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Former Sprint CEO's severance could top $38M

Matt Hamblen | Aug. 14, 2014
Former Sprint CEO Dan Hesse could receive more than $38 million in severance pay, including cash, benefits and Sprint stock.

Former Sprint CEO Dan Hesse could receive more than $38 million in severance pay, including cash, benefits and Sprint stock.

The price for Hesse's golden parachute might seem high, but it sits at the average level of what major technology companies offer CEOs in exchange for their willingness to take on the job.

Dan Hesse

Sprint Nextel CEO Dan Hesse at Mobile World Congress in 2013.

"At the CEO level, to attract top talent, you have to build in a golden parachute," said Rob Enderle, principal technology analyst at Enderle Group. As a tech CEO, "there is a lot of risk...to running a complex system you didn't build and have no deep knowledge of on day one, surrounded by people who think they deserved the job more. Your chance of success is below 50% if you are joining a troubled company."

The average severance package for a departed CEO was $29.9 million in 2013, according to professional services firm Alvarez & Marsal, which also determined that the amount paid CEOs who leave is on the decline.

Hesse, 60, could receive a lot more than $38 million, depending on factors not included in the latest Sprint proxy filing from late June; it tabulates the value of his severance pay as of March 31. Future Sprint financial filings after the end of the current quarter may provide more details.

As of that March 31 tabulation, Hesse would have received $56.1 million upon termination, based on a Sprint stock value of $9.19 on that date, according to a chart in the filing.

Hesse's last day was Monday, when Sprint's stock price was $5.76, well below the $9.19 price on which his severance is based. Nearly all of the $56.1 million value was based on $48.3 million in long-term incentive awards made up of Sprint stock options and restricted stock. The other portion included two times his annual salary of $1.2 million and short-term benefits.

At the $5.76 stock price, Hesse's stock value in the severance package would drop to $30.2 million. Adding in double his annual salary and benefits, the $30.2 million could reach $38 million, assuming no other changes.

The proxy statement also notes that Hesse was paid $49.077 million in 2013, including $27.78 million in stock awards. He earned $313,000 in the first three months of 2014; earnings for the most recent quarter have not yet been reported. Among his benefits, Hesse had the use of a private jet for business and non-business travel for him and his family.

Hesse's severance package and compensation is a prime example of what analysts said is a trend in American business of rewarding CEOs without much regard to actual performance. The usual corporate line is that compensation and severance packages are the only way to recruit talented executives. But one analyst said that such packages merely subsidize potential failure.

 

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