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NEW YORK With a Wall Street bailout looming that will almost certainly limit CEO pay, some of the poster boys of the crisis have already left the scene, taking millions of dollars in severance packages with them.
Stanley O'Neal walked away from Merrill Lynch with a package now worth about $66 million. Less than a year later, the storied investment house was forced into a takeover by Bank of America.
Ken Thompson was ousted from Wachovia in June with severance and stock now worth more than $5 million, and Chuck Prince was forced out at Citigroup with a parting gift now valued at $16 million.
“These guys took all this risk, and ultimately they won't have to suffer the consequences of their decisions,” said Barry Ritholtz, who writes the popular financial blog The Big Picture and is CEO of research firm FusionIQ.
Congress and the Bush administration were working Thursday on a bailout package, perhaps with an ultimate cost of $700 billion, that would have the government buy bad debt off the books of banks.
Under the government plan, the long-gone CEOs would not have to give anything back, said Steven Adamske, a spokesman for the House Committee on Financial Services. He said there was no constitutional way to recoup pay retroactively.
Recognizing a public outcry, lawmakers from both parties have been pushing to add curbs on executive pay – meaning limits on what companies that take part in the bailout could pay their top officers from now on.
Those limits could include restrictions or even an outright ban on severance packages for current executives leading companies that go to the government for help.
“At many of these companies, there are new CEOs and they didn't cause the problems,” said Lynn Turner, former chief accountant at the U.S. Securities and Exchange Commission, now an independent business consultant.
Meanwhile, the former CEOs who accepted fat severance packages are long gone.
At Merrill Lynch, O'Neal's pay package for his final year as a CEO was $46.4 million, according to AP figures. He was forced out in October 2007 following the investment bank's disclosure of $7.9 billion in unexpected losses related to the credit market turmoil.
His severance package of stock, options and retirement benefits built up over a 21-year career was valued at the time at $161 million. The market's downturn since then has driven the value down to about $66.5 million.
Merrill Lynch investors have had to face $30.5 billion in write-downs and reported losses of nearly $17 billion in the three full fiscal quarters since O'Neal left.
Earlier this month, Merrill's weakening financial condition forced it into a takeover by Bank of America, with an acquisition price of $29 a share – less than half what it was a year ago.
At Wachovia, Thompson was ousted by the bank's board in June after a series of missteps, the most pronounced being his purchase of a California mortgage lender for roughly $25 billion at the height of the nation's housing boom. The move has led to massive losses at the bank.
Thompson's total pay package for last year was nearly $16 million. When he left the bank, he got nearly $1.5 million in cash, plus restricted stock he held vested. It's worth about $4 million today. His outstanding options to buy company stock are “under water,” meaning the exercise price is above the current trading value of Wachovia stock.
The replacements for Prince, O'Neal and Thompson are unlikely to be lavished with such excess. The spotlight now shining on executive pay could lead some companies and their boards to start rethinking their pay strategies.
Thompson's replacement at Wachovia, Robert Steel, signed a contract in July that says he'll get no cash severance. Neither will John Thain, who replaced O'Neal at Merrill last December.
Patrick McGurn, executive vice president and special counsel at RiskMetrics Group's ISS proxy advisory division, thinks the landscape on pay could change – first with the market turmoil and bailout bill, then a new administration.
“The accelerant has been thrown on the fire with this credit crisis, and it will force change,” McGurn said.
