Reebok Chairman Agrees to $11 Million Pay Cut
STOUGHTON, Mass. (AP) _ Reebok’s board of directors let the air out of chairman Paul Fireman’s huge pay package, cutting it by more than $11 million under a new five-year deal that begins Jan. 1, the company announced Thursday.
Fireman, a key to the company’s growth into a footwear giant that sells ″The Pump″ athletic shoe for $170, would receive no more than $2 million in annual salary and bonuses under the new agreement.
His earnings could increase, however, through an option to purchase 2.5 million shares of the company’s common stock.
Under the current agreement, which expires Dec. 31, Fireman, also Reebok’s chief executive officer, received an average of $13.6 million in salary and bonuses per year during the past four years. That deal, struck when Reebok was much smaller, based most of his compensation on a percentage of the company’s pre-tax earnings.
The new agreement, reached at a board meeting attended by Fireman Tuesday, provides him with a $1 million annual salary and a maximum potential bonus of $1 million a year, based on achievement of the firm’s profit objectives.
″I don’t imagine he’ll have trouble buying that new car,″ said Elizabeth A. Armstrong, an analyst with Prescott Ball and Turben. ″Two million dollars is still not a bad income.″
Fireman was on vacation and not available for comment, said Ken Lightcap, Reebok’s vice president for corporate communications.
Reebok’s sales have risen from $300 million in 1985 to $1.822 billion last year, while net income increased from $38.9 million to $174.9 million during the same period, Lightcap said.
He said more than 95 percent of Fireman’s compensation under his current agreement was in bonuses tied to pre-tax earnings.
Forbes Magazine listed Fireman fifth last year and fourth this year in its rankings of U.S. chief executives according to salary and bonuses.
″His compensation before was much higher than is normal,″ Armstrong said, ″largely due to the fact that a lot of his compensation was tied to earnings levels of the company. Probably no one really expected the company to get the earnings levels they achieved.
″I would not be surprised if he was one of the people who arranged″ the compensation level of the new agreement, she added.
His reduced compensation ″is really not a surprise,″ said Heidi R. Steinberg, an analyst with Salomon Brothers Inc. ″It was pretty well known that he would be taking this pay cut. The contract that he’s been on was negotiated before Reebok had made its stellar success.″
The deal gives Fireman the option of buying 2.5 million shares of stock in stages over a five-year period. He can exercise the option for 10 years from the agreement’s starting date.
″It’s not a question of him getting a big bonus as he did in the past,″ Lightcap said. ″Now his stock options are on the same basis as anybody else’s stock options are.″
Armstrong said the new agreement ″is better for the company because, just doing simple math, it will save the company about six cents a share after tax. And yet there’s still the incentive, obviously, for Mr. Fireman to be rewarded for improving the company, not only the cash bonus ... but also the award of the options.″