Check this pay package -g-
>>American Express Breaks Pay Scale
By Graef Crystal
(Graef Crystal is a columnist on executive compensation for Bloomberg News. His opinions don't represent the judgment of Bloomberg News.)
Santa Rosa, California, March 8 (Bloomberg) -- I wrote a column Feb. 17 demonstrating that no matter what your company's size or performance, if you're a Wall Street CEO, you get to earn $25 million to $30 million a year. Along comes Harvey Golub of American Express Co. and proves me wrong.
When I threw Golub's just-announced pay package on the scales, the dial read $65 million. Or it did until the springs flew out of the scale.
Golub got to such a weighty sum thanks to a special goodbye option given in celebration of his impending retirement. Based on my calculations, that grant has a present value of about $41 million.
In the good old days, an executive was given a gold watch when he retired. A quick search on the Internet for fine watches found several that would look nice on Golub's wrist, including a little platinum job called Lange's Datograph that retails for $75,900. For the present value of his going away option, Golub could have one for every day of the year and still have more than $13 million left.
Has American Express performed so well during Golub's eight years as chief executive that he should be sent off into the sunset on a golden carpet? Here are the numbers:
The stock's 30.6 percent annual total return between Sept. 30, 1991, and Dec. 31, 1999 (the end of the company's fiscal year) beat the S&P 500 Index by 1.5 times. Of the 11 stocks in the Bloomberg Wall Street Index that traded during the entire period, American Express ranked third, trailing Charles Schwab Corp. and Citigroup.
Monster Grant
Golub's pay would have been in line with his Wall Street brethren were it not for his special option grant. The option was one of four grants he got in 1999 that have a present value of $57 million by my calculations. American Express placed a present value of $44 million on the same options. The difference isn't surprising because I apply a consistent set of assumptions to all companies when valuing stock options while companies use a variety of methods that can result in lowball figures.
March 21, 1999, was the fateful day on which this monster option was granted. It carried a strike price of $123.438, the market price on that date. The term of exercise is 10 years, or some eight years after Golub retires as CEO, a date which has already been announced as being in April 2001.
When it made this grant, American Express' board imposed all sorts of conditions before the grant could be exercised. For example, one condition requires Golub to be employed continuously for nine years after grant. The only problem with this condition is that Golub plans on retiring two years after grant.
A second set of conditions requires Golub must be employed for six years after the grant of the option and that Amex's stock price must have increased by 50 percent. But that doesn't apply to a retiree, either.
The Easy Condition
So what's going on here? Is the American Express board giving with one hand and taking away with the other?
Well, no, because there's still one condition left, and this one Golub can meet easily. This condition requires only that his employment terminate on or after April 30, 2001. Boy, I wouldn't want to be standing between Golub and the nearest elevator on that April day.
Imagine for a minute that Citigroup's Sandy Weill turns his ever-voracious eye in the direction of Amex, the idea being that once Golub heads into the sunset, Weill can pull off a double coup. By acquiring Amex, he not only would move his empire up one notch towards his seeming goal of personally accounting for 80 percent of the U.S. gross domestic product, but he would gain a talented successor in Amex's current COO, Kenneth I. Chenault.
Now if all that happened soon after Golub departed, and if Weill paid a premium price for Amex, as he most assuredly would have to do, Golub wouldn't ordinarily be the beneficiary. But now that's he fitted out with his new 750,000-share retirement option, he has it made. With an option this size, he still has a dog in the race -- a dog the size of a St. Bernard.
Retire in Style
Golub gets some further benefits when he retires, and these, too, are worth more than a fine watch -- indeed, more than a gross of fine watches. For one year, he is to remain as non-executive board chairman, with a salary of $1 million and another option, this one covering 450,000 shares (after adjusting for a 3-for-1 split due to take effect May 11).
However, if he doesn't feel up to the job of chairing board meetings and decides to pack it in entirely, he will, nonetheless, be given the $1 million and the economic equivalent of the stock option. Apparently, it is a matter of utter indifference to Amex's board as to whether he stays or goes.
(One hopes that if he goes, the board will use Amex's customary lowball valuation assumptions in determining how much that 450,000-share option is worth and not the more realistic assumptions I use.)
Finally, I couldn't help but notice that Golub, in 1999, received $606,000 of above-market interest from Amex. At the same time, and in another portion of the company's proxy statement, I learned that Golub and other senior executives can borrow money from the company to exercise stock options. Here, they do not pay above-market interest, but rather pay interest 200 basis points below the prime.
Message to Sandy Weill if he does decide to pursue American Express: Are you sure you want to buy a financial services company where the top executives are apparently of the belief that the way to make money is to pay out above-market interest rates and then to lend the funds at below-market rates? <<
and yes to banks tomorrow because they are going to get pounded today. |
