Compensation Pact Generously Rewards Egghead’s Top Exec Orban’s Pay Package Includes Salary, Bonus, Stock Options

Whether or not George Orban is able to turn Egghead back to the path of fiscal righteousness, he’s going to be well-compensated for trying.

When Orban stepped in as Egghead’s chief executive officer in February, Egghead’s board of directors provided him a compensation package that would be the envy of many CEO’s in even the most successful Spokane companies.

“When the board approached me to become (CEO),” Orban said of his compensation agreement, “I was happily retired. I don’t want this to sound offensive, but I don’t need to work for $300,000 a year.”

According to corporate documents filed with the U.S. Securities and Exchange Commission, Egghead - which lost more than $50 million over the past two years - will pay Orban an annual base salary of $300,000 through Aug. 31, 1998.

If his employment is terminated by Egghead, or if the company is sold before that date, Orban gets “a lump sum payment of $1.6 million.”

If he consents to continue as an employee of the company beyond that date, he will receive a “retention incentive bonus” of $750,000.

Should Orban decide he doesn’t want a full-time job after Aug. 1, 1998, though, but agrees to continue with Egghead as a consultant from Sept. 1, 1998, through March 31, 1999, he would receive $550,000.

During fiscal 1997, Egghead paid Orban $250,000 in consulting fees.

Additionally, the board granted Orban options on 1 million shares of stock, to be exercised at $5.38 per share. The options expire Jan. 31, 2007.

During the past 18 months, Egghead’s stock has traded between about $3.75 and $13.50. It had been languishing around $5 in recent weeks, but when Orban unveiled his plans for Egghead’s future to investors last week, the stock began to move again. It closed Thursday at $6.37-1/2.

A recent survey by Computer Retail Week of executive salaries in the computer retail industry showed that the average compensation for people who hold the joint titles of board chairman and CEO - as Orban does - is $515,000, with an annual bonus of $263,000. The survey average included some of the largest companies in the retail industry, like Wal Mart, Kmart and CompUSA.

When Egghead and Software Direct are merged, the three principal executives of Surplus Direct - Gregory J. Boudreau, Jonathan W. Brodeur and Stephen M. Wood, will earn relatively modest salaries of $100,000, $115,000, and $100,000 respectively, the corporate documents show. But Boudreau and Wood will get “signing bonuses” of $361,667 for staying with the merged companies. Brodeur’s signing bonus will be $186,666. Each will get a full year’s salary if terminated.

The company is also paying former Egghead CEO Terry Strom two year’s salary totaling $600,000 following his termination as CEO in January, and $80,000 in relocation expenses. Strom continues as an Egghead director and consultant.

Orban said these compensation agreements are the price of success.

He cites Ross Stores, of which he was a founder 15 years ago, as an example. Orban remains a principal and significant shareholder in that company. During the past five years, he said, Ross has “made major strides to become a dominant and highly successful retailer in the off-price apparel industry.

“If you look at the compensation structure in Ross, which has outperformed the industry for the last three years, you will see a package of stock options, restricted stock and bonuses which make our people the most highly compensated in the industry,” Orban said.

The compensation is justified, though, because of the value those executives have created for Ross Stores shareholders, Orban said. The company’s stock has jumped from $5 to more than $30 during that time.

“We’re taking that approach at Egghead,” he said.

At the time he was asked to become Egghead’s CEO, Orban said, he owned 220,000 shares of stock in the struggling company, which he could have sold at $12 a share and walked away.

“Whatever bonus incentives I have here are a partial compensation for the risk I took in hanging onto my stock,” Orban said. “And that’s how the compensation committee viewed my compensation package. I could have walked away, and they wanted to attract me to stay.

“And the compensation consultants they engaged felt that in order to retain somebody of my experience and track record in this industry, it was a fair package.”

Orban said he also stayed on out of loyalty to a company in which he has been involved almost since its inception.

“Being a shareholder and an early investor, I’ve felt very badly about the mistakes Egghead has made over the years,” Orban said. “I feel a personal obligation to the shareholders to try and do something about it.”

, DataTimes