Thorsten Heins' "Punishment" For Destroying BlackBerry: A $55 Million Golden Parachute
While it is not entirely accurate to blame the ignominious downfall of RIMM BlackBerry on current CEO Thorsten Heins, who only took over from Co-CEOs Mike Lazaridis and Jim Balsille in early 2012 at a time when the company's decline into irrelevance was already in progress, it is safe to say that the amount of stockholder value destruction under Heins' watch has been unprecedented. As such, one would imagine that the compensation for Heins is "equitable" to his value created for the company and its shareholders, i.e. zero. One would be wrong: as it turns out, and as Reuters reports, in the case of an "exit" event, such as the (faux) $4.7 billion LBO by FairFax Holdings at a price that is just shy of it decade (and longer) lows Heins will profit handsomely, and certainly make far more money than anyone who was long BBRY under his watch. Because the golden parachute that awaits the German, is valued at a whopping $55 million: an amount he will pocket no matter how said exit is achieved, and at what price (or rather cost) to shareholders.
However what is most disturbing is that none other than FairFax CEO, Prem Watsa was instrumental in securing said parachute back in January 2012, when he became one of three directors charged with reviewing the compensation of the firm's current (and very soon outgoing) CEO.
The three directors - Watsa, BlackBerry Chairwoman Barbara Stymiest and long-time board member John Wetmore - decided to boost Heins' basic salary and incentive bonus, as well as sharply increase the size of the equity awards that he would receive if he loses his job in the event of a takeover.
What was Heins' previous exit event bonus payout? It was a whopping three times lower. "The new contract that Heins signed in May tripled his compensation to an estimated $55.6 million if there is a change of control at BlackBerry, up from $18.9 million previously, according to a securities filing on May 21." Some may say it was almost as if Watsa et al did everything in their power to incentivize the CEO to care only about an exit event regardless of what price said event took place at (perhaps even while engaging in breach of fiduciary duty). An exit event that someone like, oh let's see here, FairFax and its very conflicted executives would benefit greatly if it could take place at the lowest price possible. Like a little over $8.
There is more:
To be sure, the $55.6 million figure is based in part on BlackBerry's share price in early March, and the stock has fallen by more than a third since then, which may mean that Heins' parachute would be worth less.
Still, Watsa's role in deciding Heins' compensation is drawing scrutiny from some pay experts after BlackBerry on Monday accepted a conditional buyout bid from a consortium led by Fairfax, a property and casualty insurer that owns almost 10 percent of the smartphone maker.
"(Watsa) was part of the committee that was negotiating this agreement. Did he anticipate that he would make some sort of offer to buy the company? I feel like that's unlikely, but it's impossible to know," said Joe Sorrentino, managing director at executive pay advisors Steven Hall & Partners in New York.
Sorrentino added, "The only concern I would have is since they structured his compensation equity award so that it all is granted at the beginning ... it is all getting captured in a change of control golden parachute, as opposed to if they did a more typical process" of granting equity awards annually.
When asked for comment on Thursday, a Fairfax spokesman said Heins' compensation was reviewed and approved by the entire BlackBerry board.
It is ok though: Watsa has washed his hands of the whole affair by leaving the board last month. Just before his company submit a bid for BBRY the day after it announced a 50% miss to revenue expectations!
Watsa stepped down from the board in August, citing a potential conflict of interest after BlackBerry announced a strategic review and sought a buyer. The Fairfax-led consortium aims to take BlackBerry private and give it time to rebuild away from Wall Street's gaze.
So for all those curious what it takes to be awarded with tens of millions for destroying billions in value, here it is:
Heins was appointed BlackBerry CEO in early 2012, taking over from former co-CEOs Mike Lazaridis and Jim Balsillie. In the months before they stepped down, Lazaridis and Balsillie had cut their base salary to $1, a symbolic gesture that they would not draw fat checks while the company was obviously suffering.
Heins' compensation has increased from $1.9 million in fiscal 2011, when he was chief operating officer, to $10.3 million in fiscal 2012 when he was appointed CEO, before slipping back slightly to $9.1 million in fiscal 2013, which ended on March 2 this year.
Since Heins took over, BlackBerry shares have fallen more than 50 percent as the company delayed the release of its first BlackBerry 10 devices and they then failed to excite sales.
In May, Heins signed a new contract that raised his base salary to $1.5 million from $1 million; bumped his maximum incentive bonus to 150 percent of salary from 125 percent and granted him more than $34 million in front-loaded equity awards that vest over three years.
It is those equity awards that provide the bulk of the enlarged payout if BlackBerry is taken over - the shares would vest immediately instead of over a three-year period.
According to company filings, if Heins is terminated due to a change of ownership of BlackBerry, he'll receive $3 million to reflect his base salary, annual incentives worth about $4.5 million, and equity awards of $48 million.
Absolute disgust at this circle jerk aside, one wonders: where are all those activist crusaders - such as Carl Icahn - who rant and rave against "totalitarian, dictatorial" boards who abuse shareholders day after day here? Or maybe all those activists only have something to say when their own personal interests are aligned away from the board in question. Preferably backed by a Jefferies highly confident letter and their own personal pay package when all is said and done.
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