Oct. 26 (Bloomberg) -- Merrill Lynch Chairman Stan O'Neal, having received stock bonuses totaling almost $80 million during the past three years, may have to leave much of it behind if he's forced to step down.

The size of O'Neal's severance package would be at the discretion of Merrill's board compensation committee, according to the company's annual proxy statement. The document shows that O'Neal had about $76 million in stock, part of previously granted bonuses, still subject to forfeiture at the end of last year.

If Merrill, the largest U.S. brokerage, undergoes a change in control through a merger or takeover, O'Neal, 56, would be entitled to a severance package valued at $251 million as of Dec. 31, comprised mostly of options and restricted shares. The New York Times reported earlier today that he angered the board by holding discussions with Wachovia Corp. about a merger.

``You could see board members not being pleased by something like that,'' said Larry Cagney, a benefits attorney in the New York office of Debevoise & Plimpton LLP. ``Whether it would affect his severance'' will depend on their individual views, Cagney said.

Merrill Lynch shares surged $5.19, or 8.5 percent, to $66.09 at 4:25 p.m. in New York Stock Exchange composite trading on speculation that O'Neal would be forced to leave.

Merrill Lynch spokeswoman Jessica Oppenheim didn't immediately return telephone calls seeking comment.

Restricted Stock

Merrill, like other brokerages, has increasingly paid bonuses in restricted stock that require executives to remain with the company for several years to collect the awards. Stock and options now represent 60 percent of total annual compensation awarded to company executives, one of the highest percentages among major brokerages, Merrill's most recent proxy statement said.

The company in 2005 began allowing executives to earn 25 percent of the restricted shares during each year of the four- year waiting period. Prior to 2005, none of the bonus vested until the entire four-year wait had elapsed.

O'Neal received his entire 2004 bonus in the form of restricted shares that were then valued at $31.3 million. In 2005 and 2006, he received bonus payments totaling $79.6 million, including $32.6 million in cash and $47 million of stock.

At the end of 2006, O'Neal had 1.15 million shares with a current market value of $76 million that were still subject to forfeiture, according to the proxy.

The head of Merrill's compensation committee is Alberto Cribiore, the founder of a private equity firm Brera Capital Partners LLC who formerly served as co-president of the buyout firm Clayton, Dubilier & Rice Inc.

Investor Confidence

O'Neal lost the confidence of investors earlier this week after Merrill reported a $2.24 billion quarterly loss, the biggest in company history and a figure that was six times larger than the firm had forecast three weeks earlier.

Merrill doesn't have agreements that provide for severance unless there's been a change of control, according to the proxy. As a result, for executives who terminate employment in the normal course of business, ``any severance benefits are at the discretion'' of Merrill's compensation committee, the proxy said.

Keeping Bonuses

The company allows previously awarded stocks grants to continue vesting for executives who retire when they are eligible for retirement, provided they have complied with conditions in the grant. These conditions include giving notice prior to termination, adhering to confidentiality requirements and meeting agreements not to compete with Merrill Lynch or recruit its employees for specified periods.

``It's not uncommon to let someone who gets terminated to keep the restricted stock related to their bonuses,'' the lawyer Cagney said. That's because the restrictions are designed to keep executives from defecting to competitors, not to punish them should they get pushed out, Cagney said.

According to the proxy, seven executives, including O'Neal, have agreements that provide them with severance should they lose their jobs after an investor or company acquires at least 30 percent of Merrill's voting securities.

As of Dec. 31, 2006, O'Neal was entitled to receive $29.5 million in cash severance following a change of control and another $221.8 million for his Merrill stock and options, based on Merrill's share price of $93.10 at the end of 2006.

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net.

Last Updated: October 26, 2007 18:44 EDT