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Sweet Deal for Ex-Arrow Head
08/16/02
By: Mark Harrington, Newday, Inc.
When is a consulting gig more lucrative than serving as a company's top dog?
When the company is Melville distributor Arrow Electronics Inc. and you are former chairman and chief executive Stephen Kaufman.
In a consulting agreement detailed in Arrow's latest quarterly filing with the Securities and Exchange Commission, the departing Kaufman gets a consulting deal that requires that he be available for "up to" 65 days of the year, while making salary and bonuses nearly double what he earned for 2001. He will get $850,000 in salary and bonus for the first year, compared to the $494,000 he earned in the past year. He's also given access to company aircraft, an expense account, a secretary and a Manhattan office equal to that of the chief executive, and he receives perks like low-cost life insurance, immediate vesting of any options and other retirement benefits as if he never left the company.
Robert Klatell, executive vice president of Arrow, defended the agreement.
"Clearly, the compensation committee of the board thinks this represents a fair and favorable agreement to the company and in the best interests of shareholders," he said.
Kaufman, 60, who gave up the chief executive post in June 2000, agreed earlier this year to delay his retirement after Fran Scricco abruptly resigned. A search for a new chief executive continues, but if one isn't found by Kaufman's planned departure on Sept. 15, Daniel Duval, an outside director and recently named chairman, will take the role until one is found.
By then, Kaufman's new arrangement will have kicked in.
According to the agreement, Kaufman will receive a salary of $500,000 a year for the first two years of his five-year consulting contract, then take a pay cut to $300,000 a year for the remaining three. The latter three years require that he be available for consultations only 25 days a year.
Even as his annual salary rachets down after two years, Kaufman will see certain cash benefits. According to the contract, he'll receive an "additional benefit" of $140,000 annually when he hits the two-year mark through the fifth year, then $143,000 annually from the end of the contract until his death.
Just for agreeing to the consulting deal, Kaufman also receives a one-time "special bonus" payout of $350,000, according to the filing.
The package exceeds the salary and bonus Kaufman received over the past year as non-executive chairman, when he pulled in $482,409 with a $12,064 bonus. (In 2000, as chief executive though June, Kaufman earned $700,000 and a bonus of $1.1 million.)
Daniel Moynihan, principal and senior consultant with Compensation Resources in Upper Saddle River, N.J., said while he wouldn't consider Kaufman's package "egregious, it's definitely aggressive."
Excluding perks, the package amounts to around $1,000 an hour, Moynihan said, suggesting that's around what Arrow would pay a top-shelf outside consultant, over which Kaufman would clearly be preferable as Arrow grooms a new chief executive.
Analysts have praised Kaufman's contributions through his tenure there, and his leadership has undeniably helped the company through numerous industry cycles. He's credited with helping save the company after many of its executives died in a hotel fire more than a decade ago.
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