BlackBerry's Chen Is the Right Guy, but at the Wrong Price

Turning around a company, any company, that's undergone the trials and tribulations that BlackBerry has is a tall order. Declining market share, underwhelming sales of new devices, and mounting competition mean incoming CEO John Chen faces a monumental task.

Chen's background would appear to be ideally suited for the challenge he's about to face, and that's great for BlackBerry bulls. But even with his pedigree -- what he accomplished after taking the reins at Sybase was nothing short of spectacular -- it's difficult to reconcile Chen's staggering compensation package with the BlackBerry of today.

BlackBerry's woes
The steady decline of BlackBerry's OS market share continued last quarter, despite a host of newly released phones. Not long ago the notion that Microsoft's Windows Phone OS would actually catch on seemed wildly optimistic, even for the most ardent of fans. However, according to the latest data from analytics firm IDC, Windows Phone has rocketed past BlackBerry.

As of the end of the third quarter of 2013, Windows Phone shipped more than twice the number of units globally than BlackBerry. Last year at this time, BlackBerry sat in third -- behind the usual suspects, Android and Apple iOS -- with 4.1% of the worldwide smartphone OS pie, while Windows Phone owned a meager 2% share. The third quarter of this year is a stark reminder of just how far BlackBerry has fallen.

With 9.5 million units shipped in 2013's third quarter and 3.6% market share, Windows Phone has firmly established itself as the world's third most popular OS. BlackBerry? The folks in Waterloo moved 4.5 million smartphones in the same period, down from last year's 7.7 million. At 1.7%, BlackBerry's latest OS, BB10, is hardly making a dent.

In addition to its disappearing market share, one of BlackBerry's saving graces -- its strong cash position coupled with no debt -- is no longer worth bragging about. Last quarter alone BlackBerry ate through about $500 million to keep the lights on, and you can expect that trend to continue when it announces fiscal third-quarter results on Dec. 20, 2013.

As for its lack of debt, that's about to change, too. Some saw BlackBerry's $1 billion debentures agreement with former suitor Fairfax Financial and friends as a sign of confidence. But when you consider the way BlackBerry's burning through its cash, the debentures look more like a lifeline than an act of faith.

All of this makes Chen's job a mighty one and, like any good CEO with an outstanding track record and a daunting task in front of him, he deserves to get paid handsomely. But when is enough, enough?

Chen, the $100 million man
Chen certainly negotiated himself a sweet deal, which is valued today at $87 million. Most of Chen's pay comes in the form of restricted BlackBerry stock -- 13 million shares -- that will vest over the next five years. Chen can sell 25% after the third year, another 25% after the fourth, and then the balance becomes vested after his fifth year.

In addition to the stock, Chen will collect a $1 million base salary and a $2 million performance bonus. A compensation package consisting primarily of stock makes sense, of course, as now Chen certainly has an incentive to get BlackBerry up and running again. But when you add it all up and get $87 million, not to mention the additional $3 million per year (salary and bonus) over the next four years, Chen becomes a $100 million man overnight. And that's assuming no other stock is awarded nor pay is increased.

Chen's stint at Sybase put him on the map, and deservedly so. He saw the potential in mobile and smartphones, and positioned Sybase to take advantage of it. By the time Sybase was acquired by SAP in 2010 for $5.8 billion, Chen had increased the company's value over six times. Obviously, that's what BlackBerry fans are hoping for.

Desperate times require desperate measures, but considering the financial position BlackBerry has found itself in, and the likelihood of continued deterioration, Chen's pay package doesn't sit well. And based on its flat stock price since announcing the debentures, management changes, and Chen's compensation on Nov. 4, BlackBerry shareholders don't appear to be too comfortable, either.

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