Shares of AMD (AMD +7.24%) have been cut in half over the past 12 months due to its inability to compete against Intel (INTC +7.06%) in x86 chips and Nvidia (NVDA +1.95%) in high-end graphics cards. Last quarter, AMD's revenue plunged 35% annually to $942 million as it posted a net loss of $181 million -- down from a loss of $36 million a year earlier.
Source: AMD.
Considering how poorly AMD has performed over the past year, it would seem inappropriate to pay big bonuses to its top executives. But based on recent SEC filings, AMD paid out big equity awards to senior executives, including CEO Lisa Su, CTO Mark Papermaster, and CFO Devinder Kumar, throughout August. Those awards were a mix of performance-based restricted stock, time-based restricted stock, and options.
The total value of those packages was comparable to equity awards from last year. Bernstein analyst Stacy A. Rasgon called the awards "extremely distasteful" considering how badly AMD had fared over the past year. Let's take a closer look at how much AMD pays its top executives, and whether investors should be concerned.
Soaring bonuses, slumping stock
AMD paid out $32.98 million in executive compensation in fiscal 2014 -- a 47% increase from $22.46 million in 2013. Last year, Lisa Su claimed $11.8 million of that total, which includes her annual salary of $850,000. Former CEO Rory Read was paid $7.7 million, with a large portion attributed to a $5 million severance payment.
In comparison, Intel paid $41.67 million in executive compensation last year, a 17% decline from the prior year. CEO Brian Krzanich's compensation package of $11.2 million was also notably smaller than Lisa Su's. Nvidia's executive compensation rose 38% annually to $22.9 million last year, with CEO Jen-Hsun Huang receiving $9.3 million. Those packages more or less matched Intel and Nvidia's performance over the past year. Intel struggled with a slowdown in the PC market, while mobile subsidies weighed down its bottom line. Nvidia, on the other hand, dodged that slowdown with robust sales of high-end graphics cards for gamers.
Compensation packages don't always reflect a company's performance, but the fact that AMD boosted executive bonuses nearly 50% as its stock shed half its value should worry investors.
Benefit of the doubt
However, investors could also give AMD the benefit of the doubt. Part of those equity awards might be retention bonuses. But as Rasgon notes in his report, both Kumar and Papermaster already received retention bonuses in January. Lisa Su and GM of the EESC (Enterprise, Embedded, Semi-Custom) Forrest Norrod took over their current positions less than a year ago, making them ineligible for retention bonuses.
AMD's management might be increasing their exposure to show investors that their earnings also depend on the company's stock price. But with the stock down more than 70% over the past five years, it seems doubtful that any symbolic moves will boost investor confidence.
On the bright side, AMD's stock bonuses don't weigh too heavily on its bottom line. Last quarter, AMD's total stock-based compensation declined 19% annually to $17 million, or less than 2% of its total revenues. By comparison, Intel paid out 2.5% of its revenue last quarter as stock bonuses, while Nvidia paid 4%.
A sinking ship
Whether or not AMD "overpays" its executives could be a moot point if the stock keeps sliding. The company's Computing and Graphics division remains sandwiched between Intel and Nvidia, and the unit's operating loss nearly doubled from $75 million to $147 million between the second quarters of 2014 and 2015. The EESC unit, which was previously propped up by sales of console APUs, also reported top and bottom line declines due to "seasonally lower sales".
AMD hopes that chips for AR/VR devices and high-performance mobile APUs can help it expand into niche markets and avoid Intel and Nvidia. But if those niche markets ever become mainstream, Intel and Nvidia will likely launch comparable products and marginalize AMD once again.
If AMD's executives can get their act together and widen the company's defensive moat against that threat, they might deserve those big bonuses. But for now, they simply seem more interested in enriching themselves instead of long-suffering shareholders.
