This is the story of a man who fell to earth and landed in a field of cash — soft, comforting, fortuitous cash.
His name is George T. Shaheen, and in case I forgot to mention it, he fell with the aid of a parachute. Some might say the parachute was golden.
Shaheen, 57, spent the last 20 months as chief executive officer of online grocery delivery service Webvan, until announcing last month that he would resign. Note the word retirement has not really been used in this case, as Shaheen is likely to have any number of employment options and offers.
His resignation comes at a time when the company he led for less than two years is struggling not only for profit, but for survival.
Despite some industry prognostications that Webvan could soon join the long list of dot-com casualties, Shaheen leaves his post with a promise of US$375,000 annually for the rest of his life. Further, $6.7 million he borrowed from the company to pay taxes on a Webvan stock purchase has been forgiven by the company. He will reportedly repay the loan with $150,000 worth of rapidly declining Webvan stock.
Powerful Incentives
Is it just me, or is something wrong with this picture? The reason Shaheen will receive his tidy annual sum has to do with the company’s efforts to lure him away two years ago from his post as chief executive of Andersen Consulting (since renamed Accenture).
It has everything to do with providing irresistible incentives to experienced corporate executives. It happens routinely in the upper echelons of the dot-com world, but my guess is the Shaheen debacle may be a wakeup call for the New Economy.
While providing lucrative incentives to corporate executives is not unique to Internet businesses, it is relevant that the New Economy has yet to find its true legs in the free enterprise system.Simply put, Internet retailers do not have the financial clout or stability to provide the type of cushion Shaheen will now enjoy.
Corporate Heritage
Back in the 1990s, for example, Disney went through a few tough years.
Nevertheless, CEO Michael Eisner exercised a massive stock option one year, to the tune of $200 million, at a time when his company’s profits plummeted an astounding 63 percent. At the time, Eisner was held up as the poster child for corporate greed and a system gone awry.
Unfortunately, e-commerce has taken a page from the old economy’s book, enabling corporate executives to essentially underachieve in their positions, yet benefit financially to the tune of inordinately unbalanced sums.
Coming and Going
When Shaheen joined Webvan, he was offered a salary of $500,000 a year with a possibility of a $250,000 bonus — small potatoes compared to the millions he made each year at Andersen Consulting.
What most likely swayed him were the huge stock options. Reportedly, he was given an option to buy 15 million shares at $8 a share, plus substantial additional options. By the end of last month those shares were trading at about 12 cents, with a threat of being delisted by Nasdaq.
Coincidentally, that was the exact moment Shaheen announced his departure.
Hard Lessons
I have a couple of suggestions for dot-coms far and near. The first is: Get Real.
Stop counting on one human being to miraculously save the company. The fact that George Shaheen was successful at a high-profile consulting firm did not mean he would duplicate his achievement at grocery retailer Webvan.
The second is: Merit Pay. It is time to institute a policy of performance-based pay, rather than the unreasonably high incentives and golden parachutes.
The Internet is still relatively new territory. Incentives need to be sacrificed in favor of bonuses and other payoffs that are doled out based on financial growth.And more important, CEOs need to be held accountable for their strategies.
Legal Loophole
Not only might such a shift cause the George Shaheens of the world to more expertly guide their companies to profitability, but it would save the company in other ways too.
Way back in the 1990s, Congress passed legislation that limits the amount of pay a company can claim as tax-deductible expenses to $1 million per executive.There is, however, a major loophole.
Congress forgot to include pay that hinges on job performance. So if a company establishes a performance-based pay system for its top people, that portion of their salaries is exempt from the limit.
Had Webvan required its CEO to produce, rather than simply pin all of its hopes (and money) on him, it’s highly possible the company might have a brighter future than many industry observers now predict.
What do you think? Let’s talk about it.
Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.
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I say he deserves the golden parachute. He left a $4 million/year salary to work with WebVan.
I don’t think he’ll have to worry if WebVan goes completely out of business either. As part of their contracts most execs require the company to purchase them an annuity which guarantees the $375k. It will be coming if WebVan is around or not.
I agree with John Rizzo. VCs must surely heed the inevitable wake-up call by this
all too common scenario. Shaheen it seems came from an environment which was
well ordered, stable and predictable. Webvan was in an infant, non-predictable,
new industry space which required nimble ability to learn, react and grow. Things
that Shaheen was apparently unable to do. It is these very qualities that many
entrepreneurs possess and admirably fit them for the purpose of growing their own
business. VCs should think a lot harder about why they think top CEOs from established
companies would do a better job in an infant industry than the entrepreneurs
who founded them.
Big dollars often are paid to top executives without any evidence of the executive’s value (before or after the deal is made). So this viewpoint is more than a little naive… We live in a society divided into several classes. Glimpses into the upper classes are often surprising to us regular folk. However, it is time to wake up and move on. This story has been beaten to death!
Webvan made a mistake, no one person makes that kind of a difference in a business.
In truth the investors in the company paid the price for following the gold rush, too bad they found “fools gold.”
I have to disagree that the story has been beaten to death. If anything it’s a story that needs to be emphasized. I’m an investor, and without going into the details of what I’m invested in, I just want to say that I do not approve of these sweet deals that are being made with new CEOs. Companies trying to compete in the world of e-commerce need strong TEAMS. They don’t need one single savior (e.g. Shaheen) to come in and play white knight. I could name a few other potential white knights who did a hit-and-run cameo CEO appearance and then disappeared with inordinately high compensation packages. I don’t like it.
The notion that CEO’s or any executive officer is not held to the same standard as any other worker should be (i.e. accountability) is ludicrous and insulting. But hey, most average “joe’s” these days aren’t held accountable either.
Wall Street knew from the moment Shaheen was hired that a consultant without any consumer marketing experience would preside over a train wreck. WBVN stock price really started to slip when another non-consumer marketing operating type was brought aboard as VP of Marketing (Pepsi Strategic Planning is neither a consumer marketing nor operating background). Stock really tanked when WBVN withdrew from a cashflow positive/growing location – Dallas/Ft. Worth.
“New Age” marketing help sink the online grocers. Online grocers should have been selling packaged fresh prepared meals and pizza as an alternative to restaurants and takeout, but even the few that had fresh prepared products never really pushed them on their websites.
While the compensation might seem outrageous to you and I (personally, I only made $60k last year), Webvan was only paying a market rate for Shaheen.
The fact that Shaheen could not deliver will be detrimental to Shaheen as well (I won’t say “Just as detrimental as it is to Webvan,” because Shaheen will never be faced with bankruptcy). He had a relatively secure position at Andersen, took a gamble on being a dot-com superstar, and lost his credibility in the process. It is entirely likely that he is now on the downward slope in his career, salary-wise.
Does the “retirement pay” seem silly and outrageous? In retrospect, absolutely. But it was the only way to lure a guy with a multi-million dollar salary to take a position paying a measly $500k.
Look on the bright side, though…because Shaheen left Webvan teetering on the edge of the cliff, he probably won’t be collecting it very long. In that regard, you could consider his compensation to be performance-based.
You have been too polite to Shaheen. He is 100% responsible for the state of affairs Webvan is in today. He has run away like a coward from a battlefield. And the strangest part is that Webvan is rewarding him for this.
Two things should happen to this company’s Board of Directors. (1) they should have a class-action lawsuit filed against them by the company’s shareholders for gross violations of their fiduciary responsibilities on their behalf, and (2) they should be indicted by the SEC for fraud and larceny and incarcerated in federal prison for lengthy terms, and their personal fortunes confiscated.
Investors have no obligation to tolerate such blatantly irresponsible behavior by the individuals assigned to provide proper corporate governance.