When Is An Executive Too Good To Let Go?By
For the past few years, Ari Bousbib has been the man who might leave at any minute. Passed over for the top job at United Technologies (UTX) in 2008, Bousbib, 48, was viewed as a savvy dealmaker, operations whiz, and chief executive officer material elsewhere. Says analyst Nicole Parent of Vertical Research Partners: "It was a matter of when, not if, he would leave."
That moment came on Aug. 16, with the announcement that Bousbib would become CEO of health-care data provider IMS Health on Sept. 1. What's surprising is how the president of UTC's commercial businesses, including Otis Elevator and Carrier, is leaving. UTC stated in its press release that Bousbib will remain a consultant through September 2011. He will get a fixed retainer of $325,000, plus expenses, to provide advice and assistance concerning "recently formed joint ventures and business combinations, business development opportunities and customer relationships," according to a company SEC filing. UTC and Bousbib declined to comment.
Pay and governance consultants call the arrangement unusual. "I don't think I've ever come across a situation where someone is going to be a CEO and is kept on as a consultant," says Paul Hodgson of the Corporate Library, an independent research group. Paul Dorf, managing director of pay consultancy Compensation Resources, doesn't see the point: "If they haven't developed enough of a management structure for him to leave, that's a problem."
Typically, says Dorf, post-employment consulting contracts are used to augment compensation for a retiring executive, ease out a leader whose company is acquired, or maintain links to someone with unique knowledge or relationships the company needs.
Although unusual for executives moving to a new job, such contracts are not unprecedented. In 2008 telecom equipment maker JDS Uniphase gave departing CEO Kevin Kennedy a one-year "transitional consulting agreement" worth $800,000 as he moved to become CEO of telecommunications company Avaya. (Avaya spokeswoman Deborah Kline says Kennedy wasn't available to discuss the contract.) Like IMS, Avaya is privately held, which makes it easier to strike such a deal.
Still, many other public-company stars have headed into private equity without one. David Calhoun, the former vice-chairman of General Electric, wasn't paid another dime after he left to lead Neilsen in 2006. He also left tens of millions of dollars in unvested stock options and retirement benefits.
So why the consulting arrangement? Money might be one factor, compensation experts say. The contract could allow more time for Bousbib's UTC stock options to vest or for performance targets to be reached. Certainly, the retainer fee alone isn't likely to mean much to a man who received $8.8 million in total compensation last year and has options valued at almost $39 million. Stern Agee analyst Nick Heymann says the setup is probably designed to comfort UTC investors and employees. "It allows for some continuity and accountability," says Heymann. "He's a critical guy."
During Bousbib's 14 years at UTC, the Paris-born engineer turned Otis Elevator into the company's "crown jewel," boosted margins at Carrier, and orchestrated smart acquisitions such as GE Security, says Vertical Research analyst Parent.
Still, few expect Bousbib to spend much time doling out advice. For one thing, he'll have his hands full with IMS, which was purchased in February by TPG Capital, the Canada Pension Plan Investment Board, and Leonard Green & Partners. Analysts expect Bousbib ultimately to take the company public, so UTC may have to compete for his attention.
The bottom line: Bousbib's contract raises questions about how he can consult for UTC and run another company at the same time.