Richly undeserved
How does Dick Harrison do it? Harrison doesn't just hold on to his job as chief executive at Parametric Technology Corp. while the Needham software company continues to stumble year after year, while the stock continues to trade at a small fraction of its glory-days value, while he lays off about 20 percent of the work force so expenses match up with withering revenues. He always gets a helping hand out of the financial crater left behind for everyone else.
This is one of those stock-option stories that, when read out loud, should sound like fingers scratching a chalk board. It sets the bar high for compensation excess as this year's proxy season and the disclosure of executive pay begins.
I've picked on Parametric and its stalled recovery plans before, as recently as last April and as long ago as summer 1999. Once a leader in computer-aided engineering software, the company ran into competitive pressure that crushed product prices and profit margins in the later 1990s. A few years after that, drastically reduced spending by corporate customers made matters worse.
Parametric's stock price peaked above $33 per share and averaged $21.14 over a four-year period from 1996 to 2000. It finished yesterday at $4.51.
Parametric's revenues have declined for 10 straight quarters, and losses over the past two fiscal years exceed $190 million, though the company earned an operating profit in its latest quarter. That record has cost a lot of jobs. Layoffs have cut Parametric's work force of 3,800 in April to 3,186 now. The head count will be close to 3,000 soon.
Harrison has been at the Parametric helm, or at least near it, for a decade. He became president in 1994 and was named chief executive in 2000. He didn't parachute into a burning building.
The problem with Harrison's compensation isn't his salary or bonus, which are average. But Parametric's board keeps loading him up with fresh options, as the actual stock continues to decline, so he always has a new chance to make millions off the bottom of the market.
By the end of last year, he was lugging around more than 8 million Parametric options, though not all of them had actually vested and the vast majority were worthless because the exercise price was higher than the stock's value.
Parametric's proxy for its annual shareholder meeting, published Friday, discloses executive compensation for 2003, and it was a doozy of a year. Harrison's latest package includes 1.3 million more options with an exercise price of $1.99 per share. Based on yesterday's stock price, the package would be worth more than $3 million when fully exercisable.
Harrison actually received 800,000 options as standard compensation and 500,000 more as part of a "retention" package. A fair question: Exactly where was he going to go?
I asked company officials about their CEO's pay package, and they told me Harrison has led Parametric's transformation "from a company that offered one product in a mature market to a multisolution company," a leader. Parametric's quarterly operating profit and stock advance to $4.51 from just below $2 "confirms the execution of this long-term strategy is improving shareholder value," a spokesman said.
I put the same question to Greg Taxin, CEO of Glass, Lewin & Co., a corporate governance research firm. "We believe that in terms of linkage between pay and performance, this compensation committee and the board . . . has done a poor job," he said. Taxin rates Parametric in the bottom 20 percent of companies when it comes to the pay-performance link.
It's time for Parametric to stop paying its CEO on potential year after year and to demand real results.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
