3D Systems Corporation's New CEO Could Make $23.3 Million in Three Years
Vyomesh Joshi was appointed as 3D Systems' permanent CEO on April 1.Image source: LinkedIn.
3D Systems ended what turned out to be a six-month search for a new CEO on April 1, when it announced that Vyomesh Joshi was appointed as permanent CEO. Prior to joining 3D Systems, he worked at HP from 1980 to 2012, and retired as executive vice president of HP's imaging and printer group and part of its executive council. While leading HP's $26 billion printing business, he was responsible for doubling the unit's operating profits during an 11-year period.
On paper, he has a proven track record of driving meaningful growth over a longer-term period, which seems like an ideal candidate for 3D Systems, a company that's struggled with execution and performance in recent years. But before investors give Joshi the nod of approval, the price that 3D Systems paid to attract this talent should also be taken into consideration.
CEO perks Within an SEC filing, 3D Systems outlined Joshi's compensation package. There's a lot to unpack:
|
Form of Compensation |
Estimated Value* |
Terms |
|---|---|---|
|
Annual salary |
$925,000 |
Reviewed annually for increase |
|
Annual cash bonus potential |
$925,000 |
Up to 100% of annual salary |
|
Option to buy 250,000 shares at $15.85 and if stock trades over $30 |
$3.5 million (if exercised and sold at $30) |
Stock must trade over $30 for 90 consecutive days |
|
50,000 restricted stock shares that vest if stock reaches $30 |
$1.45 million |
Stock must trade over $30 for 90 consecutive days |
|
Option to buy 250,000 shares at $15.85 and if stock trades over $40 |
$6 million (if exercised and sold at $40) |
Stock must trade over $40 for 90 consecutive days |
|
25,000 restricted stock shares that vest if stock reaches $40 |
$975,000 |
Stock must trade over $40 for 90 consecutive days |
|
150,000 restricted stock shares |
$5.85 million (at $40 per share) |
Vests annually in equal installments over three years |
Data source: SEC filings. *Excludes cost of $1.00 per share to acquire restricted stock and $15.85 cost per share to exercise options.
If he meets all of these requirements and doesn't sell any the 150,000 restricted stock shares until the stock reaches $40, he could earn approximately $23.3 million in total compensation in three years.
How does this compare to Avi Reichental?3D Systems' former CEO, Avi Reichental, earned nearly $24.5 million in total compensation during his last three full years -- 2012, 2013, and 2014. In 2015, Reichental earned a little over $1 million in total compensation, almost $2 million in severance, and surrendered 425,000 shares of unvested restricted stock worth about $4.4 million at the time of his resignation.
|
Year |
2012 |
2013 |
2014 |
Three-Year Total |
|---|---|---|---|---|
|
Salary |
$743,546 |
$791,982 |
$863,500 |
$2,399,028 |
|
Bonus |
$600,000 |
0 |
0 |
$600,000 |
|
Restricted stock awards |
$4,424,000 |
$9,356,250 |
$5,149,500 |
$18,929,750 |
|
Non-equity incentive plan compensation |
$1,140,000 |
$724,500 |
$602,140 |
$2,466,640 |
|
All other compensation |
$32,984 |
$25,751 |
$25,535 |
$84,270 |
|
Total |
$6,940,530 |
$10,898,483 |
$6,640,675 |
$24,479,688 |
Data source: SEC filing.
A major differenceJoshi is heavily incentivized to drive 3D Systems' stock significantly higher during his tenure, whereas Reichental was awarded restricted stock that vested over a predetermined timetable, regardless of company performance.
Former 3D Systems CEO Avi Reichental. Image source: 3D Systems.
Theoretically, incentivizing Joshi around 3D Systems' future stock price improves the company's earnings while attempting to protect the board from rewarding poor performance. Previously, Reichental's incentive package didn't protect the company from his hyper-aggressive acquisition strategy that ultimately left the company with numerous operational challenges, inefficiencies, and a sunken stock price.
The $23.3 million question Although Joshi's compensation package shows that 3D Systems' board wants to better align how it compensates executives with the interest of shareholders, the plan could backfire. An 2014 academic study found evidence that highly compensated CEOs translated to poor future stock returns and financial performance over the following three years. The study suggested that being too compensated as a leader can breed a false sense of confidence and lead to making bad financial and business decisions.
Additionally, when executives are incentivized to drive their company's stock price higher, they can be tempted to chase short-term performance at the expense of the long-term best interest of the business. For instance, if 3D Systems aggressively cut costs to boost earnings next quarter, but it led to product reliability issues, the company could face reputational damage that could hurt its long-term prospects.
Ultimately, Joshi's 32-year tenure at HP suggests that he's willing to play the long game, and it's likely why the board took a calculated risk that he isn't in it for the short term. Whether or not that was the right call depends on hisapproach to 3D Systems' business and market opportunity, which is largely unknown at this point. Fortunately, 3D Systems investors may not have to wait long for the answer, as the company is reporting its first-quarter earnings on May 5 before the market opens.
The article 3D Systems Corporation's New CEO Could Make $23.3 Million in Three Years originally appeared on Fool.com.
Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.