covering 3.2 million shares and carrying a strike price of $23.88.
The stock had dropped another 26 percent, by Oct. 23, when Siebel received his third and final grant for the year. This one covered 750,000 shares and carried a strike price of $17.70.
What's `Comparable'?
Options are supposed to be motivational. So how come the first shot didn't prevent the stock from falling? What possible reason could there be to reward a CEO a second time, or even a third, in the face of a falling share price?
And while his compensation committee was awarding grant after grant, did it happen to notice that Siebel was busily exercising previously granted options on 3.1 million shares during the first eight months of 2001? His total profit was $174.6 million.
The stock's weighted average price on the dates of his option exercises was about $48.75. But the weighted average strike price of last year's option grants was significantly lower, at $38.45 a share. Sell high and buy low. That's a fine strategy for making millions off your shareholders' misery.
The committee did say, in this year's report to shareholders, that it ``reviewed the stock option positions provided to chief executive officers of comparable software companies'' and made grants ``to maintain the overall competitiveness of (his) compensation package.''
The committee report didn't mention which comparable software companies it had in mind. When asked which they were, Siebel cited Oracle Corp., Computer Associates International Inc. and Microsoft Corp. He also mentioned that his company relies on a compensation study published by Aon Corp.'s Radford Surveys unit.
Well-Paid Directors
The problem with these comparisons is that Oracle's CEO, Larry Ellison, and Computer Associates' CEO, Charles Wang, have themselves been excessively paid in most years. As for Microsoft, neither Chairman Bill Gates nor CEO Steve Ballmer has ever taken an option grant.
One can measure Siebel's option excess by calculating the ratio of unexercised options at the end of the most recent fiscal year to the current shares outstanding. For Ellison and Wang, the figures are, respectively, 1.5 percent and 1.4 percent. For Tom Siebel, it is 9.6 percent.
Continuing his past practice, Siebel took care of the two directors on the compensation committee: Eric Schmidt, the CEO of Google Inc., and Michael Spence, a recipient of the Nobel Prize in economics and a partner in Oak Hill Venture Partners. Schmidt and Spence each received two option grants during the year, and each received a total present value of $2 million.
At the end of the day, Siebel seems to personify the Marie Antoinette School of Management. He said more than once that if an investor doesn't approve of his compensation philosophy, then that investor can put his or her money in Bethlehem Steel Corp.
Fortunately, there are many other investment choices besides a bankrupt steelmaker and a software company that, in my opinion, pays its CEO excessively. |
