Businessweek Archives

Are You Guys Crazy Or Something?


Special Report

ARE YOU GUYS CRAZY OR SOMETHING?

How low can executive pay go? How about paying your company to work for it? That's what S. Robert Levine did last year. Levine, who draws a puny $52,000 annual salary as chief executive of Cabletron Systems Inc., wrote his company a personal check for more than $70,000 to cover his business expenses that were not reimbursable by Cabletron.

Levine hasn't had a raise in nearly eight years, along with Chairman Craig R. Benson, 39, who also earns just $52,000 annually. He gets no cash bonuses, stock options, or other incentive compensation. And last year, more than 420 of the 4,900 employees at Cabletron, which makes computer networking equipment, actually brought home bigger paychecks than the pair.

"REVOLTING." What gives? The two say their minuscule pay is a statement of their disgust with out-of-control executive pay. "I find it extremely distasteful the way many CEOs pay themselves," says Levine, 36, who founded Cabletron in 1983. "The numbers are pretty revolting, and we don't want to be part of it."

Levine's and Benson's tiny paychecks are also a reflection of their company's frugal corporate culture. Both executives sit at used metal desks in spartan offices at the company's headquarters in Rochester, N.H. There are no chairs in the conference rooms to encourage managers to keep meetings brief. And there are strict limits on expenses: no first-class airplane travel, no hotel bills of more than $70 a night, and a maximum meal allowance of $35 a day. Those limits are the reason Levine had to reimburse his company for expenses last year. "They march to a different drummer," says Paul R. Duncan, chief financial officer of Reebok International Ltd. and a Cabletron director. "These guys are driven by a need to be efficient, fast, and lean, and they are setting an example for the rest of the company's employees."

You can't fault their success so far. The company, with a market value of $3.5 billion, reported a 36% jump in net income, to $162 million, for the fiscal year ended Feb. 28. Sales also rose 36%, to $810.7 million. Cabletron went public in 1989 at $5.80 and now trades for $46.50.

The pair can afford to have their unconventional ideas about pay. Together, they own Cabletron stock worth some $927 million, and they have sold more than $500 million in company shares in the past five years. "Most of our compensation comes when we build the stock price up," says Benson.

Levine and Benson could easily pay themselves a salary and bonus 20 or more times what they currently make. What does the outside world think of their stand? "They're nave," sniffs Arnold S. Ross, a New York-based executive-pay consultant. "If they want to be tightfisted about it, they should at least pay themselves what it would cost to hire someone to do their jobs." After all, what headhunter could ever find a top executive willing to work for just $52,000 a year?By John A. Byrne in New York


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus