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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.

Sprint's proxy statement includes a lengthy defense of how Sprint established a metric for rewarding Hesse and other executives, mainly for increasing the number of wireless Sprint subscribers and raising cash.

In Hesse's case, he was well regarded as a steady hand who raised cash, even though company revenues fell for the last five years. Sprint also saw overall subscribers drop from 47.063 million in June 2013 to 45.7 million in June 2014.

Sprint's compensation advisors said they measured their compensation and severance on benchmarks against 12 other companies, including AT&T and Verizon Communications. Such a practice only perpetrates large golden parachutes and high CEO salaries, analysts noted.

The proxy statement also notes Sprint's successes in 2013 under Hesse (when he earned $49 million), including the successful merger with SoftBank, now in control of 80% of Sprint; the shutdown of the iDen network, first obtained under the merger with Nextel; and the acquisition of Clearwire (formerly devoted to WiMax technology) to give Sprint full access to 2.5 GHz spectrum.

It was important that Sprint reward Hesse handsomely in 2013 when the SoftBank merger was finalized to keep him and other executives from leaving the company, analysts said. Also, Sprint was in the midst of a major network upgrade to LTE in 2013, and SoftBank would hope to retain him for his knowledge of that transition.

"The question of whether Hesse did great things to deserve his pay [and severance] is subjective," said Gartner analyst Bill Menezes. "He inherited a mess when he was hired as CEO [seven years ago] in dealing with Nextel, WiMax and no LTE roadmap and he dealt with all three. Post-SoftBank merger, it's clear that the new owner brings a different corporate culture and strategic vision than Hesse's to the organization."

To replace Hesse, Sprint tapped board member Marcelo Claure, founder of the successful Brightstar, now the world's largest mobile device distributor and a subsidiary of SoftBank.

The only way Sprint or any other company could avoid paying Hesse or another CEO a large severance is by proving gross incompetence or illegal activity, said Jack Gold, an analyst at J. Gold Associates.

"Think of golden parachutes as pre-nuptial agreements for execs," Gold said. "That said, the wisdom of such packages is open for debate. Do the stockholders get good value from severance deals? Often not. But nobody wants to be CEO without such a package, and it's commonplace in the industry. Most board members see severance packages as normal, so I think we're stuck with them."

In the case of Hesse, the big institutional shareholders that held onto Sprint stock before the SoftBank merger are probably still applauding Hesse for making the sale and won't even notice his golden parachute.

 

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