Wall Street Journal Interview with Heartland\'s CEO

1. April 9, 2007
Sharing the Wealth
At Heartland Payment Systems, CEO Robert O. Carr's goal is to keep
his employees from taking the money and running
By JOANN S. LUBLIN
April 9, 2007; Page R5
Princeton, N.J. -- Most chief executives would gloat about a 20% annual
spurt in new business. But at Heartland Payment Systems Inc., Robert O.
Carr grumbled.
The provider of credit-card processing services had seen new-business volume soar about 30% a year
between 2002 and 2005. So when the rate slowed to 20% in 2006, quot;I wanted to throw up,quot; says Mr. Carr,
Heartland's 61-year-old co-founder, chairman and CEO. quot;We only have 3% of the market. It's
frustrating.quot;
Hoping to revive that tempo, Mr. Carr persuaded fellow
directors to cancel 2007 salaries and bonuses for the six
highest sales executives. The officials' sole reward: a chance
to earn $1 million apiece from commissions. It's the latest in
his series of innovative compensation tactics, partly created to
retain millionaires like them. Many staffers became affluent
because Mr. Carr gave them part of his stake long before
Heartland went public in 2005. And some of those Heartland
millionaires took their money after the IPO and ran.
He expects the company will repeat last year's double-digit gains in net income and revenue this year by
processing $50 billion of transactions for more than 140,000 merchants.
Mr. Carr offered insights into the benefits and drawbacks of sharing wealth with workers during a chat at
corporate headquarters here, where a large mural depicts a skyscraper under construction. The unfinished
tower symbolizes Heartland quot;because we have a long way to go,quot; says Mr. Carr, an unassuming man who
once aspired to be a math teacher. Here are some excerpts from that conversation:
Sharing the Wealth
THE WALL STREET JOURNAL: Why did you abandon academia to launch a computer consultancy
after discovering libertarian philosopher Ayn Rand?
MR. CARR: I was in a mathematics Ph.D. program when somebody told me about quot;Atlas Shrugged.quot; I
read all of her books. I had been brought up to think businesspeople took advantage of workers. Ayn
Rand showed me it was possible to craft a business where you treat everybody with respect and give
them the opportunity to live up to their potential.
WSJ: Why didn't you finish your doctorate?

2. MR. CARR: I was going to get drafted. I took a teaching job at Parkland College, a community college.
I stayed until I was no longer draft-eligible.
I started a consulting firm that morphed over the years from providing services to small-business people.
Some customers wanted to take credit cards at fuel pumps, and that's when my Credit Card Software
Systems Inc. got started. Heartland Payment Systems is basically the same business. [Credit Card
Software Systems was acquired by Heartland Payment Systems, a business created in 1997 that was
50%-owned by Heartland Bank and 50% by Mr. Carr and his Credit Card Software partners.]
WSJ: How did you devise the notion of sharing the fruits of your labor?
MR. CARR: I felt that if I asked somebody to work for me who is going to help me get rich, they ought
to get rich, too. That happened at Heartland.
In 2000, when we bought out [Heartland Bank's half of Heartland Payment Systems], we had revenue of
about $203 million. I owned 100%. Our survival was highly at risk. I gave about one-third of the
company to top-level people and hourly workers with more than two years' seniority.
Everyone was quite appreciative. I figured owning 30% less
wasn't really a big sacrifice. These people deserved to share in
the wealth if we were able to make this into what I thought we
could.
WSJ: How many stock recipients from 2000 still work here?
MR. CARR: Of those 221, 58 left the next year because of the
company's financial problems. Today, 109 still work for
Heartland.
WORK IN PROGRESS Robert Carr has to
WSJ: You presently own about 10.6 million shares, equal to
motivate multimillionaires
27% of Heartland's stock outstanding. What's your net worth?
MR. CARR: My stake is worth north of $200 million [at last week's closing price of $24.55 a share].
I was a guy who struggled to pay bills 10 years ago. This wealth has given me a new job -- custodian of
funds that I want to disseminate in my lifetime in the most useful way possible to the most people. We
have trusts for our six kids. Everything else we are going to give away. We are focused on helping
disadvantaged kids get a great education.
WSJ: Speaking of shared wealth, when Heartland went public in August 2005, staffers held such a
significant stake that dozens quickly became millionaires. How did that happen?
MR. CARR: From 2000 until we became a public company, we [gave] stock options to employees.
Every full-time hourly and salaried employee gets options when they have been with the company for
two years.
Prior to the IPO, our salespeople had a separate program called Pep Shares -- an amazing way to
distribute wealth. Pep Shares allowed all the salespeople to earn options from accumulated commissions.
When we went public, 63 of our 1,510 employees became millionaires. That includes people who got
stock in 2000 [or] options along the way. We now [have] 75 employee millionaires out of 2,026 people.
WSJ: How soon could staffers exercise their options and collect their $1 million?

3. Sharing the Wealth - WSJ.com http://online.wsj.com/article_print/SB117580163094361226.html
MR. CARR: In January 2006. Of the 63, we lost 14. One died. Seven left after cashing in their options.
Six were terminated.
WSJ: Were they no longer interested in working?
MR. CARR: You got it figured out.
WSJ: Because your share price has risen since the IPO, how many of those remaining became
multimillionaires?
MR. CARR: Probably half are now worth $2 million or more.
WSJ: How do you motivate multimillionaires?
MR. CARR: That's the $64 million question. You work really hard to maintain an environment where
people love getting up in the morning thinking they are doing important work. We think we are.
WSJ: You try to treat employees well in other ways. Tell me more, for instance, about your fresh lunch
salads for call-center workers in Jeffersonville, Ind.
MR. CARR: We started the Heartland Losers Club in July 2006 because health-insurance costs are
going up rapidly. We wanted to [encourage] people to stop smoking and lose excess weight. We formed a
fitness center. Then we started our free salad program and smoking-cessation program. We renamed it
the Heartland Fitness Club because people didn't like being called losers.
We lost 8,800 pounds in the first six months among 450 people. We had 23 of those people stop smoking.
We ended that free salad program in January. People were eating salads and going to Taco Bell, defeating
the purpose. People who weren't getting free salad said it was not fair for others to get salads because
they were fat.
Well-Paid Salespeople
WSJ: I understand you also offer your 1,400 salespeople an unusual compensation program. Paid
purely on commission, they earn more than 90% of an account's gross margin during the first year and
then collect residual commissions.
MR. CARR: That program has been in place since 1994. We invented that concept in our industry. We
pay out the first year of profit margin to our sales organization. We don't start making money on a new
account until the 14th month.
We want our salespeople to not rip off merchants by forcing them to buy equipment they don't need.
[Because most of Heartland's revenue comes from processing, equipment commissions are tiny by
comparison.] We pay our salespeople to sign up an account out of our money. They don't have to sell or
lease unnecessary equipment -- which is the model of our competitors. They build wealth by building up
a big portfolio of customers that do a lot of processing. This residual income stream is what they so
highly value.
WSJ: Seven other Heartland staffers earn more than you. Who are they?
MR. CARR: All salespeople. I wish every salesperson made more than me.
WSJ: If you didn't own a roughly 27% stake, would making less money than colleagues bother you?
3 of 5 4/9/2007 7:49 AM

4. Sharing the Wealth - WSJ.com http://online.wsj.com/article_print/SB117580163094361226.html
MR. CARR: Probably. My dividend income this year is going to be $2 million.
WSJ: So why do you take any cash compensation?
MR. CARR: I feel I should be the highest-paid noncommissioned person in the company. I work hard,
and I earn it.
WSJ: How does Heartland benefit when you share wealth, employ multimillionaires and get paid less
than certain associates?
MR. CARR: The company had the most successful IPO in the history of the financial-services industry.
We were 21 times oversubscribed. The company continues to be the fastest growing in our industry.
WSJ: But you recently missed earnings expectations.
MR. CARR: It is harder to grow from 140,000 merchants than from 2,000.
WSJ: Has your pay philosophy affected turnover?
MR. CARR: Historically, we have had very low turnover [among] people with us for over a year. But
last year, it was 19.9%! This was a result of 15 millionaires and 12 others with six figures of wealth who
were able to take their profits and move on.
Bringing Up the Rear
WSJ: How might you excite staffers again like you did when you handed out a third of your shares?
MR. CARR: I am now focused on bringing up the lowest-paid people to a better wage. I like the way
Ben & Jerry's used to cap executive pay at seven times the salary of the lowest-paid worker.
WSJ: How much higher is your base pay than Heartland's lowest-paid employee?
MR. CARR: My base is $350,000, 14 times hourly workers' starting pay. I think I will be successful in
getting that to 12 by the end of this year. I [raised] the starting wage for service-center hourly workers to
$12.50 last year from $9.50.
I am hoping it is going to $15 by the end of this year. I have given the service center an incentive to
continue to improve retention of customers. As our retention improves, the minimum wage gets raised.
WSJ: Why lower the multiple?
MR. CARR: It is my sense of fair play. The CEO is not more than 12 times more important than an
unskilled worker.
WSJ: How will this improve Heartland's ability to attract talent?
MR. CARR: Starting pay in Jeffersonville could be $31,000 a year. That catches everybody's attention.
They don't care what the CEO makes. They do care what they make.
WSJ: But a lower multiple doesn't hurt someone collecting $2 million in annual dividends.
MR. CARR: I am not saying it is a sacrifice. The company earns more if you hire people at $9.50 an
hour. But you should be able to afford people a living wage.
4 of 5 4/9/2007 7:49 AM

5. Sharing the Wealth - WSJ.com http://online.wsj.com/article_print/SB117580163094361226.html
If you are willing to work your butt off, we are going to do the best we can to treat you as well as we
possibly can afford to treat you.
Write to Joann S. Lublin at joann.lublin@wsj.com5
URL for this article:
http://online.wsj.com/article/SB117580163094361226.html
Hyperlinks in this Article:
(1) http://online.wsj.com/page/2_1290.html
(2) http://online.wsj.com/article/SB117580155810661218.html
(3) http://online.wsj.com/article/SB117580158229361224.html
(4) http://online.wsj.com/page/2_1290.html
(5) mailto:joann.lublin@wsj.com
Copyright 2007 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our
Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones
Reprints at 1-800-843-0008 or visit www.djreprints.com.
5 of 5 4/9/2007 7:49 AM