Soft Landings for CEOs

Some shareholders may object, but heads of most major financial services firms will have very secure futures even if they're forced out

by Lauren Young

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It's anybody's guess which chief executive of a major financial services firm will be the next to fall victim to the subprime mortgage mess—or when. But should the fallout spread, one thing is certain: Many of the executives currently running financial services companies will leave with significantly less compensation than they thought. Most, that is, but not Richard Fuld Jr. The CEO of Lehman Brothers has nothing to worry about—his exit package is valued at $299 million, putting him close to the record for any such package.

By parsing proxy statements and crunching numbers, analysts can figure out roughly how much the CEOs of major financial services firms might take on their way out. Paul Hodgson, a senior research associate at The Corporate Library, did just that for the heads of 10 financial services firms, at BusinessWeek.com's request.

Some of the numbers uncovered by The Corporate Library are staggering, but a scratch below the surface shows that what drives severance packages can vary widely from company to company. At companies like Bank of America (BAC) or Countrywide Financial (CFC), the bulk of a CEO's exit package is tied up in retirement benefits.

Determing Their Own Fate

At companies such as Lehman Brothers (LEH), Morgan Stanley (MS), JPMorgan Chase (JPM), and Goldman Sachs (GS), most of a CEO's expected termination benefits come in the form of restricted stock. CEOs whose fortunes are so closely linked to the firm's stock price ultimately determine their own fate. "Despite the large number of zeros, even within this very high-paying industry, there is substantial pay for performance," says Ira Kay, global practice director for compensation consulting for Watson Wyatt.

Case in point: Stanley O'Neal, who became the first chief executive who headed for the door after Merrill Lynch (MER) posted a $2.24 billion third-quarter loss related to mortgage troubles. While the massive size of O'Neal's exit package—the fifth largest on record at $161 million—raised eyebrows, pay consultants note that O'Neal pocketed only what was owed him, including $131.4 million in stock and stock options, as well as nearly $25 million in pension benefits.

However, he received no bonus. "O'Neal was pushed out with not so much as a golden handshake," says Frank Glassner, president of Compensation Design Group, an executive consulting firm in San Francisco. Glassner and other compensation experts say Merrill Lynch's decision may set a precedent for other boards to take performance-based pay more seriously.

Tenure Has Its Advantages

But no one is claiming a victory yet. Citigroup (C) chief Charles Prince received a $12.6 million bonus, despite lackluster performance during his tenure. With a total walk-away package of more than $40 million, Prince ranks ahead of four other CEOs on The Corporate Library's list.

At the top of pack—and far ahead of his colleagues in financial services—is Lehman's Fuld, who could be entitled to an exit package worth nearly $299 million. The bulk of it is $276 million in restricted stock, some of which was awarded in the 1990s. Fuld's expected payout outshines everyone else in the industry because he has worked at the investment bank since 1969 and has run it since 1993.

Even so, the package has raised some eyebrows.