Just one word: Semiconductors…

June 7, 2012

In The Graduate, Dustin Hoffman’s character is famously given just one word of advice by a besuited blowhard at a cocktail party: “Plastics. … There’s a great future in plastics. Think about it.”

These days, it seems to all be about social media, online games and so on, at least if you judge by the hype and breathless coverage. And yes, many of the pioneers there have a great personal future, anyway, whether or not the boom is a bubble. But we read filings from workaday businesses as well flashy ones, and an 8-K filed yesterday by Freescale Semiconductor (FSL) makes us think that’s the business to head to if you want to secure a solid future of your own.

The document included a number of details about the company’s change of CEOs, but we were most interested in the pay package granted to incoming chief executive Gregg Lowe, whose appointment was announced with a press release a couple days ago. Under that agreement, he’s getting a $1 million minimum base salary, a target bonus of $1.5 million (though it could go higher), and a long-term equity award target of $5 million a year (though again, it could be more, or less, as performance dictates). That’s $7.5 million a year, give or take, if things go according to plan. (By contrast, his predecessor made $6.6 million last year.)

But then there are the one-time inducements to join Freescale from Texas Instruments (TXN), where Lowe was until recently a senior vice president. Freescale will pay Lowe $1 million cash within a month of his start date, $5 million in stock options vesting over four years, and another $3 million in restricted stock units vesting over three years — plus another $2 million in cash after three years on the job. By our count, that’s $11 million over the next four years, $3 million of it in cash, assuming he can hold on to his job that long.

The filing says that a good chunk of these one-time payments are

“designed to replace the value of the equity awards granted by Texas Instruments and cancelled upon Mr. Lowe’s termination of employment.”

So we turned to the most recent Texas Instruments proxy to see what we could find there. Sure enough, our back-of-the-envelope calculations suggest he left behind about 209,444 unexercisable but in-the-money stock options (i.e., options he’d presumably forfeit by leaving) with a post-exercise value of $1.8 million at TI’s recent share prices, and another 307,502 restricted shares vesting between this year and 2015, with a recent value of about $8.8 million, that he would also presumably lose. That suggests he walked away from a combined $10.6 million at TI.

Still, we’re impressed by the overall haul: $7.5 million a year, target, plus $11 million for signing on (and sticking around). And there’s a decent insurance policy as well: If he gets the boot through no fault of his own (and as usual in the corner office, poor performance wouldn’t count as a fault) he gets severance that would work out to $5 million in ordinary circumstances and $7.5 million if the company were to be sold, plus a pro-rated bonus for the year of termination and two years of health-care and life-insurance benefits.

Heck, his predecessor, Rich Beyer, was paid $1.5 million in recognition of “achieving a successful transition” — in other words, handing the reins over to Lowe in a smooth and dignified fashion. Beyer will also get $200,000 more for providing “certain services” over the next year, plus continued vesting of equity awards as long as he stays on the board.

Like we said: Semiconductors. There’s a great future there, at least at the top. Think about it.

Image source: Computer wafer via Shutterstock.com

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