Giant Exit Package for Merrill CEO Could Compel Boards to Revisit Severance

There will be plenty of outrage to go around. Reports say Stanley O'Neal, who stepped down from his duties as Chairman and CEO of Merrill Lynch Tuesday, is walking away from the investment bank with a minimum of $159 million. That eye-popping sum following on the heels of Merrill's $8.4 billion write-down, is likely to invigorate those who say that CEO pay is out of whack and could compel some boards to revist severance packages for CEOs.

According to analysis by a compensation consultant enlisted by The New York Times, O'Neal is set to receive $30 million in retirement benefits plus $129 million in stock and options holdings, based on Merrill's current share price of $66.09.

Media outlets reported over the weekend that O'Neal was set to resign. That speculation solidified Tuesday, when the company officially announced O'Neal's retirement.  As a result, Merrill's board has elected board member Alberto Cribiore as interim non-executive Chairman.  Cribiore, managing partner and founder of Brera Capital, will also chair a search committee that will identify and evaluate CEO candidates from within and outside the company.

The Wall Street Journal reported Monday that the board met with O'Neal over the weekend to discuss the terms of his "forced departure," yet no settlement had been reached by Monday, a possible indication that O’Neal is not succumbing to the pressure to go quietly.

“I lay the blame at the foot of the board. He was paid a tremendous amount of money to create a loss that is mind-boggling, and he obviously took risks that should have never been taken.” –Frederick E. Rowe Jr., Investors for Director Accountability.

No matter what the sum, the hefty severance package is likely to become the latest lightning rod in the storm over executive pay. Critics and media coverage are sure to focus on Merrill's massive writedown for mortgage-related assets and a drop in the company's stock price of 29 percent from the start of the year, when they look at the O'Neal's severance. They are likely to see it as just the latest example that CEO pay is out of line with performance, despite the fact that the stock price rose 65 percent during his tenure.

O’Neal’s exit pay will join the litany of outsized severances epitomized by Bob Nardelli’s $210 million golden parachute from Home Depot. O’Neal’s costly exit won’t help put out the firestorm over CEO pay that has made the compensation committee rival the audit committee as the most difficult to serve on. Merrill’s board members are already the target of criticism over the package and the deal hasn’t even been inked.

“I lay the blame at the foot of the board,” Frederick E. Rowe Jr. a money manager and president of Investors for Director Accountability fumed to the Times. “He was paid a tremendous amount of money to create a loss that is mind-boggling, and he obviously took risks that should have never been taken.” O’Neal has already been paid roughly $160 million.

What's more, O'Neal has also resigned from the board of directors of investment management firm BlackRock Inc., the company announced Tuesday.  The board has yet to find a replacement.

Earlier this month, during a meeting with editors of The Wall Street Journal, President Bush lashed out on CEO pay. "Do I think some of the salaries are excessive at the top? I do," he told them. “Excessive executive compensation’ just sends a signal of unfairness, and people in America want...fairness.”