Well it's finally official -- according to Bloomberg News, Merrill Lynch (NYSE: MER) CEO Stanley O'Neal's retirement package excluded a severance payment and a 2007 bonus. Still when you combine the $162 million worth of securities and retirement funds with the $160 million O'Neal got during his tenure as CEO, it looks to me like Merrill shareholders have not made out that well.
As I posted last week, I think the shareholders of a publicly-held investment bank should expect to get a higher return than just the average investor. That's because investment banking is a risky business and CEOs should be good at taking the risks that generate higher returns and taking steps to protect against the downsides of those risks.
While Stanley O'Neal's compensation is only 2% of the shareholder value he created during his tenure -- the stock rose 59% taking Merrill's market capitalization up $20.9 billion -- the stock was actually up 9% less than the S&P 500 during the period from December 2, 2002 when he became CEO and last Friday when news of his pending departure hit the wires. And Merrill's stock grew at a fifth the rate of O'Neal's envied Goldman Sachs Group (NYSE: GS) whose stock spiked 276% during the same period.
If Merrill shareholders could have taken the $322 million they gave to O'Neal to try to build a lame copy of Goldman and instead invested that money in Goldman stock, they would have ended up with $889 million -- 74% more than the same amount invested in Merrill.
That's why it's so important for Merrill's board to now fix its corporate strategy so it can beat the competition in the future rather than trail it.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
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Reader Comments (Page 1 of 1)
10-31-2007 @ 7:26AM
David Hamer said...
$322 million, that's an awful lot of dollars wasted on someone who heads a large bank losing a lot of investors money. That amount could be put better to paying off a few thousand homes for the now homeless that this mob helped in making the mess - all in the search for greater profit. Double up on this for the leaders of the other big money hungry, mistake riddled banks, now we are talking serious amounts of ordinary people that can survive with a half decent life for their hard work at the expense of a few obscenely rich bankers who could afford to lose their rich unafforded goodbye checks