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An Old Economy strategy at a New Economy bargaining table

Old Economy executives who jumped ship into the Internet economy before it imploded proved they knew how to make money the old-fashioned way: They got it up front.

Old Economy executives who jumped into the Internet economy before it imploded proved they knew how to make money the old-fashioned way: They got it up front.

During the go-go days of the Internet, several executives were persuaded to leave lofty, long-term positions at venerable finance and consumer-products companies for the chance to lead young Internet companies. Of course, there was another attraction: stock-option packages that had the potential to turn ordinary millionaires into candidates for "Lifestyles of the Rich and Famous."

When the stock market bubble popped, many of these executives jumped ship and abandoned the worthless packages. However, many still managed to pocket a few million dollars for fleeting tenures.

"A lot of the deals that get struck are not that much different than the deals struck with Old Economy companies," said Jon Holman, who heads recruiting firm The Holman Group. Among the perks: large signing bonuses and loans at favorable interest rates.

For example, Joseph Galli, a former Black & Decker executive, received most of his millions from signing bonuses he received after joining online giant as president and, later, business-to-business player VerticalNet as chief executive. His 19-month stint in the New Economy ended this month, when he announced plans to return to his roots by joining Newell Rubbermaid as chief executive.

At Amazon, Galli collected roughly $2.9 million of his staggering $7.9 million signing bonus, according to papers filed with the Securities and Exchange Commission.

He also received $100,000 for signing a noncompete clause--adding to his base pay of $200,000.

Galli and Amazon representatives did not return phone calls seeking comment on whether the SEC information differs from what Galli actually received.

After just a year at Seattle-based Amazon, Galli left for VerticalNet, where he received a $4 million signing bonus. He agreed to return $2.33 million a few months later as part of his resignation agreement with the company, said Jessica Cassady, a spokeswoman for Horsham, Pa.-based VerticalNet.

Nonetheless, in five months, Galli received roughly $1.7 million, or about seven times his base pay of $250,000.

During his 19-month tenure in the New Economy, Galli received $4.6 million, or roughly $60,000 per week. By comparison, at Towson, Md.-based Black & Decker, he earned a base salary of nearly $500,000 in 1998, a cash bonus of $600,000 and options to buy 75,000 shares at $54, according to the company's 1999 proxy. Black & Decker's stock was trading around $60 when Galli left the company.

Borrowing for bucks
Other Old Economy executives were able to receive millions via company loans.

Heidi Miller, former chief financial officer at New York finance behemoth Citigroup, joined last March in a similar position and landed a $3 million loan with a 6.56 interest rate.

But eight months later she resigned, and the company announced it would take a fourth-quarter charge of $3.3 million to forgive her loan, according to SEC filings. The approximate per-week pay for her tenure was $93,000, based solely on the loan and not on her regular salary.

Miller, whose annual Priceline salary was $300,000, is now vice chairman of the insurance services subsidiary of Marsh & McLennan.

Norwalk, Conn.-based Priceline declined to comment on Miller's employment and severance package; Miller did not return phone calls seeking comment.

In a previous interview with CNET, Miller said her original decision to join Priceline was not based on the potential rise of company stock.

"I never looked at Priceline as an Internet lottery ticket...I went to Priceline because I was always interested in the Internet, and at Citicorp, I couldn't see my career path going beyond CFO," she said at the time.

Not so lucky
But not all executives were so fortunate.

Bill Malloy, a former AT&T wireless executive, joined struggling online grocer Peapod in September 1999. Within six months, Malloy had resigned because of health reasons.

Although he received a $2.5 million loan to buy Peapod shares from the company, Malloy had to return the shares and the loan was forgiven, according the company's annual SEC filing.

The 1.6 million stock-option grants he received upon joining the company were also canceled. The most Malloy received out of his tenure was a portion of his base pay of $350,000. Upon his resignation, the company agreed to continue his salary for about six weeks, according the filing.

In October, Malloy joined privately held interactive-streaming company WorldStream as chief executive.

Holman noted that the parallels between Old and New Economy companies are many.

"The guy who writes the big checks wants to have all these clauses in the contract of what it takes for the executives to keep the money, while the guy who receives it just wants to keep it," Holman said.

He added that Old Economy companies typically require executives to remain with a company three to five years for a loan to be forgiven. And he noted that large signing bonuses are also common and serve as a way to repay executives for stock options, bonuses or other forms of compensation they leave on the table to join a New Economy company.

"New Economy companies often ask CEOs to take a pay cut and be willing to bet on the company's future by getting equity," Holman said. "The signing bonuses that New Economy companies give are designed to help transition the pain."

Added Jeff Christian, founder of executive search firm Christian & Timbers, "Many people brought in from Old Economy companies to New Economy companies saw the dangers and were less willing to give everything away."