The New York Times is reporting that if Merrill Lynch & Co. (NYSE: MER) CEO Stanley O'Neal left he would be entitled to $159 million in retirement benefits ($30 million) and stock and option holdings ($129 million). This does not include any severance payment the board might award him. Add that to the $160 million Merrill paid him since he took over almost five years ago and you get a $319 million investment in its CEO by Merrill's shareholders.
If these numbers turn out to be right, I think Merrill is getting a better deal than did Home Depot's shareholders. For instance, at Home Depot (NYSE: HD), former CEO Bob Nardelli got $450 million -- a $210 million going away package plus $240 million in salary and other compensation -- and its stock was down 8% during his six-year tenure. By contrast, Merrill's stock is up 59% since O'Neal took over on December 2, 2002 -- creating $20.9 billion in additional shareholder value.
This sounds good in an absolute sense but it's not so great when viewed relative to other investments. Merrill's return under O'Neal is 9% less than that of the S&P 500 during the period and 217% below the return of competitor Goldman Sachs Group (NYSE: GS) since December 2002. If we credit O'Neal for the 59% return, then his $319 million pay generated a 65.5x return on investment -- including the additional $4.4 billion in shareholder value created by Friday's announcement that O'Neal was probably leaving -- which caused Merrill's stock to rise 8.5%.
But this assessment is overly generous. I don't think O'Neal served Merrill's shareholders well because investors who buy shares in an investment bank should expect better than average returns for the additional risk they assume. And given Merrill stock's under performance of the S&P 500 and its peer, Goldman Sachs whose stock has outperformed the S&P 500 by 206%, Merrill shareholders should have gotten more for their $320 million investment in Stanley O'Neal.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
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Reader Comments (Page 1 of 1)
10-27-2007 @ 12:54PM
Paul Zalon said...
Corporate Boards are largely packed with an interlocking cabal of self serving directors. Most of them benefit from the idea that their pay and and options are more important than the stockholders interest. It is no wonder that they scratch each others backs and award these outrageous pay packages. There is no shortage of talented managers. European managers perform well with much more reasonable rewards. American boards have become the modern Robber Barons.
10-30-2007 @ 2:15AM
joannechristie said...
Now the REAL REASON THEY PUMP OUT THIS KIND OF MONEY TO THE TOP GROUP IS ONLY TO INSURE THE WEDGE BETWEEN THE RICH AND THE POOR GETS WIDER! See PAPER MONEY IS TOTALLY IRRELEVANT TO THE TOP DOGS! Its all about the CONTROL OVER PEOPLE! SUCH A FEW PEOPLE KEEPING THE MASSES UNDER THEIR THUMB! Now thats NOT EVEN NEW ITS JUST SO TERRIBLE NOW! The level of SUFFERING THEY WANT MAKES IT BETTER TO HAVE NEVER EXISTED! ITS DISGUSTING! See THESE PEOPLE DONT WANT TO RETIRE OR ENJOY TIME WITH THEIR FAMILIES! THE ONLY PLEASURE THEY ACHIEVE IS WATCHING OTHER people SUFFER AND WORK HARDER AND GET FURTHER BEHIND! ITS WEIRD!