More evidence that cash is king among Internet execs can be found in the U.S. Securities Exchange Commission filings of public Internet companies, according to "The Internet Compensation Survey: 2001," a study recently released by Unifi Network, a subsidiary of PricewaterhouseCoopers.
The report shows that in 2000 public Internet companies rewarded top executives with aggressive cash and equity compensation packages to make up for underwater options and to keep top brass on board.
According to the study, 71 percent of executives represented in the study received an increase in total cash compensation -- base and bonus -- during the previous year. This increase, despite the economic downturn, was primarily a result of higher bonus payout, the report writers say.
A matter of record
The Unifi Network study reflects 2000 compensation levels and ownership data gathered from annual shareholder proxy statements and/or annual reports of 98 Internet companies filed prior to April 2, 2001. Among the companies included in the study are Ameritrade Holding, Ariba, Autoweb.com, eBay, Hoovers, Priceline.com, and Yahoo. According to Unifi, 68 percent of the represented companies have a market capitalization between US$10 million and $999.9 million.
The number of public Internet companies represented in this year's study fell from 123 last year. According to the report, the decline in the number of companies surveyed resulted from numerous business failures and mergers-and-acquisition activity. For the companies surveyed for the 2001 report, market capitalization for more than 90 percent of them had decreased by an average of 80 percent.
Of executives who received an annual bonus in 2000, the median increase was 82 percent over their previous year's bonus amount. Edward Spedidel, a director in Unifi's compensation practices, attributes the increase to a move by Internet companies to drive bottom line performance by tying execs' pay to their performance through bonus programs. "This is particularly true in light of the industry's emphasis on reducing losses and increasing profitability, requiring a disciplined and focused management team," he says.
Cash bonuses were also used by the Internet companies as retention tools, since many companies' executives were holding significant amounts of underwater options in 2000.
Tradition is in
"As the new economy matures, we find that new economy companies are learning from traditional companies as far as using performance metrics tied to an organization's strategic goals," says David Hofrichter, a Unifi Network principal and national compensation practice leader.
According to the study, more traditional executive titles are filling the top five executive positions at many of these companies. As a result, roles and compensation packages are reverting to more traditional models. Salary increases were up to a median of 17 percent for 2000, and the use of employment agreements providing for change-in-control protection was more prevalent.
Tech exec compensation
Twenty-nine out of 98 public Internet companies represented in the study listed technology executives among the company's top earners.
For the 15 companies with market capitalization of less than US$50 million, the average nonfounder/top tech exec's cash compensation for 2000 exceeded US$200,000 with bonuses.
-- Annual base salary: US$172,947.
-- Bonus: US$52,817 (11 companies represented).
-- Annualized long-term incentive value: US$577,582 (six companies represented).
-- Share ownership: 0.63 percent.
-- Share plus option ownership: 1.31 percent.
For the 14 companies with market capitalization at $50 million or more, the average nonfounder/top tech exec's cash compensation for 2000 topped US$300,000.
-- Annual base salary: US$203,785.
-- Bonus: US$121,316 (11 companies represented).
-- Annualized long-term incentive value: US$3,753,237 (nine companies represented).
-- Share ownership: 0.28 percent (14 companies represented).
-- Share plus option ownership: 0.28 percent (14 companies represented).
Founder/top tech exec compensation
Only 11 out of the 98 public Internet companies represented in the study listed technology executives as founders and among the company's top earning executives. Where the top technology executive is also the CEO, the executive is represented in the study as CEO.
Of the eight companies with market capitalization of less than $50 million, the average founder/top tech exec's cash compensation for 2000 neared the $200,000 mark. However their ownership percentages outranked their non-founder counterparts.
-- Annual base salary: US$159,993.
-- Bonus: US$36,697 (five companies represented).
-- Annualized long-term incentive value: US$10,385,089 (five companies represented).
-- Share ownership: 10.79 percent.
-- Share plus option ownership: 11.14 percent.
For the three companies with market capitalization at $50 million or more, the average cash compensation for founder/top tech execs can only be seen through salary, as bonus and annualized long-term incentive values were not provided for this demographic.
-- Annual base salary: US$150,052.
-- Share ownership: 4.63 percent.
-- Share plus option ownership: 4.76 percent.