SEMICONDUCTORS

AMD’s rebound has meant big money for key executives

Key leaders who stuck around through AMD’s tough times have ‘gambled and won,’ analysts say.

Posted June 5th, 2017

As chief executive at Advanced Micro Devices, Lisa Su earned $2.9 million in 2015.

A year later, her earnings with the California-based chipmaker ballooned to $16.6 million.

The remarkable rise in Su’s income is due to a metoric rise in the value of the stock of her company, which employs 1,500 people in Central Texas and has most of its operations here. AMD’s share price increased by 288 percent last year, and its shareholders received the best return of any company in the S&P 500 last year, according to Factset.

Su wasn’t alone in reaping huge rewards for AMD’s remarkable stock market performance. She was among five AMD executives who received salaries, bonuses and stock that expanded their personal earnings by 457 percent from 2015 to 2016.

An American-Statesman analysis of AMD’s publicly reported financial results finds that this substantial increase in personal income is due in part to 3.6 million shares of the company that were given to five of AMD’s top-earning executives in November 2016, an amount determined by how much the company’s stock price appreciated. 

The value of those shares when vested rings in at $25.5 million. And Su’s portion of that November 2016 injection of stock was valued at $10.5 million.

Many large public companies pay their executives primarily through stock grants and options as a way to sync the interest of shareholders with executive decision-making.

But because AMD chose to increase the number of shares given to an executive based on how much the stock appreciates, it enabled some of the company’s top executives to earn larger-than-expected incomes in 2016. 


Name Title Year Cash Compensation Stock-Based Compensation Total Compensation
Lisa Su President & CEO 2015 $1,398,127.00 $1,467,618.00 $2,865,745.00
Lisa Su President & CEO 2016 $1,318,996.00 $15,254,441.00 $16,573,437.00
Devinder Kumar Senior Vice President, CFO and Treasurer 2015 $530,005.00 $609,972 $1,139,977.00
Devinder Kumar Senior Vice President, CFO and Treasurer 2016 $702,255.00 $5,197,225 $5,899,480.00
James Anderson Senior Vice President 2015 $1,038,456.00 $0 $1,038,456.00
James Anderson Senior Vice President 2016 $662,490.00 $5,802,228 $6,464,718.00
Forrest Norrod Senior Vice President 2015 $530,005.00 $514,798 $1,044,803.00
Forrest Norrod Senior Vice President 2016 $702,255.00 $6,158,718 $6,860,973.00
Mark Papermaster Chief Technology Officer and Senior Vice President 2015 $774,994.00 $602,974 $1,377,968.00
Mark Papermaster Chief Technology Officer and Senior Vice President 2016 $728,744.00 $5,077,071 $5,805,815.00

(An in-depth explanation of our reporting methodology is at the bottom of this story.)


‘Super hot and super not’

Advanced Micro Devices makes computing and graphics chips primarily for servers, computers and video game consoles. Its main business rivals are Intel Corp. and Nvidia Corp.

AMD is notorious for its roller coaster financial results. Some years the chipmaker is flying high, thanks to a technological breakthrough or well-timed business strategy. Other years, AMD is barely hanging on as its rivals gain substantial market share. The company has had to sell assets, such as its manufacturing facilities, to survive.

“With a company like AMD, it’s super hot for a couple of years, and super not for many years,” said industry analyst Patrick Moorhead, noting that this was atypical for tech companies.

Until last year, AMD had been in a slump for nearly a decade, driven by an overall decline in the PC business and technology stumbles that let its rivals cement their dominance in the computing and graphics markets. The last time AMD had a profitable year was 2011. Its revenues dwindled from $6.6 billion in 2011 to $4.3 billion last year.

By the summer of 2015, its stock had slid to under $2 a share.


READ: What is Zen and why is it driving up AMD’s stock price?


As a result, executives were receiving relatively modest paychecks.

Though each senior executive receives a base salary, the majority of their compensation is linked to the financial performance of the company, either through stock grants or cash-based bonuses. In 2015, Devinder Kumar, the chief financial officer, and other executives didn’t receive any bonus money.

The stock grants that did vest weren’t worth much as the stock never got over $5 a share. In 2014 and 2015, none of the executives, except for Su, earned more than $2 million.

During those lean times, some top executives chose to leave the company. CEO Rory Read left in 2014 and later went to work for Dell. Su, who was chief operating officer, was promoted to CEO. That same year, John Byrne, head of the computing and graphics division, also left AMD, along with a handful of other executives.

But during this two-year period the chipmaker also doled over 15 million in stock options or stock grants to its current roster of top-earning executives, which include the chief executive, chief financial officer, chief technology officer and the two executives in charge of AMD’s biggest business units.

These are essentially a promise to deliver stock at a later date to the executive. Some won’t convert to stock until 2018 or later. If an executive leaves the company before they convert, then they typically never receive them.

AMD spokesman Drew Prairie said the company also offers stock grants to a “significant number” of rank-and-file employees that vest over time, and that the company’s shareholders just approved a plan to offer an employee stock purchase program.

Mark Matson for American-StatesmanAMD’s Austin campus is located off Southwest Parkway

The sell off

By the summer of 2016, AMD’s fortunes were looking up. In May of 2016, AMD unveiled details about the performance of its new computer processor architecture, called “Zen.” Based on what AMD executives revealed, the new processor would offer substantially improved performance and pose a threat to rival Intel.

Analysts say that the company’s decision in April 2016 to license some of its technology as part of a joint venture in China opened up an important new revenue stream and highlighted the value of their intellectual property.

By late November, AMD’s stock had tripled in value from a year ago. And that’s when many senior AMD executives started selling stock. The timing also coincides with the vesting of millions of shares due to the stock price run-up.

Prior to this point, most senior executives were holding on to the stock they owned, and only selling when acquiring stock in order to pay the tax bill. This is often interpreted as a positive sign for shareholders because it signals that the company’s managers are holding onto stock because they believe its price will rise.

But beginning in December, securities filings show, senior AMD executives started selling stocks through a special trading plan called a “10b5-1.” These plans allow executives to plan in advance when they want to sell shares, targeting either a certain date or when the stock reaches a certain value. Executives are able to cancel these trading plans at any time.


Name Title Stock Sales From Trading Plans
Lisa Su President & CEO $2.5 million
Devinder Kumar Senior Vice President, CFO and Treasurer $3.2 million
James Anderson Senior Vice President $1.5 million
Forrest Norrod Senior Vice President $3.5 million
Mark Papermaster Chief Technology Officer and Senior Vice President $395,700

(Data is based off trading plan stock sales from November 2016 through May 2017)


Kumar, the chief financial officer, set up a trading plan in November that started selling shares in March — a time when the company’s shares had reached a high not seen in 10 years. He sold about 300,000 shares in March, April and May of this year. He pocketed $3.2 million when subtracting the exercise price of his options.

Another executive, Forrest Norrod, a senior vice president in charge of the company’s server and video game console business, set up a trading plan in November and began selling stocks in December through April. His stock sales put $3.5 million in his bank account, when subtracting the exercise price of options.

Su, the CEO, also set up a trading plan, netting about $2.5 million from sales made in March and May. She also transferred nearly 600,000 shares to a trust beginning in November.

Experts say shareholders shouldn’t interpret these sales as a sign that executives are less confident about their company’s prospects.

Alan Jagolinzer, who is a professor of financial accounting at the University of Cambridge in England, said executives often sell stock as a way to diversify their wealth. “Most people are risk-averse,” Jagolinzer said. When too much of an executive’s stock portfolio is made up of shares of the company they work for, many executives will try to unload shares, he said.

But other compensation experts noted that if there is a sudden flurry of sales activity, it could be an indication executives think the stock is over-valued based on inside information.

This type of selling behavior, said University of Utah Business Professor Jeffrey Coles, could indicate that investors should expect “risk-adjusted normal returns” in the future. Translation: the stock might be headed down.


READ: Why AMD’s stock plunged 24 percent


Pay for performance

Executive pay is a controversial topic, and studies show a widening gulf between the salaries of executives and rank-and-file workers. A study by labor group AFL-CIO found that production and nonsupervisory workers earn $37,632 on average while the average compensation of a CEO in the S&P 500 is $13.1 million.

A proposal by the Securities and Exchange Commission that would require public companies disclose the pay of rank-and-file employees versus the pay for chief executives would have gone into effect in 2018, but is now stalling under the Trump administration after public companies campaigned against it.

It can be difficult to make direct comparisons between executive pay at AMD and other companies because the way stock-based compensation is valued can wildly differ. The New York TimesThe Wall Street Journal and Bloomberg News Service all recently compiled lists of the highest-paid CEOs in 2016 and each media organization reached different conclusions, even though they are all using the same data.

But even with the meteoric rise in its stock price, AMD’s CEO wouldn’t crack the top 25 no matter how the data is crunched.

Analysts say that AMD executives deserve a lot of the credit for the rise in the company’s stock price in 2016.

“The thing the executives did was they brought (the company) into good operating condition,” said industry analyst Roger Kay. The executives prevented the working capital from draining away while its engineers worked on delivering better technology, he said. But he noted that some of their stock price run-up was due to increased trading and interest in AMD.

Moorhead, the Austin-based analyst, said it’s tough to judge the appropriateness of AMD’s compensation based on a single year. Particularly with tech companies, product cycles are lengthy and business decisions made early on won’t bear fruit for years. For instance, when AMD first started working on its “Zen” computer processor in 2012, only three of the five highest-earning executives worked for the chipmaker at that time.

He says credit is due to them for sticking around through AMD’s tough years, and for masterminding a successful turnaround for the chipmaker. “You go back five years and ask people: Would you bet on AMD?” Nintey-nine out of 100 would have said ‘no.’”

But as Moorhead put it: “They gambled and won.”


-Data editor Christian McDonald contributed to this report.


HOW WE DID IT

The American-Statesman analyzed SEC insider transaction filings and annual proxy statements by Advanced Micro Devices executives between January 1, 2014 and May 26, 2017.

When valuing stock, the American-Statesman analysis used “vested date,” instead of grant date. Vested date means the stock’s value on the day it is vested or exercised and becomes actual stock owned by the executive.

Often public companies report compensation using a different metric, which is based on the date the stock option or grant was awarded. This is called “grant date,” and typically companies use forecasting models to guess what the value of that stock will be when it converts into full ownership.

When the value of individual trades were calculated, the American-Statesman used the weighted average of the stock on the day of the transaction.

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