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Lehman Brothers Holdings Inc. (NYSE: LEH) Chief Executive Richard Fuld, Wall Street's longest serving CEO, has no reason to fear being ousted if he can't turn around the company around. In fact, on some level, he may welcome it because he stands to reap more than $241 million.Fuld, who has been Lehman's chief executive since 1993, and other members of Lehman's senior management team do not have employment contracts or change in control bonus arrangements, according to the company's most recent proxy statement. He is also declining a bonus for this year for obvious reasons. Nonetheless, his turnaround effort announced this morning, which includes slashing Lehman's dividend by 93%, selling a 55% stake in its investment management division and a spin-off the vast majority of its commercial real estate assets into a public company, got a mixed reception on Wall Street.
Shares of the New York-based company, which fell 45% yesterday, tumbled in pre-market trading. They later rebounded following Lehman's conference call which Fuld personally oversaw. But as my colleague Peter Cohan noted, the company's earnings, which were issued a week early, were even more awful than Wall Street expected. The company reported a preliminary net loss of $3.9 billion, or $5.92 a share. Net revenue was a negative $2.9 billion.
None of that will matter to Fuld's personal bottom line. Though he is declining a bonus this year, it appears as though his financial cushion is substantial.
According to the proxy, Lehman would have awarded the payment to Fuld for an "involuntary termination without cause" provided he did not engage in conduct that was "detrimental" to the bank. If he had died or become disabled, Fuld's payoff would have been $434.7 million. These pay packages would surpass the $160 million payment Merrill Lynch & Co. (NYSE: MER) gave as a parting gift to former chief executive Stan O'Neal which outraged shareholders.
Shareholders of Lehman have seen their holdings decline almost 90% this year as the company became mired in the subprime mortgage mess. Fuld's pay certainly is not aligned to the company's performance.
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