Weitzen, who took over the top spot at the beginning of the year from company founder Ted Waitt, will receive a base salary of $1 million annually over the next three years, according to the employment agreement included in a proxy statement filed with the Securities and Exchange Commission. In addition, he will receive an annual bonus of at least $1 million, barring performance problems.
Stock will constitute the bulk of his compensation. Weitzen will receive a twice-a-year "recurring option" of Gateway stock equivalent to $4.87 million through 2002--or $9.7 million a year--according to the terms of the employment agreement. The options aren't guaranteed, however, as the board has to approve the grants. Also, as each of the option grants will vest over a four-year period, any payment won't occur until the future.
As president and chief operating officer in 1998, he earned $3.5 million.
The compensation package goes to an executive who has been credited with helping turn the company around. The former AT&T executive joined Gateway in late 1997 after a period of sagging stock prices and declining profit margins.
Since then, the company has been one of the leaders in the PC industry in conjuring up ways to eke more revenue out of customers. Gateway became one of the first PC makers, for instance, to heavily promote its own branded ISP service through its YourWare program. The company, which sells PCs directly, also opened brick-and-mortar Country Stores to gain a retail presence. The effort to diversity culminated in a far-reaching deal last year with America Online, which invested approximately $800 million in Gateway.
Despite market share gains and increased sales, however, Gateway has also recently experienced some growing pains. The company delivered lower than expected profits for the fourth quarter because of a shortage of Intel processors. Analysts who follow the company have also begun to splinter on their views of Gateway's future. Some have said sales appear to be hitting a plateau. Competition has also heated up. In the fourth quarter of 1999, for instance, Hewlett-Packard passed Gateway in fourth quarter sales, according to figures released earlier in the year from Dataquest. HP also grew faster than Gateway for the entire year, a reversal of growth patterns seen in earlier years.
Others, however, are more optimistic after this year's first quarter. "We continue to believe that Gateway will enjoy tremendous earnings momentum in the second half of 2000 and 2001. This is based on our belief that operating profit from beyond-the-box initiatives alone will grow $200 million year to year," wrote Richard Gardner, an analyst at Salomon Smith Barney, in a report this week.
Gateway closed out its fiscal year last January with quarterly earnings of $126 million, or 38 cents per diluted share, down 2.4 percent from the previous year. Revenue rose 6 percent to $2.45 billion, based on increases in PC sales to consumers.
On top of the salary, bonus and "recurring option" stock, Weitzen also receives 2 million options over four years based on the Dec. 8, 1999, closing price of $64.25. Gateway shares have been slipping the past month, closing at $53.31. Weitzen received 1 million in options, with a strike price of $17 (adjusted for a subsequent split), when he joined the company as president and chief operating officer in 1998.
Dawn Kawamoto contributed to this story