You gotta love stories of corporate head honchos sharing in the pain of rank and file shareholders. Take the case of Sprint Nextel head Dan Hesse. The telecoms CEO vowed to take a hefty $3.25 million pay cut to share in the loss of income his company suffered due to the iPhone. Apparently, the move was done to soothe some irate shareholders who have been quite vocal regarding the downturn the company’s bottom line is suffering. The vocal shareholders include the Ontario Teachers’ Pension Plan which was quite active in opposing Hesse’s reelection to Sprint’s board of directors. The teacher’s pension plan said that the company’s executives pay should be reflective of the company’s recent fortunes. Sprint hasn’t been enjoying much good fortune recently due to the heavy pressure on its profit margin. Its income is being squeezed because the telecom giant is offering an upfront subsidy for every iPhone it sells to its customers. Due to the profit crunch, shareholders are saying that executives’ pay should take a hit as well. Share the pain and share the gain.
The pension plan’s views carry a lot of weight since the teacher’s pension group holds a hefty 3.9% ownership stake in Sprint. In fact, it is the company’s fifth-largest shareholder. Since the group is asking that every executive take a pay hit, Hesse decided to take one for the team and volunteered to have his own compensation take a $3.25 million hit so the rest of the management team’s compensation packages will stay intact. He said he did not want to penalize Sprint employees for the company’s investment in the Apple brand. The adjustment set Hesse back around 21%. You might not want to shed too many tears for Hesse just yet-he still stands to pocket north of $13 million in stock-based, salary, and bonus-based compensation. Still $3.25 million is $3.25 million and this is a good gesture to make to the rest of the executives that their leader will take the bullet for them. Sprint’s Board of Directors approved Hesse’s plan. Still, the pension group made it clear that Hesse’s move only partially addressed their concerns and that they still continued to view Sprint’s pay plan as “inappropriate.”They even hinted that the move was a calculated move aimed to gain Hesse some favor in an upcoming May 15 shareholder meeting where Hesse is expected to come up against some tough shareholder opposition to this reelection.
Shareholders are worried about Sprint because it is slated to pay a $15.5 billion up front subsidy for the iPhone it offers its customers. The subsidy is split up over four years. Some shareholders are saying this is quite risky considering the thin capital cushion the company has.