Stan O'Neal gets fired from Merrill Lynch: gets $161.5M parachute

I am honestly surprised that there are not more instances of "going postal" in the Wall Street world as contrasted with the working world as in years past, especially when something like this happens and lower-level people lose their jobs only to watch the big fish walk away with millions and millions of dollars.

I saw the movie "Wall Street" as I'm sure many of you did.

I wonder how much personal security high-octane CEO's have?

"Platinum parachute" (title of the MSNBC.com story)

That's funny.

Hate the game. Not the player.

I agree with your basic point, and I believe there are some interesting academic studies that support the view that, even if they are hugely talented individuals -- like the highly-paid professional athletes they sometimes like to compare themselves to -- CEOs of publicly-traded companies are paid, on average, substantially more by boards of directors than they would get through arms-length bargaining in a market transaction with boards that are actually trying to get the best deal for the shareholders.

That said, I think that the headline "platinum parachute" may be a bit misleading. I'm not aware that O'Neal is getting any severance pay. I believe he's just getting payouts under the (ridiculously generous) compensation package that was negotiated years ago.

But yes, cases like this make me angry. The compensation seems obscene for some guy who -- unlike entrepreneurs like Bill Gates -- just moved up the corporate ladder. I'm surprised that more people don't take up arms -- literally or figuratively -- to battle these apparent excesses.

It is a free market and these guys have somehow convinced someone that they are worth this amount. That of course is absolute bullshit. Analysis consistently shows that there is no correlation between CEO salary and share price (i.e. you dont get better returns when you hire an expensive CEO).

The problem is that it is the shareholders that technically have the last word on stuff like this (i.e. through their choices of who to elect to the board), but shareholders are generally too removed or too uncohesive to make change. It would be nice to see some legislative reform in this area that protects shareholders (it is their money after all), but business will never let it happen and corporate accountability and disclosure is already a bureaucratic , toothless, nightmare.

its fairly obvious the player makes the game in this case.

that being so, its still money. taking his money to pay for all of the pension funds he bankrupted via CDO's and other MBS's seems like an obvious solution rather than putting him in jail.

again, I'm only hating the game, which is the money, not the player.

of course you'll probably take that the wrong way, because taking 'HIS' money would be hating on him wouldn't it?

maybe we should ask all those teachers and firefighters that lost their pensions because of his actions.

Somebody is still mad that he got his lunch money taken from him. Easy big fella.

The problem is that this "keep up with the Joneses" attitude is making the gap between rich and not-so-rich even worse.

For example, guess who got the biggest raise, percent-wise, of all the employees in the school district I work at. The superintendent! Who's already the highest paid employee in the district. Teachers settled for a 4-5% raise, the supe got a 13% raise.

For superior performance? Get real, the guy's marking time until her retires and doesn't want to step on anyone's shoes.

And the beat goes on...

Well, if it's any consolation, while money might buy him excellent health care, at the end of the day when he's having a heart attack, or stroke, or is in a car accident, he's going to be at the mercy of whatever hospital is closer.

Just like the rest of us.

"O'Neal won't get severance or a 2007 bonus, according to the U.S. Securities and Exchange Commission filing today by New York- based Merrill."

Hey, what are you all complaining about??? He didn't get any severance or bonus...

Actually, I don't believe that CEO compensation is determined in a truly free market. They are all far too cozy with the boards. It's already clear that CEO pay doesn't correlate very well with performance. If it were truly a free market, then the inefficiency would be exploited.

Do you think he will file for unemployment?

I work at Wyeth Pharmaceuticals. Our CEO cleared $30 million last year and I got a 3.5% raise. That's the way the world turns. Middle class wages will not keep pace with inflation and have not done so since the 70's.

http://www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearsheet.jhtml?passedPersonId=876206

eat the rich

fight the Power

The board's that approve these transactions are using market indicators to make their decisions. No different than the next baseball owner that will pay Arod $300 million.You guys are being way too myopic when it comes to CEO pay. The pay is made up of several value points, cost of litigation, advertising, market impact, cash paid vs value of stock options, all of these factor into the pay scale.Investors who have confidence in a CEO will almost always cover their salary and then some by increasing the demand for their stock. So it is a good investment and the board is acting judiciously. Now would it be judicious to pay Joe Blow in the mail room 1/100th of the CEO pay? No it would not. You put your money where the value is.Now, is our open market economy perfect? No it is not. So like someone else said, hate the game, not the player.

Avocados Number wrote:

I'm surprised that more people don't take up arms -- literally or figuratively -- to battle these apparent excesses.

$161 million.

Right.

Sure.

OK.

Read "Moneyball" - it is about how in baseball many high paid players are not good value. So your A-Rod comparison is apt. However, at least in baseball the money is more objectively tied to performance. Hit a lot of homers, make a lot of money. There is no analogy for CEO's.

There is no way you can argue that this payment is worth it. As I said earlier, there is no correlation between CEO compensation and share price, so I disgree when you say that investors cover the CEO's salary and then some. Companies should pay CEO's based on an increase in share value (I know this is potentially hurtfull to the company in the long run, but this is a simplified example). So if the CEO actually provides value, he or she can take home a huge paycheck. If not, then too bad - they will have to eat crumbs.

As for the poster that said it is not a true free market, I agree with that. I meant to say that for the time being, a CEO is "worth" whatever he or she can convince someone to pay them. But I agree, in a true free market most of these guys would be getting paid a small percentage of what they make now.

$$$$$$ wrote:

...go ahead and criticize my post. I dare you.

No need to "criticize" your post, it's flat out incorrect.

Merrill's former CEO Stan O'Neil didn't receive any "parachute" at all, if by "parachute" you mean severence pay. The article says:

"O'Neal left with a $131.4 million equity package of stock, options, restricted shares and restricted units. His restricted stock and restricted stock units will continue to vest on their original schedules, the company said.

He also has retirement benefits worth $24.7 million, while his deferred compensation stands at $5.4 million, according to the company. He will be entitled to an office and an executive assistant for up to three years."

From what I understand, this $161 million is money he had "earned" in previous years. Pull in $30-$50 million total compensation a few years in a row, and it starts to add up. An employer can not take back stock options and salary it has awarded in previous years (unless someone did something illegal perhaps).

In our free market economy people shouldn't own Merrill Lynch shares if they strongly disagree with it's pay policies. Invest in Costco instead (it's CEO earns about $350,000/year).

For the record: I also think corporate boards often overpay, but it can be especially difficult for financial firms now. Not only is the supply of potential CEOs very limited, but these companies have to compete with private equity firms/hedge funds whose partners/top performers can earn much more in total comp.

It's Wall Street. We're not talking about the real world. There are non-executive employees at Merrill who make $30 million, and the average for people who have been climbing the corporate ladder there for 30-plus years is probably in 7 figures as well.