updated 1/10/2007 7:06:08 PM ET 2007-01-11T00:06:08

Specialty retailer Sharper Image Corp. chopped more than $3 million from the severance pay of recently departed CEO Richard Thalheimer to offset his past windfalls from favorably priced stock options, according to documents filed with securities regulators.

The package, disclosed in a Securities and Exchange Commission filing late last week, includes retirement benefits of $3.9 million and a severance payment of $1.78 million _ below the $5 million minimum guaranteed to Thalheimer under a contract signed in 2002.

Thalheimer, who founded Sharper Image in 1977, stepped down as chief executive officer in September as part of the San Francisco-based company's effort to snap out of a prolonged sales funk.

Although Sharper Image's high-tech gadgets and novelty items have been losing favor among shoppers, the eclectic merchandise apparently still appeals to Thalheimer. He will pay Sharper Image $10,000 to keep two of his office decorations — sculptures of Superman and the C-3PO robot that starred in the "Star Wars" movies. The pieces are being sold at half price, according to the company's filing.

Without providing detail, Sharper Image linked the reduction in Thalheimer's severance payment to an untold number of stock options that made it easier for him to realize hefty gains.

The price for redeeming the stock options was set below the market value of Sharper Image's shares at the time of the award, according to the SEC filing. That method differs from corporate America's standard compensation practices, which typically peg the exercise price of stock options to a stock's market value at the time of the grant.

A Sharper Image spokesman contacted Tuesday declined to comment on Thalheimer's package.

Thalheimer made $4.56 million by exercising a total of 183,500 stock options during Sharper Image's fiscal 2004 and 2005, according to company disclosures for those years.

More than 100 other companies nationwide are involved in investigations into whether their top executives and other employees received favorably priced stock options without proper disclosure.

Most of suspected chicanery revolves around a practice called "backdating" that retroactively sets the price of stock options to an ebb in the stock price to increase the moneymaking opportunities for those who received the awards.

Sharper Image is investigating dating discrepancies in stock options issued after 1997. The company hasn't said whether Thalheimer's stock options are part of its inquiry, which expected to wipe out some of Sharper Image's past profits.

Thalheimer will still have a chance to cash in 608,500 stock options that he held when he resigned as CEO.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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