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Make It Rain: The Top 5 Largest CEO Exit Compensation Packages


Exiting El Paso CEO's $91 million is chump change compared to what these guys received.

Last week, news broke that El Paso (EP) CEO Douglas Foshee was set to receive an exit payout of $91 million after he successfully negotiated his company's acquisition by Kinder Morgan (KMI). Golden handshakes are par for the course in the world of business and finance, but in light of the Occupy [Insert City] movement, such a generous compensation package seems egregious, to say the least.

The next CEOs in line to receive hefty exit packages, according to the Wall Street Journal, are Myron Ullman, who will receive about $30.7 million when he leaves J.C. Penney (JCP) early next year, and Sanjay Jha, who, after successfully engineering Google's (GOOG) acquisition of Motorola Mobility (MMI), stands to pocket over $62 million if he leaves the phone company in the next two years.

Inspired by Foshee's golden handshake, we decided to dig into history and find out what the five biggest exit packages ever were worth. Although $90, $30.7 and $62 million may seem like a lot of money, it turns out that they are relatively modest figures when you look at what we discovered. The five CEOs listed below took home a staggering combined sum of nearly $2.6 billion.

It's worth nothing that all five largest exit packages were handed out during the mid-2000s, when the stock market was booming, which thus maximized the values of vesting options. Nonetheless, the question remains: Is any one figure's work worth such a sum of money? In the world of lofty corner offices, executive compensation is benchmarked against peers in various margins like revenue growth, net earnings, return on capital and customer satisfaction, for example (check out IOMA's guide to executive compensation). For each of these five CEOs, we have benchmarked the change in their company's stock price during their tenure against the corresponding change in the S&P 500 Index. The result, as you might have guessed, is that not all were exactly deserving of their hefty farewell compensation packages.

1. William McGuire
Company: UnitedHealth Group (UNH)
Years as CEO: 1991 – 2006
Exit package: $1.6 billion
Stock price when McGuire became CEO: $0.91
Stock price when McGuire exited: $47.76 (+ 5,148%)
Corresponding change in S&P 500: 1991-2006: +314.9%

After 15 years of service, William McGuire stepped down as CEO of UnitedHealth Group following a scandal involving backdated stock options. Under his stewardship, UnitedHealth grew from a regional HMO with annual revenues of around $400 million to become the America's second-largest managed care company with over $70 billion in annual revenues, 50,000 employees and more than six million signed up to its health plans. McGuire's reward? A severance package worth about $1.6 billion, most of which was in the form of stock options he accumulated over his years at UnitedHealth. Later, though, McGuire had to return around $618 million in payback agreements with UnitedHealth shareholders and the Securities and Exchange Commission (SEC), and was banned from serving as a director of a public company for 10 years because of the backdating debacle.

2. Lee Raymond
Company: ExxonMobil (XOM)
Years as CEO: 1993 – 2005
Exit package: $398 million
Stock price when Raymond became CEO: $9.94
Stock price when Raymond exited: $49.70 (+ 400%)
Corresponding change in S&P 500: +184.5%

Lee Raymond was the CEO of Exxon Corporation from 1993 to 1999 and maintained his position when Exxon merged with Mobil Oil. Raymond was an old-school guy. He worked his way up to the top of the ExxonMobil ladder, starting in 1963 when he joined Exxon as a production research engineer. Raymond wasn't fired or forced to resign, he simply decided to retire in 2005 after a very successful tenure. In the 12 years he led Exxon and then ExxonMobil, the firm's annual profits rose more than fivefold from $5 billion to over $25 billion, and it paid out some $68 billion in dividends. For his efforts, Raymond received a $398 million retirement package, which is the largest ever for a US public company. To be fair, the majority of the astronomical figure consisted for non-retirement-related bonuses and stock options that he garnered.

Here is a breakdown of the $398 million package, according to business and economics blog, Truth on the Market. You decide if this was a reasonable deal.

2005 salary: $4,000,000
2005 bonus: 4,900,500
2005 restricted stock awards: $32,087,000
2005 incentive plan payout: $7,484,508
Other 2005 compensation: $450,800
Value of previously granted restricted stock: $151,027,200
Dividends paid on restricted stock in 2005: $3,089,400
Value realized on 2005 option exercises: $21,212,022
Value of unexercised options: $69,630,280
Future payouts under incentive plan: $4,900,500
Lump sum pension payout: $98,437,831
Post-retirement consulting: $1,000,000
TOTAL: $398,220,041

3. Robert Nardelli
Company: Home Depot (HD)
Years as CEO: 2000 – 2007
Exit package: $212 million
Stock price when Nardelli became CEO: $37.12
Stock price when Nardelli exited: $34.96 (-5.8%)
Corresponding change in S&P 500: +5.9%

It's ironic that Robert Nardelli ended up walking away with a $210 million severance package after his seven-year tenure as Home Depot's CEO because it was shareholders' criticism of his annual compensation package that eventually led to his departure. After Nardelli took home $38.1 from his last annual contract in spite of a weakening stock and slowing profits, Home Depot board members wanted him to link his future contracts more closely to shareholder gains. Nardelli refused, saying that share price was one factor he could not control, and abruptly left in January 2007.

Under Nardelli, Home Depot sales increased from $46 billion in 2000 to $81.5 billion in 2005, powered by what we now know was an artificial housing market boom. At the same time though, share prices under his leadership remained disappointingly flat. Nardelli's performance was enough to land him a spot in CNBC's list of Worst American CEOs of All Time.

4. Henry McKinnell
Company: Pfizer (PFE)
Years as CEO: 2001 – 2006
Severance package: $200 million
Stock price when McKinnell became CEO: $31.33
Stock price when McKinnell exited: $20.20 (-35.5%)
Corresponding change in S&P 500: +4.5%

You know you're an unpopular CEO when you inspire your shareholders to fly an airplane with the banner, "Give It Back, Hank!" over your company's headquarters during an annual general meeting. AFL-CIO was the shareholder who arranged this publicity stunt back in April 2006 in response to Henry McKinnell's retirement package from Pfizer. McKinnell took home around $200 million, which included $82.3 million in pension benefits, $77.9 million in deferred compensation, $18.3 million in performance-based shares, $12 million in severance, $5.8 million in vested stock grants and $2.15 in bonuses. Perhaps the most absurd item in McKinnell's exit package was the $305,644 awarded to him for his unused vacation days. Puzzlingly, McKinnell's package was approved by the board even though Pfizer saw its market value plunge by $140 billion during the Connecticut resident's tenure.

5. John Kanas
Company: North Fork Bancorporation / Capital One Financial (COF)
Years as CEO: 1977 – 2006
Severance package: $185 million
Share price before Capital One acquired the bank: $25.40
Share price after acquisition: $31.18 (+22.8%)

CEOs who successfully engineer mergers and acquisitions often enjoy a rainfall of cash as they make their way out, and John Kanas is a shining example. Kanas became the president of the small regional North Fork bank back in 1977 before he even hit 30 years old. Under his guidance, North Fork expanded aggressively in New York in the 1990s before Capital One, under its retail banking expansion plan, acquired it at $14.6 billion, or $31.18 a share. Kanas' post-acquisition payout was a handsome $185 million, which came mostly from the vesting of restricted stock and tax gross-ups.

According to Reuters, Kanas acknowledged that his payout was "an egregious amount of money," but he defended it, saying, "It's not like I flew in here on a private jet three years ago and prettied up the company and then booted it out of here." The deal with Capital One was done at a 23% premium, much to the benefit of North Fork shareholders. Capital One, though, suffered a year later when it had to close down Green Point Mortgage, a division that had been acquired by North Fork before, and in the process book $860 million in corresponding write-offs.

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