Sprint CEO Dan Hesse had a $49 million payday last year

Sprint chief executive Dan Hesse has set a new standard for pay among Kansas City area public companies.

Hesse posted a $49 million payday last year, with much of it tied to the company’s buyout last summer by Tokyo-based SoftBank Corp.

It easily was the most ever reported for a CEO of an area public company. That’s based on The Star’s annual review of area CEO compensation, using companies’ filings with the Securities and Exchange Commission.

Hesse’s compensation package — more than four times his total compensation of a year earlier — included his $1.2 million salary and $372,078 worth of benefits, such as a 401(k) contribution.

Hesse also got $13.4 million intended to reflect Sprint’s performance last year. But the SoftBank deal had “complicated our ability to accurately measure performance,” according to the Overland Park company, so Hesse and other top executives got credit for meeting their targets.

The biggest chunk of his pay — $34 million, about 70 percent — came as Sprint stock, restricted as to when Hesse can sell it, and options to buy more shares of the wireless company.

Roughly half of those shares and stock options were meant to convince Hesse to stick around for at least five years under SoftBank’s rule, what the company calls a “retention award.” He won’t collect unless he’s still there when the awards “cliff vest” the day after his employment contract runs out in mid-2018.

“In effect, there’s no value (to Hesse) until that occurs,” said Paul R. Dorf, managing director of Compensation Resources Inc. in New Jersey.

“I don’t think Hesse’s package is abnormal. It is very large, there’s no question about that, but it’s also for five years.”

Hesse was the only top Sprint executive to receive a retention award. Some other executives are starting to leave the company.

For example, Steven L. Elfman, president of network, technology and operations, will leave later this year. He was Sprint’s second-highest-compensated executive last year behind Hesse.

A Sprint spokesman said Hesse’s pay reflected “a transformative” year at the company, with the SoftBank deal, the buyout of longtime network partner Clearwire Corp. and the shutdown of the old and costly Nextel network.

Sprint also pointed to a recent personal gift Hesse and his wife, Diane Hesse, made to Notre Dame University, his alma mater. The gift, whose amount was not disclosed, strengthens the university’s work with the Boys Girls Clubs of America. Kansas City will benefit, too, as two of the summer interns the grant will support will work with Boys Girls Clubs here, Sprint said.

Hesse was not available for comment.

Hesse’s $49 million payday marks a contrast with 2012 when he was giving back part of his pay.

Sprint had signed an expensive deal with Apple Inc. to offer the iPhone for the first time. The company decided not to count the negative effect that had on Sprint’s financial performance for 2012 when measuring how well its executives did their jobs.

Hesse, in a letter to the company, offered to give up the difference in his compensation, an amount that totaled $3.25 million counting possible incentives. Sprint’s 2012 compensation report showed he gave up at least $708,815 in cash pay during the year.

The gesture was triggered in part by calls from unhappy shareholders. Notably, ISS Proxy Advisory Services for investors had objected to overlooking the iPhone impact when paying executives.

This year’s compensation looks large even among telecommunications companies, said John Roe, executive director of ISS Corporate Services, which works with companies on their disclosures.

Roe said Hesse’s pay exceeds the most recently reported pay of his counterparts at Verizon Communications and AT Inc. combined, though they each run larger and more complex companies.

All of them earn far more than Sprint’s new chairman, Masayoshi Son, founder and chief executive of SoftBank.

Son earned the equivalent of about $1.3 million in salary and bonus, according to SoftBank’s most recent disclosure. Companies outside the United States often don’t reward executives with stock and stock options, which account for much of U.S. executives’ pay.

Hesse’s pay this year also stands out in Roe’s comparison with last year’s pay among 11 other smaller U.S. telecom companies, including T-Mobile, U.S. Cellular and Leap Wireless. Add together all 11, he said, and “it’s still less than the Sprint guy received this year.”

One reason is the $17.3 million retention award. But Roe gave Sprint good marks for delaying the payout of that award for the full five years. He has seen many that dribble the award out along the way.

“The way that Sprint has done it is a pretty responsible way,” Roe said.

Sprint spokesman Scott Sloat said Hesse’s compensation reflected success that the wireless company and its shareholders enjoyed in 2013.

Sprint shares have been on a two-year climb, rising 58 percent since the SoftBank deal. And before that, shares had tripled since the end of 2011.

Sprint finally shut down the Nextel network, whose costs weighed on the company’s ability to post a profit.

Last fall, Sprint did post its first quarterly profit since 2007 but returned to losses at year-end. Another financial measure watched closely by Wall Street analysts, which shows earnings before paying interest expenses and recording some other costs, improved by 13 percent.

Buying out Clearwire last year delivered to Sprint vast holdings of federally licensed airwaves to carry videos, app downloads and other data that make smartphones popular with consumers.

“We made great strides in our Network Vision deployment,” Sloat said, referring to Sprint’s replacement of its wireless network virtually top to bottom.

Hesse has said the still unfolding new network, which includes its fastest service called Sprint Spark and high quality HD Voice service, will push the company’s network ahead of its rivals.

Despite its network upgrade progress, Sprint continues to lag behind Verizon and AT in national network tests, according to RootMetrics’ national network report this week.

Sprint alone among the four national carriers showed a loss of higher-revenue subscribers in recent reports. Its smaller rival T-Mobile US Inc. has been adding customers with an aggressive marketing campaign.

This story was originally published March 7, 2014 at 11:04 PM with the headline "Sprint CEO Dan Hesse had a $49 million payday last year."