EVEN AS HUNGER for dot-com gold sent hordes of CEOs and top level execs rushing from traditional firms to join Internet start ups, naysayers were predicting that the bubble would inevitably pop. The newest tech tycoons, they prophesied, would be left clutching fistfuls of worthless options.
Well, not quite. Certainly, as the chart below shows, leading tech-sector CEOs, such as Jeff Bezos of Amazon.com and Robert Glasser of RealNetworks, got hit with hefty paper losses after the market downturn. “The people who lost the most are the ones who own the most outright,” says Mandi MazzaSussman, a consultant at PriceWaterhouseCoopers. “Jeff Bezos, for example, doesn’t have any options, it’s all ownership. He took a $5.5 billion personal loss on paper, that’s double the loss of the next lowest person-Glasser of RealNetworks.”
But most dot-corn CEOs who weathered formidable paper losses in 2000 managed to bank significant wealth prior to the fall. In fact, some were a little too quick to cash in for investor comfort. According to an eBay proxy statement filed, Margaret Whitman exercised the 7.2 million options she was granted at 7 cents per share exactly one month after joining eBay in January of 1998. While that move gave Whitman an immediate eye-popping paper profit of $42.7 million-the difference between her 7 cents a share option price and the proposed IPO stock price of $6-it’s a mere fraction of the paper profit she held when eBay’s stock price hit $323 later that year. And then there’s the real-money windfall she later realized by selling all 1.8 million shares that vested March 1,1999-600,000 in 1999 and 1.2 million in 2000-at prices of between $55 and $171.
That move sends a dubious message to investors, who may wonder why they should stay in if the company’s management demonstrates so little faith. At the same time, dot-com CEOs’ cash compensation is typically so comparatively meager that a certain amount of cashing out is to be expected.
“Low cash compensation is the trend in dot-coms,” says Mazza-Sussman, who points out that Steve Case’s compensation, which reflects AOL’s stature as an established dot-com, is the exception rather than the rule. While Case also opted to sell shares in 1999, she adds, “and made $300 million, he still has some personal risk there because he owns io million shares.”
Although dot-com CEOs who cashed out before share prices fell fared best, even those who didn’t-or couldn’t-sell remain in the black thanks to pre-IPO option grants at miniscule prices. Priceline’s Richard Braddock, who holds n million shares outright and 6 million options, has seen his stock price plummet from 1999’s $47.3 to $3. Down about a half billion on paper; he’s still in the black by a healthy $12 million because his pre-IPO options were granted at $1. Similarly, Whitman has seen eBay’s stock plunge by 7o percent, yet, at 7 cents a share, her 1999 options are still worth a whopping $300 million. While Whitman and Braddock are no doubt reasonably happy with the pricing of their options, the shareholders who invested in eBay and Priceline under their tenure may be less enthused.