Sprint Filings

Page 63 of Sprint's 2009 proxy filing, under the header of Mr. Saleh, states "On January 25, 2008, we terminated Paul N. Saleh’s, our former Chief Financial Officer, employment without cause. The following table and narrative describe the payments Mr. Saleh is entitled to receive due to his termination." (See table taken directly from the proxy. Click to enlarge)



Is $7,606,225 a fair severance for someone was "terminated without cause" (get used to seeing those words) 25 calendars into 2008? Over $7 million dollars for someone who was with Sprint (Nextel, at that time) since September 2001? I contend that in Sprint's current financial and operational situation that such a payment is, shall we say, more than fair especially considering his compensation was over $6 million a year in both 2006 and 2007 . Of course, my opinion in this matter (or virtually any matter) does not matter. But, I would like to highlight a few things regarded Mr. Saleh's package:

• If not for the change in the stock price in '08 (it went down faster than a Las Vegas call girl...not that I, um, would know), some accounting mumbo-jumbo, and various vesting periods for prior stock awards, his total compensation for the 2008 year would have been $13,645,385 (page 42 of the proxy) .
  
• He received a $250,000 one-time payment on March 15th, 2008 in recognition of his service as interim Chief Executive Officer. This payment came almost two months after he was terminated.
• He can possibly receive a Short Term Incentive (STI) payment through the beginning of 2010. Not a bad deal if you can get it.
• He gets continued participation in the medical and welfare plans for a period of two years

Ultimately, unless you are his accountant, there is no way to find out Mr. Saleh's exact total compensation as his stock awards and options are variable and dependent on Sprint's stock price. His stock options have different vesting periods, probably different strike prices, and he may or may not have sold some or all of them.

Lest you think Sprint did not get anything out of providing this package, au contraire! In exchange for his severance, Mr. Saleh did actually have to meet a couple conditions.

1. He executed a release in favor of Sprint and entered into a lifelong confidentiality agreement (take that, Verizon!).
2. He entered into a "non-competition" and "non-solicitation provisions" for a period of 24 months after his termination.

Whew! Sprint really took it to him during those negotiations. Just so you don't get the wrong idea, I don't begrudge Mr. Saleh for taking what he can get (earned?) from his employer; in fact, I am quite jealous. After all, he's probably laying on a golden beach somewhere sipping Mai Tai's and I'm stuck here blogging about him. Well done, Mr. Saleh, well done.

It has been said that "a fish rots from the head" and nowhere is this more evident than at Sprint. That subject, namely the Board of Directors, will be explored fully in another post. Yet one symptom of this failure will be explored now; namely, Sprint's payments to former Executives. You may ask, "how is this a failure? They were paid to do a job and did it just like you and I." Yet, their job, ultimately, was to enhance shareholder value; these former Executives, along with the Board, have decimated shareholder value. To reinforce that failure by providing large payouts upon involuntary termination is ludicrous. But, I am getting slightly ahead of myself. Let's take a look...

What, exactly, makes up Executive Pay?

This information, from page 30 in Sprint’s latest proxy filing, should be quite simple. Please note this does not include any other forms of compensation such as 401k matching, health benefits, etc. There are 3 main components for Executive pay (I quote from the proxy filing where applicable) :

1. Base Salary - fixed pay in the form of cash
2. Short Term Incentive (STI) - based on near-term objectives and paid in cash
3. Long Term Incentive (LTI) – “Non-qualified stock options and time-based RSUs, as well as performance-based RSUs granted under the ENTI.”

Items #1 and #2 really are straight-forward. However, let’s take a closer look at the LTI. The ENTI referenced above stands for “Enhanced Near-Term Incentive“. What does that mean? Let’s have the proxy filing explain:

“To further the focus of senior management on these critical objectives, the Compensation Committee allocated one half of each participant’s 2008 LTIC plan targeted opportunity, which we refer to as the ENTI, to be in the form of dollar denominated performance units, or Performance Units, payable in RSU awards, based on our actual performance in the second, third and fourth quarters of 2008 using the same performance objectives as the second, third and fourth quarter 2008 STIC plan. The 50% portion of each 2008 LTIC plan participant’s targeted objective to be made in the form of Performance Units were equally allocated to each of the second, third and fourth quarters of 2008 under the ENTI.”

In other words, 50% of the long-term incentive plan was shifted into a shorter-term incentive plan (called the ENTI) that was to be payable in Restricted Stock Units. So, what is a RSU? Quite simply, it is a grant of company stock although no stock is issued at that time. After the recipient of a unit satisfies the vesting requirement, the company distributes shares or the cash equivalent of the number of shares used to value the unit.

So, to make this perfectly clear, the ENTI shifted long-term stock options and RSUs into short-term RSUs that vest 6 months after they were granted. These RSUs were granted based on the STI’s objectives at the end of each the 2^nd, 3^rd, and 4^th quarters of 2008. The ENTI was, essentially, a STI on top of the STI but only for Executives.

If the LTI is supposed to be a long-term incentive designed to align executive values with shareholder values, why was part of the LTI changed to the shorter-term ENTI and then implemented? There was already a short term incentive plan!

The rest of the LTI for 2008 (the other 50% of the LTI plan) included stock options that will vest “in equal amounts on February 11, 2009, February 11, 2010 and February 11, 2011 and have an exercise price equal to the closing price of a share of our common stock on the date of the grant.”

Now that that ugliness is out of the way, let’s look at the pay received by some of the illustrious former executives at Sprint.

So, what did they make?

This, like everything else, isn’t quite as simple as it appears. A picture, though, is worth a thousand words.

(click the picture to enlarge)

To be completely fair, this table overstates their pay due to the simple fact that the stock price collapsed and the total value listed in the table was the total value at the time the options and stock were granted. Of course, their decisions directly attributed to this decline in the stock price so it is more than reasonable their pay would also decline. However, by the same token, if the stock price had gone up in 2008, they would’ve made more than that what’s listed in their respective total columns.

Either way, don’t cry too much for them as here is what they took home at the end of December 2008 (based on what their options were worth on the date they were terminated; these figures come directly from Sprint's proxy filing).

• Mr. Saleh, former Chief Financial Officer and interim Chief Executive Officer - $7,606,225
• Mr. Arendt, former Acting Chief Financial Officer - $1,742,366
• Mr. Kennedy, former General Counsel and Corporate Secretary - $2,627,179
• Mr. Angelino, former President of Sales and Distribution - $3,535,498

That is over $15.5 million in severance for 4 people. In the next few days I will detail out their pay and comment on how the stated objectives of Executive Compensation do not match the results. Stay tuned...