Pumped Up Payouts
Mergers and acquisitions this year are triggering handsome benefits for some CEOs.
James M. Kilts*/Gillette
Bruce L. Hammonds/MBNA
A.D. Correll /Georgia-Pacific
John H. Eyler/Toys 'R' Us
Michael D. Capellas/MCI
James E. Rogers***/Cinergy
Joseph W. Saunders/Providian Financial
*Additionally, Kilts will receive Procter & Gamble equity valued at $23 million in return for serving as P&G vice-chairman for one year and agreeing not to join a rival before 2009. During his year as vice chairman, he will also be paid $6.5 million in salary, bonus, and other benefits.
**Retirement benefits are estimated total value of $2 million annual payments. "Other" category estimates value of 400,000 restricted shares of SBC provided by a three-year consulting agreement.
***Does not include promise of $9 million cash payment that company says Rogers will not be collecting.
****Estimated value of 154,000 restricted shares of Providian vesting on accelerated schedule.
James M. Kilts/Gillette:
Comment: He deserves his compensation for creating billions in shareholder value since arriving at Gillette in 2001. The Procter & Gamble deal "will be the greatest merger in consumer products history," Kilts says. "We make no apologies." Given his success at Gillette, "Kilts had become the Michael Jordan of corporate executives," says Arthur F. Golden, an outside lawyer for the company. "He was a very scarce and desirable superstar, and that is why he gets paid so much."
Bruce L. Hammonds/MBNA:
Comment: Most of the shareholder-approved package consists of unvested stock and options from which Correll eventually would profit, regardless of whether there is a merger. Correll is eligible for retirement.
John H. Eyler/Toys R Us:
Comment: Dorman forged a merger approved by shareholders and applauded by Wall Street. "We think that we got a good price and a good agreement," he says. AT&T has reduced its merger-payout plan and says that its benefits are comparable to those of its rivals. The promise of merger payouts helps retain talented executives.
James E. Rogers/Cinergy:
Comment: Change-in-control provisions are common. Rogers will take the CEO position in the new company, Duke Energy, after it acquires Cinergy, so he will not be collecting the cash portion of benefits triggered by the change in control. "To get ultimate shareholder value, you want a management team that's economically indifferent to whether or not they will have a job when the deal is done," Rogers says. "This is the way to compensate them for putting the shareholders in front."
Joseph W. Saunders/Providian Financial:
Comment: The completion of the transaction was a transformational moment in the history of Providian and Washington Mutual. It is "one that we believe will result in great things for our shareholders," says Washington Mutual. The former Providian board of directors put in place a compensation package designed to reward executives if they created a lot of value of for shareholders. Saunders and his team did add a lot of value to Providian.
Data: Shekhar Purohit at Delves Group. Amounts include estimated values of benefits such as projected total cost of annual pension and retirement payments, taxes paid by companies, and executives' home-security bills By Laura Cohn and Stanley Holmes