Conseco Sets Rich Pay Package for New CEO

So this is how Conseco (CNC) got Gary Wendt.

Wendt, former head of GE Capital, the finance unit of General Electric, is getting $45 million just for joining the ailing insurance and finance firm, according to details about the executive's five-year contract, filed with the Securities and Exchange Commission Monday.

Another part of Wendt's platinum handshake is an options grant of 10 million shares, a fifth of which already has vested. With a strike price of $5.875, the 10 million options already have yielded a paper profit of around $40 million, going by Conseco's closing price of 9 3/4 Monday.

Carmel, Ind.-based Conseco reported a 70% decline in profits in the first quarter and has, for the last year or so, been at the center of accounting controversies that have knocked the stock 70% off its 52-week high.

"There's no risk for Wendt," says Kathy Shanley, analyst at Gimme Credit, which doesn't do underwriting. "Wendt's a smart man. He certainly got paid," says one New York-based hedge fund manager who has sold Conseco's shares short, a trade that will benefit him if the company's stock declines.

Big Numbers

Wendt, who became chief executive at the end of June, also will receive up to $60 million in further cash payments over the next five years if he fulfills certain performance targets. He stands to make $50 million if Conseco's average stock price is 20 or more in the 20 trading days before June 30, 2002. At the bottom end of his bonus scale, if the average stock price is less than 10, he qualifies for an $8 million bonus.

In addition to the cash, the 57-year-old Wendt could get a further 1.5 million options, as well as a restricted grant of $4.5 million worth of common stock, in the last three years of the agreement, extending from 2003 to 2005, if he clears earnings-based performance hurdles.

"A lot of [Wendt's package] is performance-based," says a Conseco spokeswoman. The terms for the last three years of the package "are reflective of a company our size and the industry we're in," she adds. Wendt didn't immediately comment.

If Conseco is bought before June 2002 -- and some analysts have predicted an outright sale -- Wendt's cash and options bonus payout is automatically triggered, and its size is based on the average stock price prior to the change of control date. If large, this could put off prospective buyers.

High Profile

If he does get Conseco's stock over 20, Wendt could snag well over $250 million, which is nearly half the company's 1999 net income of $593 million. That could lead some to question the potential size of his package. However, Conseco's fans hope Wendt is one of the few finance executives capable of turning around the cash-strapped company. He built GE Finance into a $4 billion-asset company between 1984 and 1998. But others note that restructuring Conseco is a much tougher job than working at GE, which has a pristine reputation among investors and an excellent credit rating. That guaranteed GE Finance easy and cheap access to capital, something that Conseco doesn't enjoy.

Also announced in the agreement Monday, a GE subsidiary gets warrants entitling it to 10.5 million Conseco shares. This serves as payment to GE for releasing Wendt from a noncompete agreement. What's interesting, says the hedge-fund manager who is short Conseco, is that GE apparently didn't want to put up much cash to buy into Conseco in any form.

Wendt temporarily became a household name during his divorce from ex-wife, Lorna, who claimed that because she had sacrificed her career to be a so-called corporate wife, she deserved 50% of her husband's wealth. She ended up getting an estimated $20 million, an award that Wendt is reportedly appealing. He disputed at the time his wife's estimate that he was worth around $100 million. Not so easy now.

>To order reprints of this article, click here: Reprints