Merrill Lynch & Co. has lost billions of dollars in the subprime mortgage crisis, but the company’s deposed chief executive is walking away with more than $160 million.
Capping a boardroom drama that began last week, Stan O’Neal stepped down Tuesday as Merrill’s chairman and CEO, becoming the first head of a major investment bank to be ousted because of mortgage-related losses.
O’Neal’s departure follows Merrill’s disclosure last week of a $7.9 billion mortgage-induced write-down, the largest such hit taken by any Wall Street firm and $3.4 billion more than Merrill had predicted less than three weeks earlier.
Some experts criticized the payout as excessive.
“I wish my performance was so bad that I could get $160 million to leave,” said Bill Coleman, senior vice president of compensation at Salary.com, a Waltham, Mass.-based consulting firm.
But others noted with approval that O’Neal did not get a severance payment or an annual bonus for 2007. However, he is leaving with $161.5 million in stock, option and other retirement benefits, according to a company filing with the Securities and Exchange Commission.
The bulk of the package is in so-called restricted stock, which could appreciate significantly in coming years if Merrill’s stock price under O’Neal’s successor rebounds from its steep drop this year.
Under his agreement with Merrill, O’Neal will gain full rights to the shares on the same schedule that would have applied if he were still working at Merrill. The restricted stock is being treated that way because the company is characterizing the 56-year-old O’Neal’s departure as a retirement.
In addition to the restricted stock, O’Neal is getting about $30 million in accrued pension benefits and deferred compensation. The company also agreed to provide him with an office and an executive assistant for up to three years.
“He’s walking away with the generous compensation that he’s mostly already earned,” said Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters, a conglomeration of union pensions that own 875,000 Merrill shares. “At least they didn’t give him more. Although, given what’s transpired, it would be a stretch to justify anything else.”
Merrill should have pressed O’Neal to give up some of the $26.8 million in restricted stock that he was granted last year when subprime problems were brewing, said Brian Foley, an executive compensation expert in White Plains, N.Y.
“There is a lot of upside play in that for him,” Foley said. “They didn’t add, but they didn’t subtract, and the question is whether they should have subtracted something from 2006.”
A Merrill spokeswoman declined to comment.
Holding on to restricted stock can be quite lucrative, said James Reda, founder of James F. Reda & Associates, a New York-based compensation-consulting firm.
Michael Eisner made more than $100 million in restricted-stock gains when shares of the Walt Disney Co. rose following his departure as CEO in 2005, Reda said.
“If the new guy comes in and tightens things up and turns things around, and the stock price goes up $20, Stan O’Neal benefits from that,” Reda said.
O’Neal’s 21-year career at the brokerage giant ended with a six-paragraph news release announcing that board member Alberto Cribiore would become interim chairman until a permanent successor could be found. Merrill’s co-presidents, Greg Fleming and Ahmass Fakahany, will handle day-to-day management of the firm, the company said.
“Mr. O’Neal and the board of directors both agreed that a change in leadership would best enable Merrill Lynch to move forward and focus on maintaining the strong operating performance of its businesses, which the company last week reported were performing well, apart from subprime mortgages” and related home-loan securities, the company said in the release.
Several candidates are in the running to replace O’Neal, with Laurence Fink, CEO of money manager BlackRock Inc., which is partly owned by Merrill, considered the leading candidate.
Also thought to be under consideration are Fleming, Merrill’s co-president; Robert McCann, the head of Merrill’s brokerage division; and John Thain, the chief of NYSE Euronext Inc., the parent company of the New York Stock Exchange.
