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Old Economy executives look before leaping to Net

As many tech stocks have lost more than 90 percent of their value since April, a number of Old Economy executives who made the jump are feeling burned these days.

Heidi Miller left her high-profile post as chief financial officer with Citigroup to take a similar position with in March, when the online travel site was trading around $90 a share.

Today, the stock is near $5 and Miller is gone, leaving behind 2.5 million worthless options.

Chasing a dream
Whether to help build the New Economy or take advantage of potentially lucrative stock options, several top executives have left established companies for relative upstarts--with different degrees of success.
Joseph Galli
Left Black & Decker for Now CEO of VerticalNet.
Bill Malloy
Left AT&T Wireless for Peapod. Resigned due to health reasons.
Heidi Miller
Left Citigroup CFO position for, but resigned last week.
Greg Owens
Left Andersen Consulting to head Manugistics.
Rudy Puryear
Left Andersen Consulting for Web services company Lante.
George Shaheen
Left Andersen Consulting for WebVan.
Whether they wanted to help build the New Economy or were lured by potentially lucrative options, countless top executives like Miller left comfortable positions to join the dot-com revolution at a time when the stock market was bestowing unprecedented valuations on Internet companies.

But with the shares of many dot-coms trading at a fraction of their highs--in some cases for pocket change--those dreams have been dashed, or at least deferred.

"There is absolutely declining interest. A lot of people threw out the normal things when doing due diligence for a job and ended up working for a house of cards," said Jeff Christian, founder of executive recruiting firm Christian & Timbers in Cleveland. "Today, there are still traditional company executives who are looking for New Economy jobs, but fewer searches for the consumer-oriented dot-com companies."

As many tech stocks have lost more than 90 percent of their value since April, a number of executives are feeling burned these days. Some find it particularly ironic that investors who have abandoned their blind faith are now demanding that Net companies show profitability--something that their Old Economy companies have always had to do.

Those bad experiences are having a chilling effect on others contemplating a move to Internet companies. Making the risk even less attractive, recent studies show that salaries for top Web executives have leveled off.

In a survey conducted in the first quarter of this year, research group VentureOne found that chief executives of Web companies received $25,000 more in salary and bonuses than their counterparts in other industries. But figures compiled by the venture capital group in the last two months show that Net executives are earning the same as other CEOs: about $200,000 a year.

Companies are offering far larger equity stakes in a desperate attempt to draw candidates for key positions. CEOs now hold a median equity stake of 11 percent, according to VentureOne's report, more than twice the median 5 percent holding surveyed in the first quarter.

But even those increased stakes, which are often in the form of stock grants and options, are no guarantee that people will sign up. Brick-and-mortar executives are especially wary of joining early-stage companies, industry recruiters say, and they ask a lot more questions about a potential employer's financial backers.

"Imagine if you were making $750,000 a year working for a large food company, and you left to take a job for $250,000 and a lot of equity in a dot-com company," said Jon Holman, president of The Holman Group in San Francisco. "A lot of people are finding their options are underwater."

Fortunately for Miller, she wasn't banking on striking it rich at Priceline.

"I never looked at Priceline as an Internet lottery ticket," she said. "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."

Miller said her decision to leave the Norwalk, Conn., Net company after eight months was based on its plans to cut back. Priceline announced last week plans to lay off nearly 90 employees, as it expects revenues to fall sequentially in the fourth quarter.

Despite her experience, Miller said she's open to taking another Internet job. Indeed, many executives with similar stories to tell have not soured on the New Economy, accepting their fate as part of doing business in a rapidly changing landscape.

One of them is Joseph Galli, former president of Black & Decker's power tools and accessories division, who has worked at two Internet companies since leaving the Maryland-based tools maker last year.

Galli left a job that paid him a base salary of nearly $500,000 and a cash bonus of $600,000 in 1998, according to Black & Decker's 1999 proxy. He also had the option to buy 75,000 shares at $54 each, at a time when the stock was selling for around $60.

When he joined as president in June last year, the Seattle e-tailer offset his 60 percent pay cut with a $2.9 million signing bonus and the option to buy nearly 4 million shares for about $58 each.

But when Galli resigned from Amazon a year later to head VerticalNet, a business-to-business e-commerce player, the stock price was about $38--rendering his millions of options worthless.

Still, it would be a mistake to dismiss all technology companies. Many continue to thrive and expand, especially in the areas of network infrastructure and business-to-business transactions.

"I think it will be difficult to take an Old Economy executive and have them work at a B2C company," Holman said. "But in other categories, like B2B, it may not be that tough of a sale."'s Stefanie Olsen contributed to this report.