Blast From the Past: Stupid Compensation Plans

Fred Whittlesey
Compensation Venture Group, Inc.

I was doing an online search for things related to my name (one has to monitor that sort of thing) and found a link to an article in CFO.com titled "No Pink Cadillacs Here" from June 2000 regarding Mercury Computer Systems' giving Porsche Boxsters to "nearly two dozen" top executives. This was a result of the CEO's idea that they would earn these cars if they could "turbocharge the stock price" - the price tripled from January 1999 and they got the cars.

My none-too-subtle quote that the writer cited was: "I have a file labeled 'stupid compensation plans,' and this is going in it," says Fred Whittlesey, a principal at Compensation and Performance Management Inc., in Newport Beach, Calif. He thinks the executives' stock options are ample reward. "If I were a shareholder, I'd be upset," he adds. (CPM was the independent compensation consulting firm I founded and operated from 1991 through 2000.)

Of course, the CFO of Mercury - G. Mead Wyman - took issue with my comment, saying "When you look at our total budget for recruitment and retention, $250,000 a year for two years is not out of line with the things we do," he says. He was referring to the cost of the Boxsters. I was referring to the fact that this was a huge waste of what he says was the $250,000 cost for the stupid compensation plan.

Fair enough. So what happened since then? Mercury's stock price ranged between $11.50 and $13.50 (split-adjusted to current) during January 1999. By June of 2000, when the Boxster Bonus was given, it had indeed tripled. Where is it now? It closed yesterday at $13.60. The CEO, Mr. Bertelli, is still the CEO despite having created no sustained value for shareholders over the time period we're discussing here. Mr. Wyman retired in April 2002 when the stock price was still trading around $30. Nice timing.

So, while I started to have second thoughts about my quote, I have concluded that a Stupid Compensation Plans file is as important now as it was then and I was indeed right about Mercury Computer Systems and their Boxsters.

In a time when executives are expected to buy and hold their company's stock I should disclose that I purchased a Porsche 968 (in some respects the higher-end predecessor of the Boxster) in 1994 and still own that car today, holding it through booms and busts because I believe in its value (but really because I love to drive it). I wonder whatever happened to those Mercury Boxsters? We know what happened to the shareholders who bought Mercury stock in June 2000.