eBay Must Wring Out CEOs' Excess: Activist

The first big clue that Whitman's eye was no longer on the ball as CEO had to do with her total annual compensation spiking in the last two full years of her tenure, even as eBay's stock price continued to decline. Peaking at $58 at the start of 2005, eBay's stock price dropped 43% over the next three years. Over that same period, Whitman's total annual compensation almost quintupled to $13.9 million from $2.9 million.

Meg Whitman's Total Annual Compensation SEC Filings

One of the interesting coincidences, and perhaps not a coincidence at all, about the above figure is that Whitman's annual compensation is remarkably modest from 1998 through 2002. Over that time period, she averaged total annual pay of $412,000. During that time, there were three members of eBay's compensation committee: Philippe Bourguignon, ex-CEO of EuroDisney; Bob Kagle, general partner of Benchmark Capital and early eBay investor; and Howard Schultz, the Starbucks(SBUX) founder who also is a venture partner in Maveron, an early eBay backer.

At the end of 2002, Schultz left eBay's board and compensation committee. He was replaced by Tom Tierney. Tierney was formerly the CEO of Bain Consulting and, indirectly, Whitman's old boss. Tierney would pass any stock exchange definition of an "independent" director. But for those of us who live in the real world, it is obvious that Whitman had a new friend on the small group deciding how she would be paid.

It should come as no surprise then that this committee immediately started loosening the purse strings, and for the years 2003 to 2007, just before she resigned, Whitman's total annual compensation averaged $7.6 million.

The second big clue that Whitman was no longer as focused on eBay's fortunes in her final four years as CEO was the amount of time she spent flying around the world on personal business in eBay's corporate jet, which was paid for by eBay shareholders.

As the chart below illustrates, eBay's compensation committee (again perhaps indirectly linked to Tierney's arrival) went from a practice of not granting Whitman any personal air travel on the corporate jet paid by the shareholders to almost $1 million a year in her final two full years on the job.

That $1 million includes tax gross-ups, meaning shareholders also paid Whitman's taxes on the benefit she received of making all those flights instead of the billionaire paying her taxes herself. These two years of lavish perks coincided with a time when eBay's stock dropped 22%, even though Nasdaq was up 17% in the same period.

Meg Whitman's Personal Aircraft Costs Paid by EBAY Shareholders SEC filings