Napster CEO’s new incentive

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It’s not unusual for chief executives to have rich severance packages, or to have some extra compensation promised if they lose their post in a corporate takeover. Nevertheless, you have to admire Napster Chairman and CEO Chris Gorog’s new deal with the company. Under the severance clause in his previous employment contract, Gorog had been entitled to a cash payment of 165% of his base salary of $625,000 (a little more than $1 million, for those of you unable to use the calculator in your cell phone), plus immediate vesting of his stock options and free health insurance for 18 months. The payout was the same if he were fired without cause or he left in the wake of a buyout. The latter’s relevant because Napster put itself on the block in September 2006, hiring an investment bank to evaluate suitors. The new deal keeps Gorog’s base pay at $625,000, but ups the cash portion of the severance package to 240% of his base salary ($1.5 million) if there’s no takeover in the works. If a takeover should happen and Gorog should leave within 12 months thereafter, the cash portion jumps to 299% (about $1.9 million), plus a cash bonus ‘equal to the average of the three prior cash bonuses’ he received. Not bad for a company that has never reported a quarterly profit from its online music business, and whose stock price has been stuck in the single digits for more than four years. The stock peaked near $25 in April 2002; today’s close was $1.53.