Amazon CFO Leaving $3 Million on the Table

If investors were puzzled by Warren Jenson's plans to leave Amazon.com (AMZN), they may be even more intrigued to learn he is walking out on a $3 million payday.

Jenson will forfeit part of his signing bonus by leaving this year, regulatory filings show. The company's proxy statements also show that Jenson hasn't bought or held any Amazon stock since he joined the company in September 1999. Those facts, combined with insiders' heavy sales of the stock in recent periods, suggest executives and directors aren't enthusiastic about the online bookseller's prospects, observers say.

The revelations come as investors digest the news that Amazon, which recently reported its first-ever profitable quarter, is losing its second top-rung executive in recent months. After falling in after-hours trading Tuesday, Amazon rallied along with the market Wednesday, rising 36 cents to close at $16.33.

The $3 Million Question

Regulatory filings show that Amazon agreed in September 1999 to pay Jenson, a former Delta Air Lines exec, a $7.4 million signing bonus over five years. Jenson forfeits two annual installments by leaving, which he said Tuesday he plans to do. Amazon confirms that Jenson won't receive $2.75 million due him under the signing agreement. He may also have to repay a pro-rated portion of last year's bonus payment if he leaves before September; together with the missed installments, that could mean he's turning down some $3 million or more.

To be sure, there's nothing untoward about an executive deciding to move on to the next challenge, as Jenson said he plans to do. But together with the fact that he doesn't appear to have held any investments in the company, Jenson's departure has some investors wondering what he and other insiders really think about Amazon's prospects. Jenson couldn't be reached for comment Wednesday afternoon.

"It would be unusual for him not to buy any stock if he believed in the prospects of the company," says David Coleman, editor of the newsletter Vickers Weekly Insider Report, which tracks insider sales. Wall Street orthodoxy holds that stock holdings align executives' interests with those of shareholders.

"I'd say that's pretty interesting," says Safa Rashtchy, who covers the company for U.S. Bancorp Piper Jaffray. "There's one reason why he may not have felt tied down." (He has an outperform rating on the stock; his firm doesn't have a banking relationship with Amazon.)

Bonus Baby?

Jenson made the lion's share of his Amazon compensation from bonuses. The executive, who doesn't have a new job and has said he is leaving to pursue "new challenges," earns a $177,450 annual salary, according to the most recent proxy statement.

Jenson's departure comes just as Amazon executives and directors have filed notice that they intend to sell stock. CEO Jeff Bezos filed in late February to sell 2.95 million shares, the largest single block he has ever sought to unload. Amazon spokeswoman Patty Smith notes the proposed sale amounts to less than 3% of Bezos' total holdings and says it was part of a diversification program made public last year. In total, insiders have filed to sell about 4.25 million shares this year, with Bezos accounting for about 3.75 million.

Still, this is only a small amount of the total stock held by insiders. According to the company's most recent proxy statement, insiders held about 125 million shares, or 34.5% of the company. Thus the recent sales only account for roughly 3.4% of the total amount held by insiders.

Standing Apart

But while many Amazon insiders held a big chunk of the company, the financial chief wasn't among them. Jenson, who brought old economy credibility to the company when he left Delta in 1999, apparently never cashed in on that new economy gold mine: stock options. According to filings with the SEC, Jenson has never exercised any Amazon stock options, nor has he ever held shares in his personal portfolio.

When he was hired, Jenson received 2 million options with a strike price of $63.25. But Amazon stock famously proceeded to tank, leaving those options worthless. In February 2001, Jenson received 346,667 additional options with the much more reachable strike price of $13.38. But these options began vesting in August of last year, when Amazon shares were trading in single digits. Shares only rose above the strike in late January after the company announced its first ever profit.

Smith confirmed that Jenson hasn't exercised any options and says his options will still be good for 90 days after the date of his departure, which will come some time later this year.

Attrition?

Jenson is the second top executive to step down recently, and comes just as the company finally swung to the black after years of red ink. David Risher, Amazon's marketing and merchandising chief, will leave this month; his departure was announced in November.

Tuesday evening's announcement that Jenson would leave his CFO post unnerved investors, who sent shares tumbling nearly 8% in early trading Wednesday before rebounding. Jenson -- while at times on the receiving end of investors' anger over the quality of Amazon's financial reporting -- was closely associated with the company's recent cost-cutting and profitability drive.

"Because Jenson is highly regarded, his departure is a loss for the firm," Justin Baldauf, who covers the company for Merrill Lynch, wrote in a research note published Wednesday. (He has a neutral rating on the stock, and Merrill doesn't have a banking relationship with Amazon.)

Investors may now be wondering just how big a loss it really is.

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