While some CEOs are already collecting big merger payouts, many others stand to receive similar packages if their companies merge or are acquired. The promised payouts often include the accelerated vesting of stock and options. Here are estimates by compensation consultant Equilar Inc. of potential payouts from a survey of America's 100 largest corporations. Also included are each company's comments on the executive's package:
1. William W. McGuire, UnitedHealth: $162 million
"It is incorrect to include unvested options of approximately $139 million." Those options eventually would vest when McGuire leaves the company, regardless of whether there is a merger. He's already eligible for retirement.
2. Robert L. Nardelli, Home Depot: $114 million
"Consistent with the company's philosophy of attracting and retaining the highest-performing leadership available, change-in-control provisions are sometimes utilized to provide competitive stability for senior leaders."
3. J.J. Mulva, ConocoPhillips: $92 million
The estimate can't be accurate because it's based on financial assumptions about a hypothetical merger. Mulva would benefit from the change-in-control plan only if he lost his job. His "employment conditions are the same as those for all ConocoPhillips executives."
4. Gary D. Forsee, Sprint Nextel: $80 million
Change-of-control agreements are customary for CEOs at large companies trying to attract and retain top executives. Under Forsee's leadership, Sprint's stock has increased sharply.
5. Kenneth I. Chenault, American Express: $73 million
"We have designed our change-in-control policies to help keep employees focused on their jobs during the uncertainty that accompanies a change in control, to preserve benefits after a transaction, and to help us attract and retain key talent."
6. Henry M. Paulson Jr., Goldman Sachs: $60 million
The package doesn't include any cash. Paulson, who is eligible for retirement, would retain unvested stock and options with or without a merger. He doesn't have a special employment contract and would receive the same benefits as any other shareholder if the company were sold.
7. Lawrence R. Johnston, Albertson's: $42 million
8. Thomas M. Ryan, CVS: $37 million
The payout is consistent with the practices of other large companies. "In the event of a change in control, outstanding stock options and restricted stock awards for all employees would immediately vest."
9. Frederick W. Smith, FedEx: $36 million
Retention agreements encourage the dedication and objectivity of executives in the event of a possible change of control. Smith doesn't have an employment contract.
10. George David, United Technologies: $34 million
Change-in-control benefits help attract and retain the best executives, especially during transition, when strong leadership would be critical. David, who is eligible for retirement, would retain options he had held for a year as a standard retirement benefit -- regardless of whether a merger occurs.
11. John H. Tyson, Tyson Foods: $34 million
"This estimate is based solely on the potential value of our CEO's existing, board-approved compensation package. A sale would only accelerate the timing of his existing compensation package and would not generate any additional compensation. The goal of the company's executive-compensation policy is to ensure that an appropriate relationship exists between executive pay, the company's performance, and the creation of shareholder value, while at the same time motivating and retaining key employees."
12. Robert D. Walter, Cardinal Health: $32 million
The provision is necessary for a competitive compensation package. The majority of any change in control compensation is in the form of accelerated stock vesting. That provision would apply to all employees.
13. Edward M. Liddy, Allstate: $32 million
Such agreements encourage retention of executives and enable them to focus on aligning management and shareholder interests in the event of a merger. If Liddy's target bonus and long-term incentives were used in this calculation, instead of his actual bonus and incentives last year, his potential payout would be $26 million.
14. Edward J. Zander, Motorola: $27 million
The provision, aimed partly at executive retention, applies only if the company is taken over and the CEO loses his job.
15. Arthur F. Ryan, Prudential Financial:, $27 million
The cash portion of the package would equal three times the CEO's salary and bonus, but he would receive this amount only if he signed a non-compete agreement. (Equilar estimates the cash portion at $17 million; Prudential declined to confirm that figure or the value of the vesting stock and options.)
16. David J. O'Reilly, Chevron: $25 million
If O'Reilly's target bonus was used in this calculation, instead of his actual bonus last year, the potential payout would be $18.8 million.
17. Edward E. Whitacre, AT&T: $25 million
18. G. Kennedy Thompson, Wachovia: $24 million
The CEO would receive a payout only if he were involuntarily dismissed from his job following a merger.
19. John H. Hammergren, McKesson: $24 million
20. John V. Faraci, International Paper: $23 million
21. Robert H. Benmosche, MetLife: $22 million
22. E. Stanley O'Neal, Merrill Lynch: $22 million
23. Henry A. McKinnell Jr., Pfizer: $22 million
The provision keeps Pfizer competitive with its peers.
24. Alan G. Lafley, Procter & Gamble: $21 million
This amount isn't considered severance pay. "Any unvested stock options already belonging to an executive immediately vest," allowing the CEO and other executives to enjoy compensation they had already earned.
25. Robert J. Ulrich, Target: $21 million
26. Edwin M. Crawford, Caremark Rx: $21 million
All employees' options vest if there is a change of control.
27. Peter R. Dolan, Bristol-Myers Squibb: $19 million
The provision provides continuity of management in the event of a change in control.
28. F. Duane Ackerman, BellSouth: $17 million
The CEO receives payment only if he leaves the company after a change in control
29. Richard M. Kovacevich, Wells Fargo: $17 million
The provision "lets executives know that their interests are protected for three years following a change of control and gives them incentive to remain with the company during that time. Secondarily, we use it to attract and retain key employees."
30. Paul M. Anderson, Duke Energy: $16 million
Upon completion of the pending merger with Cinergy, which does not constitute a change of control for Duke, Anderson's employment contract will be amended. It is expected that the contract will no longer include a change-of-control provision.
31. Clarence P. Cazalot Jr., Marathon Oil: $15 million
Marathon carefully evaluates all benefit programs to ensure that it is providing competitive benefits in the best interest of shareholders. Cazalot's package requires a change in control and loss of his job.
32. John G. Drosdick, Sunoco: $15 million
33. Steven R. Rogel, Weyerhaeuser: $14 million
34. Miles D. White, Abbott Laboratories: $13 million
35. Ronald D. Sugar, Northrop Grumman: $13 million
The CEO would receive a payout only if a deal were completed.
36. David B. Snow Jr., Medco Health Solutions: $12 million
The provision was in Snow's original employment agreement with Merck and was approved by that company's board of directors prior to the spin-off of Medco.
37. John M. Barth, Johnson Controls: $12 million
38. David M. Cote, Honeywell International: $12 million
Aimed at attracting and retaining highly qualified executives, the benefits are consistent with those offered by other large, diversified industrial companies. The plan allows senior executives to assess takeover bids without regard to the potential impact on their jobs.
39. Michael H. Jordan, Electronic Data Systems: $11 million
The company estimates the potential payout at $13 million. Such agreements are a common, competitive practice for senior executives.
40. G. Allen Andreas, Archer Daniels Midland: $11 million
41. Ramani Ayer, Hartford Financial Services: $10 million
42. John T. Chambers, Cisco Systems: $9 million
The plan provides for accelerated vesting of stock and options in some cases, such as a hostile takeover. No executive officers have employment or severance agreements.
43. Alain J. P. Belda, Alcoa: $8 million
The program is standard and protects shareholders' interests. The CEO must leave the company to collect that cash payout.
44. William G. Jurgensen, Nationwide Financial Services: $8 million
45. David B. Dillon, Kroger: $7 million
Dillon is the only executive with an employment contract. To receive compensation he would have to be fired or demoted following a change in control.
46. Jay S. Fishman, St. Paul Travelers: $6 million
Fishman receives payment only if his position is adversely affected. It's part of a severance agreement.
47. Greg L. Armstrong, Plains All American Pipeline: $6 million
48. Robert J. Stevens, Lockheed Martin: $4 million
Data: Equilar Inc., companies
How the Numbers Were Crunched
Assigning a hard-and-fast dollar figure to how much a CEO will receive if a company is taken over isn't an easy task. Many companies bury the information in footnotes and exhibits in their Securities & Exchange Commission filings. And the information provided is often incomplete. So to compile a ranking, compensation research firm Equilar had to spend more than 100 hours scouring CEOs' individual agreements.
Equilar's estimates take into account promised cash payouts as multiples of CEO salaries and bonuses, as well as unvested restricted stock and options. For consistency, Equilar used CEOs' actual bonuses received last year in its calculations, instead of target bonuses. It based the value of the stock and options in each package on each company's 2004 fiscal-year end. Estimates don't include performance shares, vested options, perks, retirement benefits, or the tax bills that shareholders often pay on CEOs' merger-related payouts.
CEOs who no longer run companies that were on Equilar's initial list based on the heads of companies as of the end of the last fiscal year are not named and are not included in Equilar's overall calculations for the percentage of CEOs who have provisions for merger-related compensation packages. Equilar didn't examine provisions for merger-related payouts specified in general companywide equity incentive plans. In cases where base and bonus were paid out for the remainder of a CEO's employment term instead of as a multiple, Equilar calculated the value based on a start date of January 1, 2005 and ending on the expiration of the CEO's term.
If a company didn't disclose how stock and options would vest upon a CEO's termination in the individual agreement or proxy statement, it didn't include stock and options in its calculation. For companies that provided for partial acceleration of vesting, Equilar provided the value of the fully accelerated equity since it didn't have enough information to make a calculation for a partially accelerated payout.
Contributors: Michael Arndt, Roger Crockett, Joseph Weber, and Adrienne Carter in Chicago; Mara DerHovanesian, Diane Brady, Spencer Ante, and Burt Helm in New York; Christopher Palmeri in Los Angeles; Peter Burrows and Justin Hibbard in San Mateo; and Amy Borrus in Washington