Tuesday, June 27, 2006

Money talks as top exec walks: Screw-ups pay off

Friday, June 23, 2006 - Updated: 10:31 AM EST

What’s the reward for failure in Waltham these days?
If you’re Jack Messman, who was ousted yesterday as boss of local software company Novell, it’s not too shabby.
Several million dollars, in fact.
Under his contract, Messman, who was kicked out by the board yesterday for poor performance, will get severance that starts at $1.9 million.
They will also pay him cash for 6.5 million share options, which had a value of $13.7 million at the end of the last fiscal year.
The windfall includes money for 2.4 million share options that he wasn’t allowed to exercise while he was running the company, but can cash in now that he’s leaving.
Not bad. Especially when you compare it to what the shareholders are getting.
Total company net income during Messman’s last 12 months in charge: $2.3 million.
It’s also a pretty good downside in a contract that might have yielded him a fortune if he had made the company a sparkling success.
The directors who suddenly kicked Messman out yesterday were only too happy to give him a fat $625,000 bonus last year for doing such a great job.
In their annual mailing to stockholders, they defended offering Messman bonuses that were way above average on the grounds that it “enables us to highly motivate Mr. Messman to achieve Novell’s key business initiatives.”
Boy, that worked well.
But when it comes to executives, the rule is: Heads they win, tails you lose.
It’s simply one sign of the troubling corporate governance at Novell, which tries to make money by selling open-source Linux software.
Linux is booming everywhere, but somehow Novell has missed out.
Look at the company’s stock price and you would have no idea that this company bet a few years ago on what has turned out to be the hottest area of the technology market.
If you had invested $1,000 in the company’s stock five years ago, around the time Messman took over, you’d have $1,300 today.
The same money invested in Novell’s chief Linux rival, Red Hat Inc., over the same period would be worth nearly $5,700.
It’s a lucky thing for Novell’s non-employee directors that they haven’t invested too much in the company’s stock.
New CEO Ronald Hovsepian tells the Herald he plans to stick to the same strategy. Shareholders’ biggest hope: that the execution will be a lot better.
The only problem? Hovsepian, as the chief operating officer, has been the guy in charge of that execution over the last few years.

- - - - -
If you think interest rates are high now, just wait six months. Lee Forker, the president of New England Research & Management, observes that the money markets are predicting another half-point rise in the Fed funds rate by Christmas.
That would take the rate, which was at 1 percent just a few years ago, to 5.5 percent.
Brokerage firm Barclays yesterday upped the ante, by predicting rates would go to 6 percent.
We’ll be counting the extra cost on everything from credit card bills to adjustable-rate mortgages.
ble in house prices and consumer debt, including the rise in ARMs, isn’t his fault. Nor is the rising inflation that makes higher rates necessary.
It was all created under his grossly over-rated predecessor, “Sir” Alan Greenspan.
Something noted here last fall, while the rest of the media were extravagantly singing Greenspan’s praises.

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