<PAGE>
 
                                                                  Exhibit 10.5.2

                        EXECUTIVE EMPLOYMENT AGREEMENT
                        ------------------------------

     This Agreement made and entered into as of January 1, 1998 (the "Effective
Date") by and between PACIFIC GATEWAY EXCHANGE (the "Company") and GAIL GRANTON
(the "Executive"),

                                 WITNESSETH THAT:
                                 --------------- 

     WHEREAS, the parties desire to enter into this Agreement pertaining to the
continued employment of the Executive by the Company;

     NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Company and the Executive
as follows:

     1.  Employment Period.  Subject to the terms and conditions of this
         -----------------                                              
Agreement, the Company hereby agrees to employ the Executive during the
Employment Period (as defined below) and the Executive hereby agrees to remain
in the employ of the Company and to provide services during the Employment
Period in accordance with this Agreement.  The "Employment Period" shall be the
period beginning on the Effective Date and ending on the third anniversary
thereof.  After the third anniversary of the Effective Date, the Employment
Period shall be automatically extended for 12-month periods, unless one party to
this Agreement provides written notice of non-renewal to the other at least 90
days before the last day of the Employment Period.

     2.  Duties.
         ------ 

(a)  Subject to the terms of this Agreement, the Company hereby agrees to employ
     the Executive as its Executive Vice President, International Business
     Development during the Employment Period, and the Executive hereby agrees
     to remain in the employ of the Company during the Employment Period.
     During the Employment Period, while the Executive is employed by the
     Company, the Executive shall devote substantially all of her business time,
     energies and talents to serving as its Executive Vice President,
     International Business Development.  The Executive agrees that she shall
     perform her duties faithfully and efficiently subject to the directions of
     the President of the Company (the "President").  The Executive will have
     such authority and power as are inherent to the undertakings applicable to
     her positions and necessary to carry out her responsibilities and the
     duties required of her hereunder.
<PAGE>
 
(b)  Except as set forth in paragraph 2(c), during the Employment Period,
     Executive will not render services to any other person or entity, for
     compensation or otherwise, without the prior written consent of the Board,
     and Executive will not engage in any activity which conflicts or interferes
     in any material way with the performance of the duties and responsibilities
     of her position with the Company.  During her employment with the Company,
     Executive will not, either as an employee, employer, consultant,
     independent contractor, agent, principal, partner, stockholder or in any
     other individual or representative capacity, engage or participate in any
     employment, consulting, business or other activity that is in competition
     in any manner with the business of the Company.

(c)  Notwithstanding paragraph 2(a), Executive may devote a reasonable amount of
     personal time to the supervision of her personal investments which may
     include securities of Matrix Telecom, Pacific Telecom America and passive
     investments of up to 1% of the outstanding securities of any public
     company; and activities involving professional, charitable, civic,
     educational, religious and similar activities and engagements, to the
     extent that such activities do not conflict or interfere in any material
     way with her duties and responsibilities to the Company.

     3.  Compensation.  Subject to the terms and conditions of this Agreement,
         ------------                                                         
during the Employment Period while the Executive is employed by the Company, the
Company shall compensate her for her services as follows:

     (a)  The Executive shall receive, for each 12-consecutive month period
          beginning on the Effective Date and each anniversary thereof, an
          annual salary of $200,000 (the "Salary"), which Salary shall be
          payable in substantially equal monthly installments.  The Executive's
          Salary rate shall be reviewed annually on or about the anniversary of
          the Effective Date, to determine whether an increase in the amount of
          Salary is appropriate.  In no event shall the Salary of the Executive
          be reduced to an amount that is less than the amount specified in this
          paragraph (a), or to an amount that is less than the amount that she
          was previously receiving.

     (b)  The Executive shall be entitled to incentive compensation in the form
          of a target annual cash bonus of $100,000.  The amount of such bonus,
          if any, shall be determined by the President taking into consideration
          whether the 
<PAGE>
 
          Executive has met the performance targets that may have been set by
          the President for such year, the relative contribution by the
          Executive to the business of the Company, general economic conditions,
          and such other factors as the President deems relevant.
          Notwithstanding the foregoing, the President may award additional
          bonus amounts in recognition of outstanding performance.

     (c)  Except as otherwise specifically provided to the contrary in this
          Agreement, the Executive shall be provided with the retirement,
          welfare benefits and other fringe benefits to the same extent and on
          the same terms as those benefits are provided by the Company from time
          to time to the Company's other senior management employees.  During
          the term of this Agreement, the Executive shall be provided with four
          weeks paid vacation annually.

     (d)  The Executive shall be reimbursed by the Company, on terms and
          conditions that are substantially similar to those that apply to other
          similarly situated senior management employees of the Company, for
          reasonable expenses for entertainment, travel, meals, lodging and
          similar items which are authorized by the Company and actually
          incurred by the Executive in the promotion of the Company's business.

     (e)  The Executive may elect to defer the receipt of all or part of any
          bonus payable under paragraph 3(b) in accordance with the terms of a
          deferred compensation plan to be established by the Compensation
          Committee.  Under such deferred compensation plan the deferred bonus
          amounts will be converted to stock units, based on the value of the
          Company's stock on the date the bonus would otherwise have been paid.
          Such stock units will be credited to a bookkeeping account maintained
          by the Company and shall be fully vested at all times.  Additional
          stock units shall also be credited to the Executive's account in an
          amount equal to 25% of the amount of the deferred bonus, and such
          additional stock units shall vest 50% one year after initial crediting
          and the remaining 50% shall vest two years after initial crediting.
          If dividends are paid on shares of the Company's stock while any stock
          units are credited to the Executive's bookkeeping account, dividend
          equivalents will be credited to the Executive's account as additional
          stock units subject to the same vesting provisions as the stock units
          on which such dividend equivalents are based.

                                      -3-
<PAGE>
 
     4.  Rights and Payments Upon Termination or Change in Control.  The
         ---------------------------------------------------------      
Executive's right to benefits and payments, if any, for periods after the date
on which her employment with the Company terminates for any reason (her
"Termination Date") shall be determined in accordance with this Section 4:

     (a)  Minimum Payments.  If the Executive's Termination Date occurs during
          ----------------                                                    
          the Employment Period for any reason, the Executive shall be entitled
          to the following payments, in addition to any payments or benefits to
          which the Executive may be entitled under the following provisions of
          this Section 4 (other than this paragraph (a)):

          (i)     her earned but unpaid Salary for the period ending on her
                  Termination Date; and

          (ii)    her accrued but unpaid vacation pay for the period ending with
                  her Termination Date, as determined in accordance with the
                  Company's policy as in effect from time to time.

          Payments to be made to the Executive pursuant to this paragraph 4(a)
          shall be made in a lump sum as soon as practicable after the
          Executive's Termination Date.  Except as may be otherwise expressly
          provided to the contrary in this Agreement, nothing in this Agreement
          shall be construed as requiring the Executive to be treated as
          employed by the Company following her Termination Date for purposes of
          any employee benefit plan or arrangement in which she may participate
          at such time.

     (b)  Termination By Company for Cause.  If the Executive's Termination Date
          --------------------------------                                      
          occurs during the Employment Period and is a result of the Company's
          termination of the Executive's employment on account of Cause (as
          defined in paragraph (f) below), then, except as agreed in writing
          between the Executive and the Company, the Executive shall have no
          right to future payments or benefits under this Agreement (and the
          Company shall have no obligation to make any such future payments or
          provide any such future benefits) for periods after the Executive's
          Termination Date.

     (c)  Termination for Death or Disability.  If the Executive's Termination
          -----------------------------------                                 
          Date occurs during the Employment Period on account of the Executive's
          death or disability (as defined below), then the Executive (or in the
          event of her 

                                      -4-
<PAGE>
 
          death, her estate) shall be entitled to continuing payments of her
          Salary for the period commencing on her Termination Date and ending on
          the earliest of (i) 30 days from her Termination Date, (ii) the last
          day of the Employment Period, or (iii) in the case of the Executive's
          disability, the date on which the Executive violates the provisions of
          Section 7 of this Agreement.

     (d)  Termination for Good Reason or by the Company for Reasons Other Than
          --------------------------------------------------------------------
          Cause.  If the Executive's Termination Date occurs during the
          -----                                                        
          Employment Period and before the date of a Change in Control (as
          defined in Exhibit A hereto), and is a result of the Executive's
          termination of employment by the Company for any reason other than
          Cause or on account of termination by the Executive for Good Reason
          (as defined in paragraph (f)), and is not on account of the
          Executive's death, disability, or voluntary resignation, the mutual
          agreement of the parties or any other reason, then:

          (A)  The Executive shall receive from the Company for the period
          commencing on her Termination Date and ending on the earliest of (i)
          the 18-month anniversary of her Termination Date, (ii) the date on
          which the Executive violates the provisions of Section 7 of this
          Agreement, or (iii) the date of the Executive's death, the Salary in
          effect as of her Termination Date (without regard to any reduction in
          such Salary which gives the Executive the right to termination
          employment for Good Reason), payable in accordance with the provisions
          of paragraph 3(a).

          (B)  Stock options awarded to the Executive under any option plans of
          the Company shall be 100% vested upon the occurrence of the
          Executive's Termination Date as described in this paragraph (d) and
          shall be exercisable for the period after the Termination Date as
          specified for vested options in the applicable option agreement.

     (e)  Termination for Voluntary Resignation, Mutual Agreement or Other
          ----------------------------------------------------------------
          Reasons.  If the Executive's Termination Date occurs during the
          -------                                                        
          Employment Period on account of her voluntary resignation, mutual
          agreement of the parties, or any reason other than those specified in
          paragraphs (b), (c) or (d) above then, except as agreed in writing
          between the Executive and the Company, the Executive shall have no
          right to future payments or benefits under this Agreement (and the
          Company shall 

                                      -5-
<PAGE>
 
          have no obligation to make any such future payments or provide any
          such future benefits) for periods after the Executive's Termination
          Date.

     (f)  Payment Upon a Change in Control. In the event of a Change in Control
          --------------------------------                                     
          (as defined in Exhibit A hereto), the Executive shall receive from the
          Company (without regard to whether the Executive's Termination Date
          occurs in connection with such Change in Control) a lump sum payment
          equal to the amount that would have been payable to the Executive
          pursuant to paragraph (d) next above had the Executive's employment
          with the Company been terminated as of the date of the Change in
          Control under circumstances that would have entitled the Executive to
          payments under paragraph (d) next above.  In the event the Executive
          receive a payment pursuant to this paragraph (f), then upon the
          Executive's subsequent termination of employment with the Company for
          any reason, the Executive shall have no right to future payments or
          benefits under this Agreement (and the Company shall have no
          obligation to make any such future payments or provide any such future
          benefits) for periods after the Executive's Termination Date.

     (g)  Non-Renewal of Agreement.  In the event that this Agreement is not
          ------------------------                                          
          renewed at the end of the Employment Period, any stock options
          outstanding and unvested at the end of the Employment Period shall
          fully vest and shall be exercisable for the period of time after the
          Employment Period as specified for vested options in the applicable
          option agreement.

     (h)  Definitions.  For purposes of this Agreement:
          -----------                                  

          (i)  the term "Cause" shall mean (1) the willful and continued failure
               by the Executive to substantially perform her duties under this
               Agreement, other than by reason of her being disabled (as defined
               below) for which the Executive must receive at least two prior
               written notices from the President, describing specific
               reasonable duties or tasks, identifying the perceived failure to
               perform, and giving the Executive a good faith opportunity to
               satisfactorily perform those duties or tasks within a reasonable
               period of time, (2) the willful engaging by the Executive in
               conduct which is demonstrably and materially injurious to the
               Company or its affiliates, (3) conduct by the Executive that
               involves theft or fraud or, in connection with her duties under
               this Agreement, dishonesty, 

                                      -6-
<PAGE>
 
               (4) Executive's violation of the provisions of Section 7 hereof,
               or (5) conviction of felony involving moral turpitude;

          (ii)  no act, or failure to act, on the Executive's part shall be
                deemed "willful" unless done, or omitted to be done, by the
                Executive not in good faith and without reasonable belief that
                the Executive's action or omission was in the best interest of
                the Company;

          (iii) the term "disability" shall mean the inability of the Executive,
                after reasonable accommodation, to continue to perform her
                duties under this Agreement on a full-time basis as a result of
                mental or physical illness, sickness or injury for a period of
                180 days within any 12-month period, as determined in the sole
                discretion of the Board of Directors of the Company; and

          (iv)  the term "Good Reason" shall mean any of the following which
                occur without the Executive's consent and which are not
                corrected by the Company within 10 days of written notice to the
                Company by the Executive: (1) a diminution of the Executive's
                duties, title of Executive Vice President, International
                Business Development or the assignment to her of duties that are
                inconsistent in any substantial respect with the position,
                authority or responsibilities associated with the position of
                Executive Vice President, International Business Development, or
                a change in her reporting relationship such that she reports to
                a person other than the President; (2) a reduction in the
                Executive's Salary rate or bonus potential; or (3) a relocation,
                without the Executive's consent, of the Executive's principal
                office from her current office as of the Effective Date to an
                office that is more than 10 miles of the Executive's current
                office, except for required travel on Company business to an
                extent substantially consistent with the Executive's business
                travel obligations on the Effective Date.

Notwithstanding any other provision of this Agreement, the Executive shall
automatically cease to be an officer and/or director of the Company and its
affiliates as of her Termination Date.

     5.  Tax Gross-Up.  In the event that there shall occur a Change in Control
         ------------                                                          
of the Company and the Executive becomes entitled any payment, benefit,
distribution, acceleration of vesting or combination thereof (the "Total
Payments") by the Company 

                                      -7-
<PAGE>
 
or any affiliated company, which are or become subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar
tax that may hereafter be imposed (the "Excise Tax"), the Company shall pay to
Executive at the time specified below an additional amount (the "Gross-up
Payment") (which shall include, without limitation, reimbursement for any
penalties and interest that may accrue in respect of such Excise Tax) such that
the net amount retained by the Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the Gross-up
Payment provided for under this Section 5, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall be equal
to the sum of (i) the Total Payments, and (ii) an amount equal to the product of
any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.

     6.  Set-Off.  The Company shall be entitled to set off against the amounts
         -------                                                               
payable to the Executive under this Agreement, any amounts owed to the Company
or its affiliates by the Executive.

     7.  Confidential Information.  The Executive agrees that:
         ------------------------                             

     (a)  Except as may be required by the lawful order of a court or agency of
          competent jurisdiction or as necessary to carry out her duties to the
          Company and its affiliates, or except to the extent that the Executive
          has express authorization from the Company, she shall keep secret and
          confidential indefinitely all non-public information (including,
          without limitation, information regarding litigation and pending
          litigation) concerning the Company and its affiliates which was
          acquired by or disclosed to the Executive during the course of her
          employment with the Company or during the course of her consultation
          with the Company following her termination of employment and not to
          disclose the same, either directly or indirectly, to any other person,
          firm, or business entity, or to use it in any way.

     (b)  Upon her Termination Date or at the Company's earlier request, she
          will promptly return to the Company any and all records, documents,
          physical property, information, computer disks or other materials
          relating to the 

                                      -8-
<PAGE>
 
          business of the Company and its affiliates obtained by her during her
          course of employment with the Company.

     (c)  Nothing in the foregoing provisions of this Section 7 shall be
          construed so as to prevent the Executive from using, in connection
          with her employment for himself or an employer other than the Company
          or any of its affiliates, knowledge which was acquired by her during
          the course of her employment with the Company and its affiliates, and
          which is generally known to persons of her experience in other
          companies in the same industry.

     8.  Equitable Remedies.  The Executive acknowledges that the Company would
         ------------------                                                    
be irreparably injured by a violation of Section 7 and agrees that the Company,
in addition to other remedies available to it for such breach or threatened
breach, shall be entitled to a preliminary injunction, temporary restraining
order, other equivalent relief, restraining the Executive from any actual or
threatened breach of Section 7 without any bond or other security being
required.

     9.  Defense of Claims.  The Executive agrees that, on and after the
         -----------------                                              
Effective Date, she will cooperate with the Company and its affiliates in the
defense of any claims that may be made against the Company or its affiliates to
the extent that such claims may relate to services performed by her for the
Company. To the extent travel is required to comply with the requirements of
this Section 9, the Company shall, to the extent possible, provide the Executive
with notice at least 10 days prior to the date on which such travel would be
required and the Company agrees to reimburse the Executive for all of her
reasonable actual expenses associated with such travel; provided, however, that
if the Company reasonably expects the travel to be extensive or unduly
burdensome to the Executive from a financial perspective, the Company may
provide to the Executive pre-paid tickets for transportation in connection with
such travel.

     10.  Notices.  Notices provided for in this Agreement shall be in writing
          -------                                                             
and shall be deemed to have been duly received when delivered in person or sent
by facsimile transmission, on the first business day after it is sent by air
express courier service or on the second business day following deposit in the
United States registered or certified mail, return receipt requested, postage
prepaid and addressed, in the case of the Company to the following address:

          Pacific Gateway Exchange

                                      -9-
<PAGE>
 
          533 Airport Boulevard, Suite 505
          Burlingame, California 94010

          Attention: Howard A. Neckowitz

or to the Executive at her last residence address as shown on the Company's
payroll records, or such other address as either party may have furnished to the
other in writing in accordance herewith, except that a notice of change of
address shall be effective only upon actual receipt.

     11.  Withholding.  All compensation payable under this Agreement shall be
          -----------                                                         
subject to customary withholding taxes and other employment taxes as required
with respect to compensation paid by a corporation to an employee and the amount
of compensation payable hereunder shall be reduced appropriately to reflect the
amount of any required withholding.  The Company shall have no obligation to
make any payments to the Executive or to make the Executive whole for the amount
of any required taxes.

     12.  Successors.  This Agreement shall be binding on, and inure to the
          ----------                                                       
benefit of, the Company and its successors and assigns and any person acquiring,
whether by merger, reorganization, consolidation, by purchase of assets or
otherwise, all or substantially all of the assets of the Company.

     13.  Nonalienation.  The interests of the Executive under this Agreement
          -------------                                                      
are not subject to the claims of her creditors, other than the Company, and may
not otherwise be voluntarily or involuntarily assigned, alienated or encumbered.

     14.  Waiver of Breach.  The waiver by either the Company or the Executive
          ----------------                                                    
of a breach of any provision of this Agreement shall not operate as or be deemed
a waiver of any subsequent breach by either the Company or the Executive.
Continuation of payments hereunder by the Company following a breach by the
Executive of any provision of this Agreement shall not preclude the Company from
thereafter terminating said payments based upon the same violation.

     15.  Arbitration.  Any dispute, claim or controversy relating to or arising
          -----------                                                           
out of this Agreement (or the breach thereof) shall be settled by final, binding
and non-appealable arbitration before the American Arbitration Association (the
"Association"), with the hearing to be held in Santa Clara or San Mateo County,
California, under the California Employment Dispute Resolution Rules then in
effect 

                                      -10-
<PAGE>
 
for that organization. This Section 15 shall not be construed to limit the
Company's right to obtain relief under Section 8 with respect to any matter or
controversy subject to Section 8, and, pending a final determination by the
arbitrator with respect to any such matter or controversy, the Company shall be
entitled to obtain any such relief by direct application to a court of law,
without being required to first arbitrate such matter or controversy.
Arbitration shall be conducted before a single arbitrator selected by the
Company and the Executive. In the event the parties cannot agree on an
arbitrator, then the Association will supply both parties with a list of seven
names from which the parties will alternately strike one name until only one
remains, first choice is determined by a coin toss. The party winning the coin
toss has the option of striking first. Judgment may be entered on the
arbitrator's award in any court of competent jurisdiction to prevent any
continuation of any violation of the provisions of this Agreement. The cost of
the arbitrator, any record or transcript of the arbitration, and administrative
fees, shall be borne by the Company. Each party shall bear the fees of their
respective attorneys, the expenses of their witnesses and any other expenses
connected with presenting their cases.

     15.  Severability.  It is mutually agreed and understood by the parties
          ------------                                                      
that should any of the agreements and covenants contained herein be determined
by any court of competent jurisdiction to be invalid by virtue of being vague or
unreasonable, including but not limited to the provisions of Section 7, then the
parties hereto consent that this Agreement shall be amended retroactive to the
date of its execution to include the terms and conditions said court deems to be
reasonable and in conformity with the original intent of the parties and the
parties hereto consent that under such circumstances, said court shall have the
power and authority to determine what is reasonable and in conformity with the
original intent of the parties to the extent that said covenants and/or
agreements are enforceable.

     16.  Applicable Law.  This Agreement shall be construed in accordance with
          --------------                                                       
the laws of the State of California.

     17.  Amendment.  This Agreement may be amended or canceled by mutual
          ---------                                                      
Agreement of the parties in writing without the consent of any other person.

     18.  Counterparts.  This Agreement may be executed in any number of
          ------------                                                  
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party hereto, but together signed by both of the
parties hereto.

                                      -11-
<PAGE>
 
     19.  Other Agreements.  This Agreement constitutes the sole and complete
          ----------------                                                   
Agreement between the Company and the Executive and supersedes all other
agreements, both oral and written, between the Company and the Executive with
respect to the matters contained herein including, without limitation any prior
employment agreements between the Company and the Executive.  No verbal or other
statements, inducements, or representations have been made to or relied upon by
the Executive.  The parties have read and understand this Agreement.

   Dated as of the date set forth above.


                               PACIFIC GATEWAY EXCHANGE


                               By:  /s/ Howard A. Neckowitz
                                  Its: President and Chief Executive Officer


                                 /s/ Gail Granton
                                    EXECUTIVE

                                      -12-
<PAGE>
 
                                   Exhibit A
                        Definition of Change in Control

     For purposes of the Agreement, a "Change in Control" shall mean the
earliest to occur of any one of the following events:

     (1)   any "Person", as such term is used in Section 13(d) and 14(d) of the
           Securities Exchange Act of 1934, as amended (the "Exchange Act")
           (other than the Company, the Executive, any corporation owned,
           directly or indirectly, by the stockholders of the Company in
           substantially the same proportions as their ownership of stock of the
           Company, and any trustee or other fiduciary holding securities under
           an employee benefit plan of the Company), becomes the "beneficial
           owner" (as defined in Rule 13d-3 promulgated under the Exchange Act),
           of 25% or more of the combined voting power of the Company's then
           outstanding securities having the right to vote for the election of
           directors ("Voting Stock");

     (2)   the majority of the Board of Directors of the Company (the "Board")
           consists of individuals other than Incumbent Directors, which term
           means the members of the Board on the date of this Agreement;
           provided that any person becoming a director subsequent to such date
           whose election or nomination for election was supported by three-
           quarters of the directors who then comprised the Incumbent Directors
           shall be considered to be an Incumbent Director;

     (3)   the Company adopts any plan of liquidation for the distribution of
           all or substantially all of its assets;

     (4)   all or substantially all of the assets or business of the Company is
           disposed of pursuant to a merger, consolidation or other transaction,
           (unless the shareholders of the Company immediately prior to such
           merger, consolidation or other transaction beneficially own, directly
           or indirectly, in substantially the same proportion as they owned the
           Voting Stock of the Company, all of the Voting Stock or other
           ownership interest of the entity or entities, if any, that succeed to
           the business of the Company); or

<PAGE>
 
     (5)   the Company combines with any other company and is the surviving
           corporation but, immediately after the combination, the shareholders
           of the Company immediately prior to the combination hold, directly or
           indirectly, 50% or less of the Voting Stock of the combined company
           (there being excluded from the number of shares held by such
           shareholders, but not from the Voting Stock of the combined company,
           any shares received by affiliates of such other company in exchange
           for stock of such other company).

Once a Change in Control has occurred, no subsequent event shall be considered a
Change in Control for purposes of this Agreement.