Nextel Partners Chief Executive John Chapple recently urged shareholders to sell the company when they get the chance later this year. And why not? Along...

Share story

Nextel Partners Chief Executive John Chapple recently urged shareholders to sell the company when they get the chance later this year.

And why not?

Along with shareholders cashing in, he stands to earn $52.4 million in stock, and probably more if the Kirkland company sells above what it’s worth at recent prices.

A closer look at three wireless carriers based here — Nextel Partners, AT&T Wireless and Western Wireless — that have either been sold or are nearing a sale reveals that the executives are being well-compensated as their companies disappear, according to Securities & Exchange filings.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks.

John Stanton, Western Wireless founder and chief executive, is likely to receive the most from his stock holdings — more than $500 million on the pending sale to Alltel, a regional carrier.

John Zeglis received about $27 million in severance and stock after selling AT&T Wireless to Cingular Wireless last year.

Stanton’s stratospheric payout may give him the honor of taking home more cash than any other Northwest CEO in 2005, but it’s not because of a hefty salary.

Last year Stanton’s base salary was $270,475, less than the median $333,060 of chief executives in the region, according to The Seattle Times’ annual CEO compensation survey. Stanton’s total compensation was $876,625, including a $600,000 bonus. Drugstore.com Chief Executive Dawn Lepore’s $15.2 million pay package topped the Times’ survey.

The survey did not count founders’ stock holdings as compensation.

The survey found that Zeglis was the 10th-highest paid CEO last year with a total compensation package of $8.4 million, not including his windfall from the merger. Chapple’s pay package of $5.3 million put him in the top 20.

The three mergers within a short period of time are part of a larger trend of consolidation in the wireless industry. And, when it comes to compensation, it appears they are pretty typical. Most of the payout comes from stock ownership; severance and retention bonuses make up only a sliver of the pie.

• Zeglis received $19.1 million for his stock and options and $8 million in severance five years after becoming chief executive and before the company’s public offering.

• Chapple will get more than $52 million for his stock and $3.3 million in severance and retention bonus.

Chapple started building the company in 1998 when Craig McCaw, who was helping to reorganize Nextel Communications, asked him to run a company that would provide services in rural and midsized markets for Nextel.

For the first 17 months of the company’s life, Chapple went without pay, said Nextel Partners spokeswoman Susan Johnston.

“John was diving in and giving at the time because he saw a vision of what a strong business model this could be,” she said.

Today, the company has a return on equity of 81.3 percent, which BusinessWeek recently ranked highest among companies in its class.

• Stanton will receive more than $500 million in both cash and Alltel stock.

As the company’s founder, he will get $9.25 for each share he owns and half a share of Alltel stock. This is the same formula other shareholders will receive. Along with four other founders, he won’t get severance, though other employees will.

“I started the company and have invested $50 million over an 18-year period,” Stanton said. “I’m not getting anything out of the merger as an employee, but I’m getting a lot as a shareholder. It is important to make sure the economic benefits go to the people in the company.”

Stanton said $30 million was set aside to retain employees — though he and four executives were excluded.

They could have participated, “but ultimately you have to do the right thing for shareholders and employees. This is the judgment I made and the board made,” he said.

What an executive receives at the time of a merger can vary wildly. “The key thing is the equity holdings of one kind or another,” said Paul Hodgson, a senior research associate studying compensation for The Corporate Library, a watchdog group.

“That is what inflates the severance arrangements beyond the $3 to $4 million range,” he added.

Don Lindner, from WorldatWork, formerly known as the American Compensation Association, said severance is typically $3 million to $4 million because the Internal Revenue Service instituted rules that penalized so-called golden parachutes that exceed three times salary and bonus.

Chapple and Zeglis both fall within that range.

One reason for severance is to protect executives. In the most extreme circumstance, you wouldn’t want executives denying mergers because they don’t want to be out of a job, Hodgson said.

“The levels they are at the moment does provide incentive, but to be perfectly honest, one year’s salary would be sufficient for most people in order to make a sensible decision about whether they should or shouldn’t recommend to sell the company,” Hodgson said. “Besides, if you’ve just arranged a great merger and shown yourself to be a good manager, it’s likely you’d be in demand in the employment market and less likely that you’d languish without employment for a number of years.”

Each of the mergers reflects unique circumstances.

AT&T Wireless

In April 2000, AT&T Wireless debuted on the stock market, selling $10.6 billion in stock. The shares were the most active of the day and the fifth-most-traded stock in history. Zeglis was at the helm, celebrating and appearing on TV. At the end of the day, it closed at $31.81. Employees were thrilled to buy stock at a designated $29.50 a share. That was the height.

By late 2003, AT&T Wireless was losing customers and having problems with an upgraded network and poor customer service. The company saw a way out: be acquired by Cingular Wireless for $41 billion in cash — or $15 a share. The price was far below its debut, and nearly half what employees paid on the first day of trading. Hodgson said that AT&T Wireless is a case of an executive getting paid after poor execution.

“It’s pay for nonperformance,” he said. “The current management team can’t run it at a profit, and yet they get paid for selling it. I’m not sure how the stockholders benefited from it.”

Zeglis, 57, and his wife, Carol, now spend time on Lake Maxinkuckee in Culver, Ind., where both of them had cottages in the past, according to reports as the merger was closing. Cingular declined to comment.

Western Wireless

In January, quickly following the close of the AT&T Wireless-Cingular merger, Western Wireless agreed to be sold to Alltel for about $4.4 billion, based on current stock prices.

The deal is pending regulatory approval, and is likely to close later this summer.

Stanton is considered one of the pioneers of the wireless industry, having worked alongside Craig McCaw to build McCaw Cellular Communications, which was acquired by AT&T and spun out to become AT&T Wireless.

Stanton also built VoiceStream Wireless — now T-Mobile USA — and helped to spin it off from Western Wireless to sell it to German telecommunications giant Deutsche Telekom for $30 billion. (At the time, he was scheduled to make $1 billion on that sale. He still owns Deutsche Telekom stock.)

This time, Stanton, 49, will take home about $500 million in cash and Alltel stock and no severance. “For a majority of large shareholders, that’s not unusual,” Lindner said. “He’s getting $500 million, so severance of $3 [million] to $5 million would be a rounding error for him.”

A portion of Stanton’s payout includes the stock owned by his wife, Theresa Gillespie, who is Western Wireless’ vice chairwoman and former executive vice president.

Together, Alltel and Western Wireless will have 10 million customers in 33 states, putting it in the top-six largest providers in the U.S.

Western brings to the relationship a 2004 profit of $232.9 million and 1.5 million U.S. subscribers.

Nextel Partners

In the case of Nextel Partners, a lot is unknown.

The carrier, which sells Nextel-branded services and products in rural areas, has a chance to sell the company when Nextel Communications merges with Sprint later this year.

Nextel Communications, which owns 32 percent of Nextel Partners, could be required to buy Nextel Partners if its shareholders vote to sell the remainder of the company to Sprint Nextel. The option exists because the two companies are so closely linked.

Chapple wrote a June 23 letter to shareholders recommending the sale. The Sprint Nextel merger is set to close in the third quarter, possibly delaying a Nextel Partners deal until next year.

If the shareholders agree, a sale price will be decided. The price will determine how much Chapple will be paid.

A conservative estimate of Chapple’s package would be $52.4 million, based on the number of shares he owns times a recent stock price. It does not include his options. His severance would add another $3.3 million, or the equivalent of three years’ salary. It depends on his agreement with the new company.

However, there is a bigger winner in this deal: Bill Gates, who owns 6.9 percent of Nextel Partners. He’ll take away a minimum of $334 million on the deal.

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com