I met yesterday with the CEO of a multi-billion dollar public company in the Silicon Valley, talking about topics ranging from strategy to corporate governance. The CEO enjoys a fine relationship with his board and had nothing but good things to say about them both as individuals and as a group.
Until we got to the Compensation Committee…
- Why, the CEO wanted to know, does the Comp Committee continuously chop at the cash and options programs of the company while talking to him privately about the great job management is doing?
- Why have they signed him (the CEO) to a new multi-year contract in appreciation of his efforts, while they have also reduced his cash and equity upside going forward?
- Why is it that PE firms and even venture firms can offer better incentives to his key employees than he can as the CEO of a successful and growing multi-billion dollar firm?
In the wake of the options backdating scandals here in the Valley in the early 2000s, boards have become increasingly sensitive to the optics of management pay. In the wake of scandals at Brocade, Mercury Interactive and Apple, compensation firms have run a thriving business providing benchmarks and consulting services to the boards they serve. Compensation publicity is bad publicity — and the way to avoid notice is to ensure that you’re “in the middle of the pack” on pay.
Public technology companies are losing some of their best executives to privately funded companies. Even CEOs are not immune to the trend. Top semiconductor execs like Rich Beyer (Freescale) and Rick Clemmer (NXP) have demonstrated that a move to private equity-backed companies can be immensely profitable — without incurring the wrath of local media or even Congressional scrutiny.
What is a CEO who builds a company and creates billions in the public market worth to their public boards?
…a lot more than they’re being paid now.