Share Prices Fall, But Pay Goes Up
By Jerry Knight
Washington Post
Monday, June 27, 2005


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."

Executive Vice President John F. DePodesta said Singh "aligned himself with the shareholders" in 2003 by giving up his cash bonus and taking a salary of only $400,000.  "For a CEO in his position, $400,000 was an extraordinarily low base pay . . . very low compared with his peers.  For CEO of a Fortune 1000 company, $400,000 is probably at the bottom of the list."

DePodesta, who co-founded Primus with Singh, took a cut in total cash pay of about $300,000 last year, to $732,378, and the three other top executives whose compensation was reported to shareholders all took home less than the year before.

While DePodesta says "the percentages are misleading," the numbers show Singh's 133 percent raise last year was the biggest in cash compensation of any local chief executive in The Post survey whose company's stock lost value during the year.  And the 69 percent drop in Primus's stock was the biggest of any company that gave its chief executive a raise of 5 percent or more last year.

Michael D. Capellas, chief of executive of MCI Inc., shows up on this list as getting a 119 percent raise in a year when MCI's stock fell more than 10 percent.  But there's more to the story.

The 119 percent raise boosted Capellas' cash earnings to $6.56 million, but counting long-term compensation he earned more than $25 million last year, making him one of the five highest-paid executives in the area.

And while MCI stock was down in 2004, it has climbed 30 percent since the first of the year as the result of MCI's plan to merge with Verizon Communications Inc.

MCI spokesman Bradford Burns said the 12-month snapshot of MCI's stock price doesn't reflect all Capellas has accomplished:  bringing MCI out of the largest bankruptcy in history and arranging a merger with the strongest of the regional phone companies.

The payout was approved not only by MCI's board, Burns pointed out, but also by the federal bankruptcy court overseeing MCI's restructuring and by Richard C. Breeden, the former Securities and Exchange Commission chairman appointed to monitor the company.

Alfred C. Liggins III, chief executive of broadcaster Radio One Inc. and the son of Radio One Chairman Catherine L. Hughes, came in third in The Post's ranking of executives who got a big raise last year while their stockholders suffered.  Liggins and Hughes control more than 50 percent of the voting power at Radio One, the company said in an SEC filing.

Liggins's cash compensation increased 36 percent to $1.15 million while Radio One's share price fell 16.5 percent last year.

But what made Liggins one of the 10 highest-compensated executives in the region last year was that he also was awarded 1.5 million options, 92 percent of all the options the company granted to employees in 2004.  Institutional Shareholder Services Inc., which analyzes executive compensation for major investors and advises them on how to vote in board elections, recommended that shareholders withhold votes from several Radio One directors based on "the disconnect between the company's stock performance and the CEO's compensation."

For staying on the job since he signed an employment contract in 2000, Radio One's chief financial officer, Scott R. Royster, was awarded a $750,000 "retention bonus" that was paid to him in January this year, the company reported.

Liggins and Royster did not respond to requests for a comment on compensation at Radio One.

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