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Massachusetts' $0 man
Cognex Corporation Posted 03/29/2005
By Mark Hollmer
Boston Business Journal
Robert Shillman, known as ‘‘Dr. Bob’‘ to his peers, jokes he's finally getting paid what he's worth. That would be zero, at least in terms of base salary and bonuses.
For the last three years, Shillman, founder and CEO of Natick-based Cognex Corp. (Nasdaq: CGNX), declined an annual base salary. He missed out on $325,000 in 2002 and 2003 and a $350,000 base salary in 2004, according to the company's annual proxy statement filed with the U.S. Securities & Exchange Commission. Shillman also declined a $336,000 bonus based on the company's positive performance over the past year.
As this year's annual proxy season gets well under way, Cognex's Shillman is taking a novel approach to corporate compensation: declining salary compensation.
Shillman founded the company -- with 300 people in Massachusetts and 680 around the world -- in 1981 to design, make and sell computers known as machine vision systems that help automate manufacturing of some items or make sure there are no defects in others during the manufacturing process. Business clients come from areas including the semiconductor, electronics, steel, paper, automotive, medical device and the food and beverage industries.
‘‘I have enough money,’‘ the 59-year-old Shillman said.
That he does. Shillman exercised nearly $2.2 million in options last year. He owns 9.4 percent of the company's stock (4.37 million shares priced over $25 per share as of March 23) and continues to receive options. Still, experts say his actions are noteworthy.
‘‘It sends a great message and represents good corporate governance,’‘ said Steve Van Putten, executive compensation practice leader for Watson Wyatt Worldwide Inc. in Wellesley. ‘‘And it shows he's fully vested and fully committed to driving the stock price.’‘
Adds Nancy Shilepsky, a partner and executive compensation expert at the law firm Perkins, Smith & Cohen LLP in Boston: ‘‘It's laudable. It's a reminder to all of us that CEOs are supposed to be leaders and leaders often make sacrifices for the good of the organization.’‘
Shillman's compensation for 2004, which included 120,000 stock options and $6,142 for insurance and 401(k) contributions, stands out in an overall compensation climate for last year that experts view with a mixed perception. Recent public filings reveal that local CEOs are seeing generous compensation awards, although compensation experts say the move toward expensing options is expected to limit stock grants to executives.
Van Putten and Tom Shea, a Marlborough-based managing director for Pearl Meyer & Partners Inc. of Chicago, say restricted stock awards and other longer-term incentives will increasingly replace options.
Shea said salaries are generally expected to be up for 2004, with bonuses climbing as much as 20 percent. Van Putten said base salaries climbed 4 percent in 2004 and bonuses were up 10 percent. He predicted a similar average salary increase in 2005.
Shea said the technology sector particularly benefited as CEOs who took pay cuts during lean times finally enjoyed a pay rebound in all areas as their company's performances improved with the overall economy.
Cognex fits into that larger context. Shillman said many Cognex employees received bonuses in 2004 because the company exceeded expectations, with net income jumping to nearly $38 million from $16 million in 2003.
The same thing happened to Hopkinton data storage software company EMC Corp. (NYSE: EMC). The company ended 2004 with $871.2 million in net income, a 76 percent jump from the previous year. President and CEO Joseph Tucci received a $1 million salary each year from 2002 through 2004, according to the company's proxy filing, but his bonus jumped from $675,000 in 2002 to $1.88 million in 2004, reflecting EMC's improved fortunes. His restricted stock compensation also was pegged at $4.36 million in 2004, up from $3.7 million the year before and nothing in 2002.
A similar trend took place at Marlborough's Cytyc Corp. (Nasdaq: CYTC), which makes cervical cancer tests and other women's health products.
Chairman, President and CEO Patrick Sullivan earned a base salary of $449,712 in 2002, $474,808 in 2003 and $494,769 in 2004. His bonuses jumped from zero in 2002 to $675,000 in 2003 and $800,000 in 2004 as the company's overall financial fortunes improved. Net income in 2004 dropped 3 percent to $73.6 million, but overall sales climbed 30 percent. Also reflecting the move away from options, Sullivan did not receive a grant of fresh options in 2004, although he did exercise options worth $1.99 million last year.
Shillman said he saw his 2002 pay as something that was expendable during an economic downturn. The company laid off a number of workers during the slowdown and senior management had been asked to take a 10 percent pay cut.
‘‘I decided to lead the way and take a 100 percent pay cut,’‘ he said. ‘‘Anything we ask other people to do we should do times two. If you're a leader it means leading people, and leading means leading by example and taking more of the bitter medicine when asking other people to do it.’‘
But with the company doing better in 2004, Shillman declined his salary again and asked that his bonus be given to charity instead. And he's already given up his 2005 salary.
‘‘I want to be the happiest man in the world and the best father in the world right now and also continue to be the leader of a company that's best in its trade and best in its business practices,’‘ Shillman said. ‘‘My ideal is not only to have Cognex be a model in the machine vision industry but be a model for other companies for the highest ethics in dealing with its stakeholders.’‘
© 2005 Boston Business Journal