Special Report -- Silicon Valley -- The Next Generation
MATT WARD--CEO, Westward Pay Strategies Inc.
How much is an executive worth? In Silicon Valley, where even twentysomething Stanford grads can earn seven figures a year, it's a daunting question for companies trying to find or keep top executives. With far too few proven managers to staff the exploding number of new companies, boards are offering all manner of enticements, including huge salaries even at startups, cushy lifetime benefits, stock options, and outright grants of stock worth 5% or more of a company's total value for a top-shelf CEO. And as investors in companies such as Apple Computer, which paid more than $10 million to departed CEO Gilbert F. Amelio for 16 months of work, have found out, it isn't always a good investment.
Increasingly, that's where Matt Ward comes in. He's CEO of WestWard Pay Strategies Inc. in San Francisco, a compensation consulting company he and partner Andy West formed in November, 1996, taking the entire high-tech practice of comp consultants Watson Wyatt Worldwide with them. They've been swamped with work ever
since, with a customer list that includes Dell Computer, Adobe, Sun Microsystems, and NetCom Communications. Ward won't give sales numbers, but says: "We're profitable beyond our wildest dreams."
Why the success? Because the U.S. compensation business is dominated by East Coast outfits that know more about established giants --Ward calls them "StodgeCos"--than about the fast-growing Silicon Valley outfits WestWard deals with. "Here was this pocket of companies that were growing at a rapid rate, but getting very little advice. And while we didn't have enough gray hair to tell GM how to pay its execs, here we're older than most of the principles," says Ward, who is 38.
What's more, customers -- he's usually brought in by boards, who pay him $50,000 to review the company's compensation policies -- are more likely to get direct answers from West. Many compensation consultants get the majority of their revenues from providing other services, such as accounting. That gives them an incentive to rubber-stamp an executive's salary demands, for fear of losing these larger, more lucrative contracts. But WestWard, which does only compensation consulting, makes its reputation -- and its money -- setting up pay schemes that help companies improve their market value. Indeed, Ward routinely takes stock as payment.
Not surprisingly, Ward often finds himself in the role of Mr. No. One troubled company dropped him recently when he advised the CEO to forego an option grant to make more shares available to fill critical positions. "We suggested [the CEO] get the shares back the next year, and offered to make a big public spectacle to show how he was taking care of the troops first. But that was the last we heard from [the company]" --except for goodbye.
Ward is also a vocal critic of some new compensation vehicles in the Valley, such as restricted stock grants. Unlike stock options, which only become valuable as a stock rises, these forms of "guaranteed" pay give managers little incentive to make bold moves. "There's tons of data that says you have to give guarantees to attract a top-notch executive to a turnaround situation, but it's dumb data. Just because everyone's doing it, doesn't mean it's right..." Ward says. "High pay for high performance is what made Silicon Valley great, but we're getting away from that right now." Another of his pet peeves: corporate-owned life insurance policies for CEOs, which he thinks are often not worth the money.
While WestWard has grown to 10 consultants, Ward wants to retain the small-company feel of most of his clients. Thus the pool table in its offices, located in San Francisco's hip North Beach section. And increasingly, he's working with companies on a new challenge: how to hold onto employees who are already wealthy beyond their wildest dreams--"volunteers," as Dell CEO Michael Dell calls them. "They need something else to make them come to work each day -- a sense of legacy, a cool
technology, or the awe and respect of their peers." For Ward, that often means less number-crunching, and more discussion of how to create a work environment that keeps the employees jazzed. One trick: a "best toys policy" that makes sure staffers can easily get the latest PCs and other gadgets through work.
WestWard's reputation is beginning to spread outside the region. "Now that Silicon Valley is the magnet of economic growth in the world, we get calls from big corporations wanting to play lip service to being like a high-tech company." But judging from his harsh assessment of traditional compensation practices, lip-service seems unlikely to go far with Ward.By Peter Burrows in San Mateo