Urban delivery e-tailer Webvan (Nasdaq: WBVN) said Wednesday that it will pay former chief executive officer George T. Shaheen US$375,000 per year for the rest of his life, as part of a supplemental retirement package that was negotiated before Shaheen began his employment with the company.
According to Webvan spokesperson Bud Grebey, Shaheen’s monthly payments will consist of 50 percent of his base salary plus 50 percent of a target bonus. Grebey told the E-Commerce Times that Shaheen’s annual salary while working as Webvan’s CEO was $500,000. Shaheen earned no merit increases or bonuses during his tenure, Grebey said, but his target bonus was $250,000.
Grebey said the initial retirement package contract was due to be paid to Shaheen upon his retirement for any reason, as long as he did not retire before June 30, 2000. Grebey also said that honoring the retirement contract with Shaheen, who resigned last month, will not hurt Webvan’s cash flow.
“This is not a severance package — it was reported publicly when he joined the company in October 1999,” said Grebey. “He has honored his obligation by the terms of his agreement and we are honoring the agreement that we made.”
John Challenger, CEO of the job placement firm Challenger, Gray & Christmas, told the E-Commerce Times that these types of packages are necessary to lure old-school executives to risky e-commerce ventures.
“Companies that felt they needed to attract a high profile Old Economy executive went after those CEOs, and may very well have offered packages that now seem outlandish,” Challenger said. “But of those Old Economy execs that were being wooed, many would not come without the guarantee on the downside.”
Grebey echoed Challenger’s sentiments.
“To put it into perspective, you have to understand the caliber of executive Shaheen is,” Grebey said. “To lure any executive of that level, you’re going to need to provide the incentives that make up for the opportunity costs. He was taking on a very significant risk in his retirement income by coming to Webvan.”
Forgive And Forget?
During the first week of May, Webvan also allowed Shaheen to repay a $6.7 million loan with only $150,000 worth of Webvan stock, which closed at 14 cents per share at the end of trading Wednesday.
The loan was used to pay alternative minimum tax (AMT) on Shaheen’s purchase of 1.25 million shares of Webvan stock. Grebey said Shaheen was given a bonus when he joined Webvan, and that the bonus was earmarked to purchase the stock — essentially a non-recourse loan secured by the 1.25 million shares.
“Had the shares risen in value, Mr. Shaheen would have sold those shares and used the proceeds to pay back the loan,” said Grebey. “Because they declined precipitously in value, he tendered the shares back to the company and met the terms of the loan. He essentially made nothing from that transaction and the company got the shares back.”
More To Follow?
Challenger said that one might expect more of these enormous retirement package announcements in the future from e-commerce companies.
“Now they’re having a very difficult time getting any players from the Old Economy,” said Challenger. “They might still have to offer a package like this because there’s no other way to get them.”
Interesting that they are paying him, and it is due to his lack of foresight, that the company failed. Webvan has a great idea. Now, they need someone to execute on it. I would be happy to leave where I AM now to help make them a success. I bet I could get some interest in the company and allow it to succeed and prosper. I would do it for $100,000 after taxes for the first year. 75k of that upfront to pay all expenses/bills/rent for the year, which would allow me to concentrate solely on the job of making the company profitable. Then, once it was profitable, merely a 50k raise to 150k per year, I will stay on for 3 years, and then they pay me a severance package of 1.5 million, plus 100,000 shares of stock, and the next guy comes in. Webvan, think seriously about that offer. The press alone would drive the interest in your company up. Rise in interest means a rise in customers and an interest in success. This can be achieved. I AM ready when you are.
former APPLE CEO Candidate. Architect of Apple’s rise to profitability
The truly appalling part is that this provision was actually included in his contract. Basically, without knowing if he would succeed or fail, they guaranteed him a huge salary for life ANYWAY.
I AM curious, what happens if Webvan goes under? That is, no more Webvan, does the government have to pay him? I would not be surprised if that provision is buried somewhere in the fine print. What was the performance criteria for him? Obviously there was none. All he did was change his desk for a year. What a racket. The tragedy is that the average investor has no recourse for their AMT. Oh well, capitalism is all about the survival of the fittest.
Not that I’d be happy about it if I were a Webvan shareholder, but ultimately, I guess it’s the responsibility of the shareholder to know, research or at least *fear* for the possibility that an exec is going to get this kind of going-away prize.
If a $50 million windfall came out of the blue sky, without warning, without rational justification, to be divied up AM ong the Webvan shareholders, would they turn it down?
It ain’t pretty, but ultimately, I guess it’s business. I’m unhappy that Carlos Perez is getting millions upon his release from the Dodgers, but no one forced the Dodgers to sign him to that contract.
UNBELIEVABLE. Especially when the company’s in such big trouble, closing down operations all over the country.
The only irony here is that the $375,000 is probably not enough to even make a dent in his inflated lifestyle. Probably not even enough to make the lease payments on his Rolls.