Compensation experts are raising concerns about the $90-million share package that BlackBerry Ltd. offered new interim chief executive John Chen, saying the company could end up stoking investor wrath by making large payouts to the executive even if he performs poorly.
BlackBerry announced Thursday it has negotiated an employment agreement with Mr. Chen that will include a grant of 13 million share units – equal to about 2 per cent of all of BlackBerry's outstanding stock – worth $90-million based on BlackBerry's share price on Friday. The units will vest over five years, with 25 per cent payable after three years, a further 25 per cent after four years and the rest after five years.
Compensation expert Ken Hugessen, who heads executive compensation consulting firm Hugesssen Consulting Inc., said it appears Mr. Chen would reap $90-million even if BlackBerry's share price is unchanged in the next five years, and could walk away with $13-million if the share price sinks to $1 per share.
"A shareholder will say, 'Wait a minute, he has 13 million shares and they're now trading at $3 and he is coasting into retirement with a new CEO running the place, and he gets $40-million?'" Mr. Hugessen said.
BlackBerry revealed Monday that Mr. Chen has been named interim CEO to replace Thorsten Heins, who is leaving the company after less than two years in the top job. The Waterloo, Ont., company, is slashing staff amid a collapse in sales, and said it expects costs of at least $400-million (U.S.) related to layoffs.
Mr. Hugessen said most companies today attach conditions to at least a portion of an executive's share units to require certain performance hurdles to be met before the units are payable.
"The big push in all these plans is that a significant portion have some sort of performance condition. The shareholder community – both shareholders and proxy advisers – have said they want to see at least half of the equity granted have vesting conditions or some sort of performance criteria other than simply that the stock went up."
Prem Watsa, CEO of Fairfax Financial Holdings Ltd., BlackBerry's largest shareholder, defended Mr. Chen's compensation when it was disclosed Thursday, saying the company needed to get the best possible management.
"Once we saw John Chen, we had to work to make sure we could attract him," Mr. Watsa said.
Compensation specialist Paul Gryglewicz, managing partner of executive compensation consultants Global Governance Advisors, said BlackBerry may have been better to give Mr. Chen stock options, so that he would only benefit if the share price rises, or consider granting all of his share units with a performance hurdle that must be met.
"I don't think shareholders will be happy to hear that in year five, if shares are half of what they are today, these shareholders still lost another half their wealth and Mr. Chen is going to get $45-million," Mr. Gryglewicz said.
He said BlackBerry's board could face a backlash from investors in its annual say-on-pay vote, an advisory exercise held annually to give investors a chance to comment on executive compensation practices.
Mr. Chen's air travel arrangements may also raise concern. During its last fiscal year, BlackBerry provided Thorsten Heins with $123,033 worth of personal travel time on the company aircraft, plus another $18,000 to cover the taxes for that benefit. That benefit is likely to be substantially higher for Mr. Chen, who would commute from his home in California, a company spokesman confirmed.
And, as part of his compensation, he will be provided with use of a private jet to fly between his home and southern Ontario, said a person familiar with the talks.
Sources familiar with the cost of business jet travel estimated it would cost upwards of $5,800 per hour, or roughly $52,000 per round trip between San Francisco and Waterloo, to move Mr. Chen.
A company spokesman declined to confirm the details of Mr. Chen's travel arrangements, saying it would "not be elaborating further" on the matter.