$80 Million Pay Deal to be Scrutinized by PartyGaming Investors

2007 January 05, Jonny Vincent

Following PartyGaming's decision to withdraw from the US market after the UIGEA passed through Congress, employees of the company were faced with the loss of yet-to-be-realized bonuses linked to performance targets.

Ostensibly to prevent their top employees from leaving, and also to compensate them for the situation they found themselves in, the PartyGaming founders stepped in with an $80 billion pay deal.

Interestingly though, the money is not coming from the company's coffers – but rather from the share holdings of founders Ruth Parasol, Russell DeLeon and Anurag Dikshit. Between them, these founders received almost $2 billion when the giant online gambling company was floated on the London Stock Exchange in 2005.

PartyGaming (parent company of Party Casino and Party Poker) floated at 116p in 2005, but are now trading at 36p following the UIGEA and the subsequent decision by the PartyGaming board to withdraw from the US market. The company has recovered somewhat since the shock withdrawal, showing strong performance in Europe and impressing shareholders with their interest in the Asian gambling market. Things looked very bleak for the company in recent months however, with the share price dropping under 26p at one stage.

The pay deal to the top executives of the company appeared to be rushed in to stop key staff from leaving the beleaguered online gambling firm. Despite this, some of PartyGaming's larger investors have apparently decided to scrutinize the pay deal for breaches of corporate governance codes.

Under the terms of the new pay deal, chief executive Mitch Garber will receive almost $40 million as long as he remains with the company until 2009. Finance director Martin Weigold will get over $10 million if he stays until the end of 2008. Another $30 million will be divided up between other employees.

The reason PartyGaming's larger investors are interested in the pay deal is that the rewards for top employees are not linked to future share price or performance of the company. Investors usually demand that executive remuneration packages be linked to one of the two.

Investors concerned by the new pay deal will need to consider that while the scheme breaches usual practice by having no links to future performance, it should not dilute shareholder value as the funds are being provided by the founders of the company, rather than the company itself.

One industry analyst had an interesting spin on the new pay deal, hypothesizing that, if PartyGaming returns to the US market, the large bonuses may be a form of compensation or payment to retain key staff who might then feel uncomfortable traveling to the US. This is an abstract theory, moreso taking into account that a PartyGaming spokesman confirmed last week that the former online gambling industry leader had no plans to re-enter the US market.