Anyone who thinks Ed Whitacre, the chief executive of SBC Communications, paid too much for AT&T Wireless should take a look at his compensation.
It will show that Whitacre lost sight of the value of a dollar, as he and his board compensation committee have assiduously cast their collective gaze away from any performance statistics.
Cingular Wireless announced on Tuesday that it had agreed to buy AT&T Wireless for $41 billion (R273 billion), or $15 a share, 27 percent more than AT&T Wireless's closing stock price last week.
SBC owns 60 percent of Cingular and BellSouth 40 percent.
Among other things, the acquisition is not expected to add to SBC's earnings a share until 2007.
Right now it would be the rare SBC shareholder who would give his or her automatic approval to any decision made by Whitacre.
For proof, look at these figures:
- For the three years to December 2003, SBC delivered a cumulative return of minus 39 percent to its shareholders.
The comparable figures for major competitors Verizon Communications and BellSouth were, respectively, minus 22 percent and minus 25 percent. During this period the Standard & Poor's 500 index declined 12 percent;
- Last year SBC delivered a return of 2 percent. That compares with a return of minus 6 percent for Verizon and increases of 13 percent and 29 percent for BellSouth and the S&P 500 index respectively; and
- Last year SBC's revenue declined 5 percent from the year before, while its operating earnings dropped 25 percent. In contrast, net sales for Verizon and BellSouth were little changed. Verizon's operating income rose 12 percent, while that of BellSouth rose 4 percent.
Small wonder then that the 33 analysts following SBC's stock have weighed in with three buy ratings, 18 holds and 12 sells.
Now let's look at some pay comparisons.
For the three years to last December, Whitacre's cumulative pay was a stunning $114.5 million. That compares with Verizon chief executive Ivan Seidenberg's $76.9 million and BellSouth's Duane Ackerman's $40.6 million. (Total pay includes base salary, annual bonus, an estimate of the present value of stock option grants, the value of free shares granted, payouts under other long-term incentive plans, and miscellaneous compensation.)
For all that extra money, Whitacre, as noted, delivered the worst three-year total return of the three companies, as well as the worst net sales and operating earnings performances.
And SBC wasn't even the largest of the three companies. Its cumulative three-year net sales were $130 billion, compared with $203 billion for Verizon and $69 billion for BellSouth.
And now we come to Whitacre's pay for 2003. So far, SBC is the only one of the three companies to have released its pay statistics for the year just ended.
SBC's disclosures came in the form of a preliminary proxy statement filed on February 13.
For his dismal performance in 2003, Whitacre received:
- Essentially the same salary - $2.1 million - as he earned in 2002;
- A bonus of $5.7 million, up from $4 million in 2002;
- A payout under another long-term incentive plan of $2.4 million, up from $1.8 million in 2002;
- A satisfying award of free shares worth $7.2 million, which was up from nothing in 2002, 2001 and 2000;
- Three option grants with a total estimated present value of $5.5 million versus much higher figures of $14.1 million in 2002 and $44.9 million in 2001; and
- Miscellaneous compensation worth $2.1 million, up from $716 000 for 2002.
All of that totals $25 million, not a lot higher than Whitacre's $22.7 million in 2002. But think how much he might have earned if he actually did something of value for shareholders.
Note the de-emphasis on stock option grants and the new prominence of free share grants. Whitacre may be greedy but he's smart, too. No point in getting a lot of stock options when your stock seems to be heading nowhere but down. Free shares at least produce some value under that type of scenario.
The only bright light is SBC's subsequent decision to move from stock options and free share grants to performance share grants.
Under the new plan, 75 percent of the shares will be earned on the basis of meeting return on invested capital goals, and the remainder will be earned based on a comparison of SBC's total return to that of mostly major telephone companies.
The plan, though, starts this year when Whitacre is already 62. So by the end of the first three-year performance cycle, Whitacre will have reached his normal retirement age of 65.
What he does or doesn't receive under this performance-oriented plan will constitute little more than a minuscule fraction of his abusive total pay over the past several years.
Still, it would be refreshing to see him have to do what the common folks do: work for his dough.