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O.C. BUSINESS PLUS

Ailing EMachines Finds Millions for Former, New CEOs

Compensation: On verge of delisting by Nasdaq, the Irvine company becomes the latest to bet big on a turnaround specialist.

March 14, 2001|KAREN ALEXANDER | TIMES STAFF WRITER

These are tough times at EMachines, unless you're at the top.

The struggling Irvine computer vendor lost $129 million in the last quarter as revenue slumped 56%. Its stock has not traded above $1 for months, and the company has been warned that it could be removed from the Nasdaq stock market if the situation does not improve.

Nonetheless, the company agreed to pay its new chief executive a compensation package worth nearly $3 million this year, and will shell out $1.6 million in severance to its departed leader over the next several months, according to documents filed recently with the Securities and Exchange Commission.

Wayne R. Inouye, 48, who became EMachines' president and chief executive March 5, will receive a $2.36-million signing bonus within a month, in addition to an annual salary of $480,000 and 4 million stock options.

After two years he will be entitled to a bonus of $1 million, at which time Inouye has agreed to step aside and serve as a special advisor to the company.

His predecessor, Stephen A. Dukker, who departed after unspecified disputes with the company, will continue to receive his salary through mid-September, in addition to the severance.

EMachines refused to comment and Dukker, one of the company's founders, could not be reached for comment. But Inouye's compensation package reflects a heavy demand for experienced executives, particularly at companies that are struggling to survive, compensation experts said.

Before joining EMachines, Inouye had been senior vice president of computer merchandising for Best Buy Co. since 1995.

Indeed, executives sometimes receive premium compensation for signing on with struggling companies because of the perceived risk they are taking, said Elliot Gordon, managing director of executive recruiting firm Korn/Ferry International's Newport Beach office.

Top executives also can command hefty compensation if they are perceived to bring value to the company, Gordon said.

"If a CEO does the job well, their compensation is usually small in relationship to their impact on the company," he said. "It may cost a couple of million dollars upfront, but the board is likely looking forward to the CEO having a multimillion-dollar impact on the company."

In the case of EMachines, the risks are high.

EMachines was founded in 1998, supplying low-end, low-cost home computers. By June 1999, it had become the third-largest seller of desktop PCs to U.S. retail stores. But its margin on sales was minuscule, leaving the company ill-equipped to weather the industry's current slowdown.

While the company generated revenue of $685 million last year, its losses grew to $221 million.

EMachines shares closed unchanged Tuesday at 31 cents. If the stock doesn't surge beyond $1 by March 20, the company faces removal from the Nasdaq stock market.

The company has said it may seek a review of the decision, or could apply for listing on another stock market. Adams, the company spokeswoman, had no further comment Tuesday.

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