REV: SEPTEMBER 15, 2004
RICHARD G. HAMERMESH DAVID KIRON
Managing Segway's Early Development
It was a cold dreary morning on December 20, 1999 as Dean Kamen – inventor, founder and owner of DEKA, a Manchester, New Hampshire R&D company – began his annual speech to his employees. The entire staff had gathered “to hear him talk about the past year, the year ahead, and whatever else had been gnawing at him lately. The speech was usually equal parts lecture, oration, pep talk, and homily, all of it seasoned with wisecracks. After the speech, Dean always called each employee’s name and gave out Christmas bonus checks, along with handshakes for the men and hugs for the women.”1 Bonuses were especially important at DEKA, where engineers worked for below-market salaries and received no stock options. Now Kamen was wondering if he could continue this approach. DEKA had attracted some of the brightest engineers because of Kamen’s allure and DEKA’s cutting edge projects. But for the first time, recruitment and retention were becoming issues. In the midst of the Internet boom, many of the most attractive engineering candidates were looking for positions that offered compensation packages that included stock options and salaries higher than what Kamen was willing to offer. Kamen’s long-time friend and most trusted lieutenant, Mike Ambrogi, had recently accepted a job at Sycamore Networks, which had offered Ambrogi a lucrative compensation package that included stock options. In 1999, DEKA had a difficult year, several projects were canceled or behind schedule, and many of the gathered staff had concerns that these cancellations and delays would diminish, if not eliminate, their bonuses. DEKA employees were also concerned about stock options, which had been promised only to employees on a secret project that many had never seen. Kamen had created a separate company within DEKA to design and manufacture a product that the team had nicknamed “Ginger.”2 Kamen believed both that the new company had a chance to become the fastest growing company in the world  and that stock options were appropriate compensation within such a venture. However, he wondered if it was fair to withhold options from the many other loyal and productive employees who worked at DEKA. After all, many DEKA engineers were responsible for Ginger’s early development.
1 This case draws heavily from Steve Kemper’s Code Name Ginger, Harvard Business School Press, 2003. Page numbers to quoted passages (contained in brackets) all refer to Kemper’s book. 2 The Segway Human Transporter was called Ginger during its development. This case focuses on management issues during
that development period. ____________________________________________________________
Professor Richard G. Hamermesh and Senior Researcher David Kiron, Global Research Group, prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Managing Segway's Early Development
Kamen struggled to find a fair approach to determining everyone’s bonus. DEKA’s bonus pool, which totaled $1 million in 1998, had typically been 15% to 20% of annual revenues and represented about the same percentage of salaries. Kamen considered several...