While investors and analysts are still debating the ultimate benefits of Sprint Nextel Corp.'s high-stakes bet on the iPhone, the carrier's board has decided that bonuses for Chief Executive Dan Hesse and other employees won't suffer as a result.
Sprint said in a regulatory filing Monday that it won't count the impact of the iPhone on the company's profits in calculating employee bonuses. The company also won't count a benefit to the company's books from a network-sharing deal with start-up wireless carrier LightSquared, though that deal is stalled while Lightsquared tries to resolve concerns its network would interfere with global-positioning systems.
The decision had the effect of boosting Hesse's short-term incentive payout to $1.77 million for 2011 from the $1.53 million he would have earned had the iPhone's impact been counted. In addition, the payout under Hesse's long-term incentive plan for the year rose to 106.5% from 91.5% of the target.
A Sprint spokesman, Scott Sloat, said the changes were warranted because the company didn't know it would be carrying Apple Inc.'s iPhone or have a deal with LightSquared when performance metrics were put in place early last year. Sloat said a broad range of employees were eligible for the short-term compensation plan. Excluding the iPhone helped the bonus calculations, because they are based partly on Sprint's operating income or cash flow.
The tweaks to Sprint bonuses are the latest indicator of how Apple's wildly popular handset has affected the business of the nation's wireless carriers. Sprint, of Overland Park, Kan., the third-largest wireless carrier in the U.S., spelled out the magnitude of its bet on the iPhone in late October, saying it will cost at least $15.5 billion over four years, limiting its ability to turn a profit over that time.
While Sprint expects iPhone customers ultimately to be more profitable than those using other smartphones, the cost to bring them aboard will be 40% higher. As a result, Sprint said the sale of the iPhone itself won't be profitable for the company until 2015.
Last week, Sprint reported a wider, $1.3 billion fourth-quarter loss, due in part to the high cost of selling the iPhone for the first time. Sprint said it sold 1.8 million iPhones in last year's final three months, about 720,000 of which went to new customers. But that boosted Sprint's subsidy expenses, the discounts it offers customers in exchange for a two-year contract, by $540 million from a year earlier to about $1.7 billion.
Sprint felt it had no choice but to pay up for the iPhone if it is to compete for lucrative contract customers with rivals AT&T Inc. and Verizon Wireless. The carrier said it sold more iPhones in the fourth quarter than it had expected, but still lagged behind AT&T and Verizon Wireless, which reported fourth-quarter iPhone sales of 7.6 million and 4.3 million, respectively.
Sprint gained two cents a share, to $2.31, in 4 p.m. New York Stock Exchange trading on Monday.
This story first appeared on WSJ.com.
Write to Anton Troianovski at anton.troianovski@wsj.com
