The devil made us do it…

January 18, 2008

images3.jpegLast April, Interwoven (IWOV) announced that it had hired Joe Cowan to serve as its new CEO. Cowan had been CEO of Manugistics (old ticker: MANU), which was acquired by JDA Software (JDAS) in July 2006 for a whopping $2.50 a share, or $213 million.

That’s the history. But what struck me as interesting was the following sentences in the proxy that Interwoven filed on Wednesday:

We typically do not provide for gross-ups of excise tax values under Section 4999 of the Internal Revenue Code. Rather, we allow the named executive officer to reduce the benefit received or defer the accelerated vesting of options to avoid excess payment penalties. To encourage Mr. Cowan to accept our offer of employment, we agreed to provide him with a gross-up for excise tax values.

So the company never used to offer gross-ups, but they had to in order to lure Cowan. Granted, the gross-up was disclosed in the employment contract back in April. But it’s the proxy that puts the policy change into perspective. Unfortunately, the presence of a gross-up hasn’t done much for Interwoven’s investors, judging by this chart.

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