If only it really were all about lefty journalists and opportunistic politicians, P&G might have an easier time integrating Gillette. Trouble is, plenty of people in Wall Street, executive suites, boardrooms and cubicles have taken note of Mr. Kilts' pay, too. It's a sign of a cultural gulf separating the companies that could spell trouble.
Of course, Mr. Kilts made some good points. Secretary of State William Galvin's accusations that the deal shortchanged shareholders was based on a shaky premise. If Gillette was worth more, no one emerged to pay it. Unlike CEOs who collect eight-figure parting gifts for failure, Mr. Kilts delivered for shareholders.
And did they ever deliver for him.
Mr. Kilts and other top executives at Gillette will collect generous change-of-control prizes whether they go or stay. He agreed to join P&G for a year as vice chairman for an estimated $20 million. But it's a comedown from the $28.3 million Mr. Kilts made last year, $24 million from options.
Ed DeGraan, Gillette's vice chairman, made $4.9 million last year, more than any of P&G's four vice chairmen, all of whom run businesses bigger than Gillette. Gillette's top five executives made about $5 million more total than P&G's, despite running a business less than a fifth the size, mainly thanks to Mr. Kilts.
The compensation issue appeared to figure heavily in Mr. Kilts' wheeling and dealing. Talks first to merge with, then acquire, an unnamed competitor-widely known to be Colgate-Palmolive Co.-failed in 2002 and 2004, according to Gillette's proxy statement. "Cultural issues," i.e. Mr. Kilts' pay, were likely a key sticking point, said one person close to the companies. Colgate Chairman-CEO Reuben Mark is neither a saint nor a pauper but is a Colgate lifer who led one of the industry's biggest success stories without making a Kiltsian fortune.
"Don't think [Mr. Kilts' pay] wasn't an issue for P&G's board, either," said the person familiar with the deal. Indeed, the proxy statement shows it was the last thing agreed upon, less than a day before the announcement.
"Walking away would have been fine with me," Mr. Kilts said in his speech. But P&G was willing to pay to keep him a year, his stock off the market for 18 months after that and him away from rivals another 18 months.
Another person familiar with the companies sees pay disparities as a key problem. Consider the market forces on a hire-from-without company in Boston vs. a promote-from-within one in Cincinnati with questionable outside demand for its senior talent.
Mr. Kilts, of course, is the poster child for that disparity. So he was probably right when he told The Wall Street Journal in January: "I don't think it would be productive to talk about my pay."