“I find it unbelievable the number of people who support and defend giving the executives more options when the company is going the other way.”
Are you talking about yourself, Steve? Did you conveniently forget about this guy whose options were repriced, “not once, but six different times”. Your selective memory must have forgot about AMD’s charismatic founder W.J. “Jerry” Sanders with his electric charm, bluntness and business savy.
bizjournals.com
Don’t forget the $12 million Jerry dumped in May 2001 leaving you suckers holding the ***** bag.
Herb
AMD keeps CEO Sanders in the chips -- but few others
Graef Crystal
The giant California Public Employees Retirement System (CalPERS) has, off and on for the last seven or so years, been on the back of W.J. "Jerry" Sanders III, the CEO of Silicon Valley-headquartered Advanced Micro Devices (AMD). So far as we know, Sanders has turned a deaf ear to the complaints raised by CalPERS -- complaints concerning both his pay and his abysmal performance.
So this year, CalPERS sponsored a shareholders' resolution, which if had passed, would have separated the offices of Chairman and CEO. That way, a non-executive Chairman might, at last, convince his fellow board members that something had to be done about Sanders. Alas, the resolution did not pass.
Now in fairness to Sanders, his pay during 1997 finally did drop.
His bonus declined from $2 million to $618,000. It would have actually declined all the way to zero, had he not had a carry-forward feature in his bonus plan that allowed him to pick up some previously unpaid bonus money from his performance in earlier years. However, his bonus granary is now empty, and unless his performance improves for 1998, he could actually end up receiving nothing in the way of a bonus. He received no stock option grants. He received no restricted stock grants. He received no payouts under any other types of long-term incentive plans. Well, so much for the good news. The remainder of this article is devoted to the bad news.
For openers, Sanders received $104,178 of "in-kind" compensation for company-provided vehicles. In his salad days, Sanders' company-provided vehicle of choice was a chauffeured Rolls-Royce. He has since reportedly scaled back to a top-of-the-line Mercedes.
The current proxy also reveals that Sanders received a further $78,176 for the provision of "physical security services." You may conclude that the physical security Sanders receives is to protect him from his own shareholders.
Sanders is a founder of AMD, and he has headed his company since 1969. We do not have AMD's stock price history between 1972, when it first went public, and 1990, but since July 31, 1980, Sanders' performance demonstrates that he has a lot to learn.
To begin, in a company like AMD, it is possible, by choosing the right time period, to look fairly good. That is because the company's stock is extremely volatile. For proof, consider that Sanders chose to include in his company's proxy statement not only the obligatory five-year total return table but also a second table portraying AMD's performance over the seven-year period ending Dec. 31, 1997.
Now why did Sanders give his shareholders this extra information? Was it because of his keen interest in keeping shareholders fully informed? Or was the extra information of the self-serving variety? We do not know the answer to this question for sure. But we noted that the seven-year comparison showed AMD to have out-performed, if only slightly, the S&P 500 Index. A check of all other time windows beginning on a Dec. 31 (commencing with Dec. 31, 1980) and ending Dec. 31, 1997, showed that the seven-year time window Sanders chose to reveal was the only time window that AMD outperformed the S&P 500 Index!
To get around this timeframe issue, we looked at all daily stock prices between Nov. 12, 1982, and May 8, 1998. Why these two dates? Well, the second one is easy, because that was the date we performed our analyses. As for the first date, we were able to obtain pricing history on Intel, which is AMD's chief competitor, only back to Nov. 12, 1982.
First, we charted daily stock prices for the S&P 500 Index and then drew a trendline through all the dots. When we measured the slope of that trendline, we discovered that, on the average, the S&P 500 Index had exhibited 11.9 percent per year growth during the period between Nov. 12, 1982 and May 8, 1998. However, in total shareholder return, the S&P 500 Index did better, inasmuch as the dividend yield is usually around the 2 percent to 3 percent level.
Next, we performed the same analyses using Intel's daily stock prices. It revealed a growth rate of 26.1 percent per year. And that way understates Intel's stock price growth from 1990 to 1998.
For AMD, when we plotted its daily stock prices between Nov. 12, 1982, and May 8, 1998, we found that the trendline stock price growth rate was an almost immeasurable 0.5 percent per year.
If stock options were the ultimate pay-for-performance vehicle, wouldn't it follow that Sanders, with his anemic 0.5 percent per year stock-price growth record, would have received hardly anything from his stock option grants. Yet Sanders, prior to 1997, had exercised stock options with gains of at least $41.3 million. And in 1997, he exercised more options for a further gain of $15.3 million. And at the end of 1997, he was holding still more options with unexercised profits of an extra $9.3 million. $57.1 million of actual option gains and $9.3 million of anticipated option gains for stock price growth of 0.5 percent per year? Wow.
Of course, a good part of his option gains derived from the fact that his options were repriced, not once, but six different times.
We do not believe that Sanders' poor performance is due to any stupidity on his part. He is, in our opinion, an exceedingly bright person. If that were not so, he would still be holding on to all of his founders' shares and his exercised option shares. Instead, he has been a net seller of his company's shares for some time. As of Feb. 25, 1998, he was holding only 213,247 shares worth a mere $4.6 million.
Maybe your ordinary shareholder still has confidence in Sanders. But Sanders himself? Not on your life! The way we see it, he knows deep in his gut that holding stock in his company is a bad deal.
Crystal is editor of the Crystal Report at crystalreport.com. |
