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WHY FIRE A BAD CEO IF YOU CAN OFFER A RAISE?

Here's the new spring line from some executive pay consultants and board compensation committees: If you can't perform, you won't be asked to leave. We'll simply pay you millions to stay.

A prime example is Jerald Fishman, CEO of Analog Devices Inc. Fishman, 62, has been running the Norwood, Mass., computer chipmaker since late 1996, and shareholders have been riding a Disneyland-like roller coaster.

You would think with a recent performance record like Fishman's, Analog Devices' compensation committee would have recommended the exit door. No way. He has been promised as much as $20-million in what the company called a long-term retention agreement.

Consider his track record:

- In the 11 years through the fiscal year ended Oct. 31 that Fishman has been at the helm, there were six years where returns for the year were negative. Still, for the entire period, Analog Devices's 12 percent annual return beat the Standard & Poor's 500 Index return of 9.2 percent and the S&P 500 Information Technology annual return of 9.1 percent.

- Although the company earned a return of 7.6 percent for the year ended Oct. 31, returns for the three preceding years were negative. And even that 7.6 percent return for fiscal 2007 was no great shakes. During the same period, the S&P 500 generated a return of 15 percent and the technology index returned 27 percent.

Fishman's stock options have rarely produced any decent harvests because of this poor performance. He did, though, get a pretax gain of $14.5-million on Dec. 20, with an exercise of 600,000 shares that was set to expire on Jan. 15. As of Oct. 31, he was holding nine other option grants totaling 3.3-million shares, and all but one was underwater, based on the company's closing price as of Feb. 8.

If Analog Devices's compensation committee felt it had to reward Fishman to encourage him to do better, it could have done what Merrill Lynch & Co. did for three senior executives: offer him retention option grants instead of cash bonuses.

Instead, the company with the aid of Pearl Meyer & Partners, the committee's independent compensation-consulting firm, offered Fishman as much as $20-million by the end of fiscal 2010. That was to be in lieu of any equity grants during this period.

While Fishman is being retained, he continues to perform poorly. Between Oct. 31 and the close on Feb. 8, return was running at an annualized rate of negative 48 percent.

Behavior like this is what I expect from many companies this year. If a senior executive can't perform, you don't deny him a bonus or let his stock options mildew underwater. No, you find a different performance "metric" (the new consulting buzzword that just means "measure"). And the more performance-challenged the CEO, the softer must the new metric be so he can continue to get millions in compensation.

So if someone is performing poorly, forget options or even free shares, because the stock seems to drop more than it rises. Instead, rent a B-52, load it with cash and do an airdrop. Then executives can get back to their main objective: Trying to act as though they know what they're doing.

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