As surely as winter turns to spring, PartyGaming is looking for a new chief executive. If the online gaming company’s history is any guide, it could be an expensive process.
Just over 2 years ago, Richard Segal, who had joined PartyGaming in 2004 and let its initial public offering, announced he would step down, having balked at the idea of moving his family to Gibraltar, where the company is headquartered. His successor, Mitch Garber, received a signing-on fee of $6m, “nil-cost” (what most people know as “free”) share options, as well as further tranches of performance-related incentives. He got more than even he had bargained for, when, that autumn, the US authorities clamped down on internet gambling.
The shares haven’t really recovered from the subsequent two-thirds drop in the price, which helped pitch PartyGaming out of the blue-chip FTSE 100 index. But it’s an ill wind that blows nobody any good. Faced with the prospect of losing top staff, the group removed most of the performance-related conditions on the chief executive’s package, accelerated the vesting of the free options and added cash bonuses that he receives just for turning up. He will collect this no-strings remuneration even if the board finds a replacement before May 2009 when his contract expires.
The job Mr. Garner signed up to in May 2006 was not the same as the one he is doing now, of course. Party Gaming lost 80 percent of its business at a stroke in late 2006. It had to pursue a more complex, multi-country, multi-lingual strategy, and is still negotiating a settlement with the US Department of Justice. Mr. Garber got free options, faster than expected and without conditions – but the share price has been beaten down by factors beyond his control.
What should this mean for his successor? The job of PartyGaming chief executive remains a hard sell, but a US settlement would clear the path ahead – perhaps liberating the shares. Either way, there is no reason for the nomination and remuneration committees to go soft again. Mr. Garber’s successor should receive a pay package consonant with PartyGaming’s smaller size and more limited ambitions. Most importantly, demanding performance targets need to be restored. The online gaming market is unpredictable – but that’s no reason for PartyGaming’s investors to allow their chief executive to make a one-way bet.
- Published by Andrew Hill | email@example.com