By Paul Hodgson – CCO and Senior Research Associate
[This post first appeared on Forbes.com]
The news that Sanjay Jha is stepping down after successfully negotiating the sale of his company Motorola Mobility Holdings to Google confirms the fact – once again – that compensation committees do not understand the terms “long-term” and “incentive”. Included in Jha’s $65.7 million severance package – the one he will get now that he has ceased to be CEO – is $52.4 million worth of long-term equity incentives.
See what I mean?
It’s “you’re joking, surely” #3.
Even disregarding the mega grant of stock options (4,608,099 of them) granted to him as an inducement to join Motorola as co-CEO prior to the demerger, Jha was awarded 647,804 stock options and 80,251 shares in 2010 and 318,792 restricted shares, and 2,869,131 stock options in 2011.
And these were long-term incentives? Or were they incentives to encourage Jha to find the best buyer for the firm at the best price?
Well, they were structured to be long-term incentives, to vest over three years, or sooner for some of them if the stock price increased by 10 percent during the vesting period, and to vest immediately on a change of control of the company.
So there are two questions here. With 4.6 million stock options, did the company need to award additional equity compensation at all to incentivize Jha to do what he had been hired to do in the first place? And if it felt it did, why was this equity not structured to reward him simply when that sale was arranged? Why the lengthy vesting periods, why not vest them immediately and restrict their sale until after the change in control had taken place, or – even better – restrict them according to a schedule of sale prices for the company. If it sells at $35 a share, they lapse, if it sells at $40 a share, 50 percent vest, if it sells at $45 a share, 100 percent vests.
Wouldn’t that be simpler and more honest?
But to return to that $65.7 million in severance, that just includes the unvested, accelerated equity. Not included is the equity that had already vested and that at the closing price was worth $24.6 million. And he vested in $8.6 million shares during 2011. In any case, the total walk away package is likely to be just shy of $100 million for 2012 alone, not counting compensation earned in prior years.
Who’s paying for this? Motorola Mobility’s former shareholders and Google’s current.
Value for money for shareholders? Or an insufficient return on their investment?