may have described it as "a major breach of corporate protocol" when
Merrill Lynch chairman and chief executive E Stanley O''Neal broached the possibility
of a merger with the Charlotte, North Carolina-based Wachovia Bank without first
getting the approval of Merrill''s board. (See: Unilateral
merger bid may cost Merrill Lynch chief his job)
another reason behind the board''s fury (which should cost O''Neal his job) is that
if Merrill undergoes a change in control through a merger or takeover, O''Neal
would be entitled to a highly lucrative severance package valued at over $200
million, comprising mostly options and restricted shares.
if he has to step down in ''normal'' circumstances, the size of his severance package
would be completely at the discretion of the Merrill board compensation committee,
according to the company''s annual report.
confers major benefits
Merrill doesn''t have agreements that provide for
severance unless there''s been a change of control. As a result, for executives
whose employment is terminated in the normal course of business, severance benefits
are purely at the discretion of Merrill''s compensation committee, headed by private
equity firm Brera Capital Partners LLC founder Alberto Cribiore, formerly co-president
of the buyout firm Clayton, Dubilier & Rice Inc.
means that after plunging the USA''s biggest brokerage into a $2.24 billion quarterly
loss - the biggest in company history and a figure that was six times larger than
the firm had forecast just three weeks earlier - the board members were furious
that the CEO appeared to be trying to create a gold plated exit corridor for himself
at shareholder expense, by trying for a merger with Wachovia.
seems quite obvious that board members and shareholders are very unlikely to be
pleased by something like that. And it showed; Merrill Lynch shares surged $5.19
(8.5 per cent) to $66.09 on the New York Stock Exchange (NYSE) on speculation
that O''Neal would be forced to leave.
matter of millions
According to the annual report, seven top Merrill executives,
including O''Neal, have agreements that provide them with severance should they
lose their jobs after an investor or company acquires at least 30 per cent of
Merrill''s voting securities.
of 31 December 2006, O''Neal was entitled to receive $29.5 million in cash severance
following a change of control and another $221.8 million for his Merrill stock
and options, based on Merrill''s share price of $93.10 at the end of 2006. However,
the price has dropped by nearly a third in recent weeks.
other brokerages, Merrill pays bonuses in restricted stock that requires executives
to remain with the company for several years to collect the awards. Merrill''s
annual report says that stock and options represent 60 per cent of the total annual
compensation awarded to company executives - one of the highest percentages among
In 2005, the company began allowing executives to earn 25
per cent of the restricted shares during each year of the four-year waiting period.
Prior to this, none of the bonus vested until the entire four-year wait had elapsed.
received his entire 2004 bonus in the form of restricted shares that were then
valued at $31.3 million. In 2005 and 2006, he received bonus payments totalling
$79.6 million, including $32.6 million in cash and $47 million in stock. At the
end of 2006, O''Neal had 1.15 million shares with a current market value of $76
million that are still subject to forfeiture.
company allows previously awarded stock grants to continue vesting for executives
who retire when they are eligible for retirement, provided they comply with certain
conditions. This includes giving proper notice prior to termination, keeping confidentiality,
as well as meeting agreements not to compete with Merrill Lynch or recruit its
employees for specified periods.
say the restrictions are designed to keep executives from defecting to competitors,
not to punish them if they get pushed out. What awaits O''Neal now? As things stand,
the $76 million he''s accumulated in bonuses are subject to forfeiture if the board
deems it fit.