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Merrill CEO departs with $160 million

His compensation receives scrutiny after he becomes a casualty of the sub-prime crisis.

October 31, 2007|Walter Hamilton and Kathy M. Kristof | Times Staff Writers

NEW YORK — Merrill Lynch & Co. has lost billions of dollars in the sub-prime mortgage crisis, but the company's deposed chief executive is walking away with more than $160 million.

Capping a boardroom drama that began last week, Stan O'Neal stepped down as Merrill's chairman and chief executive Tuesday, becoming the first head of a major investment bank to be ousted because of mortgage-related losses. O'Neal's departure follows Merrill's disclosure last week of a $7.9-billion mortgage-induced write-down, the largest such hit taken by any Wall Street firm and $3.4 billion more than Merrill had predicted less than three weeks earlier.

Some experts criticized the payout as excessive.

"I wish my performance was so bad that I could get $160 million to leave," said Bill Coleman, senior vice president of compensation at Salary.com, a Waltham, Mass.-based consulting firm.

But others noted that O'Neal, 56, received no severance payment or annual bonus for 2007. He is, however, leaving with $161.5 million in stock, option and other retirement benefits, says a company filing with the Securities and Exchange Commission.

The bulk of the package is in so-called restricted stock, which could appreciate significantly if Merrill's share price under O'Neal's successor rebounds from its steep drop this year.

Under his agreement with Merrill, O'Neal will gain full rights to the shares on the same schedule that would have applied if he were still working at Merrill. The restricted stock is being treated that way because the company is characterizing O'Neal's departure as a retirement.

In addition to the restricted shares, O'Neal's package includes stock options, accrued pension benefits and deferred compensation. The company also agreed to provide him with an office and an executive assistant for up to three years.

"He's walking away with the generous compensation that he's mostly already earned," said Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters, whose affiliated union pension funds own 875,000 Merrill shares. "At least they didn't give him more. Although given what's transpired, it would be a stretch to justify anything else."

Merrill should have pressed O'Neal to give up some of the $26.8 million in restricted stock that he was granted last year when sub-prime problems were brewing, said Brian Foley, an executive compensation expert in White Plains, N.Y. "They didn't add but they didn't subtract, and the question is whether they should have subtracted something from 2006," Foley said.

A Merrill spokeswoman declined to comment.

Holding on to restricted stock can be lucrative, said James Reda, founder of James F. Reda & Associates, a New York-based compensation consulting firm.

Michael Eisner made more than $100 million in restricted-stock gains when shares of Walt Disney Co. rose after his departure as CEO in 2005, Reda said. "If the new guy comes in and tightens things up and turns things around and the stock price goes up $20, Stan O'Neal benefits from that," Reda said.

O'Neal's 21-year career at Merrill ended with a six-paragraph news release announcing that board member Alberto Cribiore would become interim chairman until a permanent successor could be found. Merrill co-Presidents Greg Fleming and Ahmass Fakahany will handle day-to-day management of the firm, the company said.

"Mr. O'Neal and the board of directors both agreed that a change in leadership would best enable Merrill Lynch to move forward and focus on maintaining the strong operating performance of its businesses, which the company last week reported were performing well, apart from sub-prime mortgages" and related home-loan securities, the company said in the release.

Several candidates are in the running to replace O'Neal, led by Laurence Fink, chief executive of BlackRock Inc., a fund manager partly owned by Merrill.

Also said to be under consideration are Fleming; Robert McCann, the head of Merrill's brokerage division; and John Thain, the CEO of NYSE Euronext Inc., parent firm of the New York Stock Exchange.

Merrill's shares fell $1.86, or 2.8%, to $65.56. The shares are down 30% this year.

walter.hamilton@latimes.com

kathy.kristof@latimes.com

Hamilton reported from New York and Kristof from Los Angeles.

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