Share Prices Fall, But Pay Goes Up
Pay for performance. What a great idea. Too bad the executive compensation system so rarely works that way.
This year's Washington Post survey of executive pay turns up top managers who were rewarded for showering shareholders with stock profits -- and managers who were rewarded when their shareholders took a bath.
A 50 percent pay raise for Martine A. Rothblatt, chief executive of United Therapeutics Corp., seems pretty chintzy considering the company's stockholders nearly doubled their money last year.
The nine-year-old Silver Spring company earned its first profit after bringing its first drug to market. Remodulin, a $10,000-a-month prescription medicine, treats pulmonary arterial hypertension, a potentially fatal blockage of arteries to the lungs. A treatment of the disease was the goal Rothblatt set when United Therapeutics was founded.
Last year's $15 million profit for United Therapeutics translated into stock market gains of more than $500 million for investors, as the share price climbed 97 percent. For that, Rothblatt collected a $300,000 bonus on top of her $600,000 salary.
Contrast that with the similar bonus paid under awkwardly contrasting circumstances to K. Paul Singh, the chief executive of Primus Telecommunications Group Inc. of McLean.
Primus stock plunged 69 percent last year and is still sinking. Yet Singh collected a $360,000 bonus and got a $170,757 raise on top of his previous year's pay of $400,000. His $930,757 total cash compensation was 133 percent more than he got the previous year, when Primus was making a little money instead of losing millions.
The reversal of fortune cost Primus investors dearly. From $10.16 a share at the beginning of 2004, the stock dropped to $3.18 at the end of the year and since has sunk to Friday's close of just 63 cents a share. Two weeks ago, the Nasdaq Stock Market served notice that Primus faces delisting because its stock has fallen below Nasdaq's $1-a-share minimum price.
That slide slashed the stock market value of the company from more than $900 million to less than $60 million, wiping out almost $850 million of investors' equity.
"The dynamics of the marketplace in which Primus operates have shifted markedly," the company told shareholders when it reported a $10 million loss for last year. Primus's core businesses -- long-distance telephone service, dial-up Internet connections and prepaid calling -- are shrinking rapidly. Groping for a new niche in the telecom industry, Primus is reinventing itself as an Internet phone company and a provider of high-speed Web connections, but those businesses are growing slowly and are not nearly as profitable as the fading phone ventures once were.
The bottom line: Primus lost $35 million more in the first quarter of this year.
Primus's policy on executive compensation, proclaimed in its latest proxy statement, is that "the interest of the executives should be closely aligned with the company's stockholders." Salary and bonuses, the company says, should be based on "the creation of value for the Company's stockholders from both the short-term and long-term perspectives."