Is Amazon.com’s CEO Package Too Generous?

When Joseph Galli stunned Wall Street by becoming Amazon.com, Inc.’s president and chief executive officer instead of taking the helm of PepsiCo, Inc., there was much speculation about what kind of package had made him change his mind.

Now, several months later, the deal that captured the 41 year-old Galli is a matter of public record — thanks to Amazon’s latest 10-Q filing with the Security and Exchange Commission.

An Offer He Couldn’t Refuse

Although Galli’s base pay of $200,000 (US$) a year is less than half of what he earned as president of Black & Decker Corp., Amazon sweetened the pot by agreeing to pay Galli a $3 million bonus on his first year anniversary. In addition, Amazon will put a $2 million bonus in his pocket at the end of his second year of service. While that’s a pretty good bonus arrangement, it’s small pickings compared with the rest of Galli’s compensation plan.

Stock Options vs. $20 Million

Amazon is giving Galli two 20-year stock options, which will vest at 10 percent a year at different stages of his employment with the company. They can be exercised at about $113 per share, which was the price of its stock when Galli took the helm. The stock is currently hovering at about $128 per share.

But the thing that has some observers steaming is that when Galli logs in four years with Amazon, he will be eligible for as much as a $20 million bonus — if Amazon’s stock price should be weak and thereby reduce the value of his stock options.

A Golden Lifejacket

Some stockholder advocates find this kind of golden lifejacket obscene, since small investors must sink or swim with the current value of a company’s stock. But Amazon counters that, in order to attract the kind of in-demand executive like Galli, they were forced to concoct such a deal. Considering the fact that Galli had already signed an employment letter with PepsiCo and didn’t reconsider until Amazon raised the ante, the point is well taken.

Are CEOs Becoming Like Professional Athletes?

The fact that Galli is making millions of dollars in bonuses is not the aspect of the compensation that bothers me. It’s the provision of his contract that says even if Amazon’s stock price goes down the dumper, he’s still going to get up to a cool $20 million. There’s just something wrong with that picture as far as I’m concerned. Just like there’s something wrong when a $100 million baseball player doesn’t run out a ground ball, or doesn’t get upset when his team is in last place.

I think more companies should see to it that their CEO’s compensation is tied directly to financial success or failure. Otherwise, these executives will continue to be nothing more than highly paid mercenaries who are insulated from economic reality by sweetheart deals.

What do you think? Let’s talk about it.

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