First Solar's New CEO High Compensation Package (FSLR, HON, GE)

We previously noted how First Solar, Inc. (NASDAQ: FSLR) had scored on its new CEO.  Robert J. Gillette is coming out of Honeywell International Inc. (NYSE: HON) to take over for founder Michael Ahearn and gets a seat on the board of directors.  An SEC filing last night showed that Mr. Gillette is coming on board with a very high compensation package.  Considering he was CEO of Honeywell Aerospace, you know there was no way he’d be coming over on the cheap.  But now in the world of picking over pay at financial institutions, we want to highlight the package at America’s #1 independent solar player.  We are not compensation bashers, but we want to see if the have-nots and disparaged in America complain about about a high pay package for an alternative energy leader.  That is for you to decide after looking at the package here.

For starters, Gillette takes over effective October 1, 2009. The Honeywell unit he ran was its largest business group with current sales of more than $12 billion annually.  He led Honeywell Aerospace’s three main businesses-Air Transport & Regional, Business & General Aviation, and Defense & Space-with more than 40,000 associates at nearly 100 worldwide manufacturing and service sites. Before that, Gillette was President and CEO of Honeywell Transportation Systems since July 2001, and was an executive at General Electric Co. (NYSE: GE)..  Gillette holds a bachelor’s of science degree in Finance from Indiana University.

Gillette’s salary does not seem high on the surface until after you start looking through the details.  He will get an annual base salary of $850,000.00 that is subject to annual increases at the company’s discretion. His annual bonus will be determined each year by the Board’s Compensation Committee… his target bonus opportunity for each of fiscal years 2009 and 2010 will be 100% of his annual salary and his annual bonus for fiscal year 2009 will be at least $850,000 without proration and will be subject to upward adjustment based on performance.

For fiscal 2009 and 2010 Gillette will get annual restricted stock unit awards under the 2006 Omnibus Incentive Compensation Plan or the successor to such plan with an annual grant date value of $5,000,000.  The company says that this is consistent with First Solar’s practices for other senior executives. Mr. Gillette will not receive any compensation in connection with his service as a member of First Solar’s Board of Directors.

First Solar will compensate Gillette for amounts forfeited with Honeywell with the following initial equity grants and cash payments:

• He will be paid a sign-on bonus of $5,000,000 in cash, 50% to be paid as soon as practicable after his start date and no later than 15 days after his start date, with the other 50% to be paid in a year regardless of whether Mr. Gillette remains employed with First Solar through the applicable payment date.
• Granted fully vested First Solar shares valued on the grant date of $3,250,000;
• Fully vested First Solar stock options with an aggregate Black-Scholes value on the grant date of $3,250,000.00; Restricted stock units with an aggregate fair market value on the grant date of $6,500,000.00, subject to cliff-vesting on the second anniversary of the grant date with no early acceleration triggers other than change in control.

Gillette will also be eligible to participate in First Solar’s standard employee benefit programs and will be entitled to benefits and perquisites consistent with those provided to other senior executives of First Solar.

In the event of a termination of employment by First Solar without cause outside the change in control protection period, Gillette will receive cash severance equal to two times his annual salary, subject to delivery of a release of claims, as well as medical coverage for 24 months.

If Gillette is terminated without cause or due to his death or disability outside the change in control protection period, then other than with respect to the initial RSUs which do not provide for accelerated vesting, any equity award (or portion thereof) that would have vested or become exercisable by its terms within 12 months following the date of Mr. Gillette’s termination of employment (assuming he continued to perform services for such 12-month period) will become vested or exercisable as of the date of his termination of employment.

Mr. Gillette has also entered into a separate confidentiality and intellectual property agreement and a non-competition and non-solicitation agreement… for a period of two years thereafter.  An additional term of pay is listed below.

The interesting notion on ‘subject to performance’ is that Gillette is taking the CEO role at a time when solar is having its most difficult period.  Capacity has risen from solar PV cell manufacturers, while demand growth has tapered off and while the cost per watt is going down and is expected to fall further.  Throw in customers and prospects who develop alligator arms when it comes time to write new checks and throw in a scenario where energy prices are still half of the peak prices, and you have a very challenging situation.

Again, we are not compensation bashers.  But many are and it will be interesting to see what the critics of all Wall Street compensation levels will have to say about the high compensation here for Mr. Gillette.  As far as we know, all solar and alternative energy players have sought subsidies or stimulus funds from Uncle Sam and other aid from local and state governments when and where possible.   Back in March, there was an article noting how First Solar had hired a lobbyist to ‘grab bailout dough’….

As set forth in the Change in Control Severance Agreement, in the event of a termination of Mr. Gillette’s employment by First Solar without cause or by Mr. Gillette for good reason within the two years following a change in control (or prior to a change in control at the request of the third party effecting the change in control), such period the “change in control protection period”, Mr. Gillette will receive (i) a prorated target bonus (or if higher a prorated bonus based on the average bonuses paid to Mr. Gillette over the 3 years preceding the change in control), (ii) cash severance equal to two times the sum of his annual salary and bonus, (iii) continued health and welfare benefits for 18 months,
(iv) up to $20,000 in expenses for outplacement services, subject to delivery of a release of claims, and (v) full vesting of all of his equity awards. In addition, the Company will provide a tax gross up for parachute excise taxes unless it is determined that payments to Mr. Gillette do not exceed 110% of the amount that could be paid to him without incurring such excise taxes (a “safe harbor amount”), in which case payments shall be reduced to the safe harbor amount.

If you think this is high, Michael Ahearn became a billionaire off of First Solar’s massive rise from 2006 to 2008.  Whether he still holds that three-comma net worth status is not known because the filing dates are a while back and now he is stepping down from the CEO role.

JON C. OGG