Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 6

Overperked and Overpaid

The Impact of Activists on Executive Compensation

In return for his duties, communications and entertainment firm Glenayre Technologies Inc.'s CEO Clarke Bailey was paid an annual salary of $1 million, including a yearly bonus.

In addition, he collected $25,000 a year in social club fees. At the same time that he was receiving all that, Glenayre Technology's stock price was sagging. For a period of roughly five years, it has traded, for the most part, between $2 and $3 a share. It started 2006 at $3.20 a share, hiked up to as much as $6 a share in May, but has since dropped to well below $3 a share.

This situation raised the ire of activist Robert Chapman, who eventually made sure all the company's shareholders knew about the wilting stock price and Bailey's social club payments. Four months after Chapman began agitating for change, Bailey resigned from his position as CEO. But even after Bailey's resignation, Chapman was not through bringing attention to the company's compensation practices.

James Caparro, the CEO of Glenayre's Entertainment Distribution Company LLC unit, was promoted to chief executive of the whole business.¹ Not satisfied, Chapman put pressure on him as well, pointing out that Caparro had no stake in the company and that his compensation package (roughly the same as Bailey's, including social club dues) did not align his interests with that of shareholders.

Caparro's plan gives him a special profit interest if Glenayre's entertainment ...