Sprint is still in the toilet, but boss gets big bonus

Sprint Nextel Chief Executive Dan Hesse received a $2.6 million bonus in 2008, 30% higher than his targeted payout, even as the company's subscriber defections and losses mounted.

Hesse's overall compensation package for the year was valued in the company's proxy filing at $15.5 million, including equity grants and a base salary of $1.2 million. Sprint's customer base shrunk by 4.6 million during 2008, and it posted net losses totaling $2.8 billion.

Sprint spokesman James Fisher said Sprint has improved in several areas under Mr. Hesse's leadership, with customer call resolution up, $1 billion in cost-cuts in the second half of the year, and renegotiation of key credit agreements that has given Sprint some breathing room financially.

Fisher noted that the actual value of Hesse's equity awards is much smaller now than when they were granted, given the decline in Sprint's stock price. "The board thinks the most effective approach to executive compensation is to link it closely with our company's performance," he said. Sprint shares, which were trading at $3.43 in afternoon trading on the New York Stock Exchange, have lost more than 70% of their value since the beginning of 2008.

Hesse took the helm at Sprint in late 2007 when the company was already struggling and losing market share to rivals AT&T and Verizon Wireless.

"By most people's estimation Dan Hesse didn't cause Sprint to be in the situation they're in now," said Christopher King, a telecom analyst with Stifel Nicolaus. "And you can see early signs of some incremental progress that's being made."

Still, it appears Sprint did not achieve some of the goals set out in its own guidance on how bonuses are calculated. According to the proxy, one goal in early 2008 was to increase additions of customers on the Nextel side of the business. That unit, acquired in 2005, has been at the root of many of Sprint's problems in recent years. In 2008, the negative trend continued, with nearly 5 million Nextel users dropping the service.

Sprint's proxy does not say what its internal subscriber target was for the Nextel division. After the first quarter, Sprint dropped Nextel subscriber targets from its formula for calculating bonuses. Sprint also did not disclose its target for reducing churn -- the monthly customer turnover rate. Churn was reduced to 2.16% at the end of 2008 from 2.3% of the subscriber base at the end of 2007, but it is still significantly higher than Sprint's rivals.

AT&T's chief executive Randall Stephenson decided to forego a bonus in 2008. AT&T is considered on Wall Street to be among the best performing telecom companies, and its wireless business has taken market share from Sprint in recent years. Stephenson announced his decision after AT&T reported a 23% drop in fourth-quarter earnings and said it would cut 12,000 jobs.

The proxy also highlights the exit package Hesse would receive under various circumstances. If he were terminated without cause, he would get a package valued at $10.1 million. If he left after a change of control -- such as a sale of Sprint to another carrier -- he would receive a package valued at $10.7 million. (info from The Wall Street Journal)