A CEO’s bounty at American Eagle Outfitters…

November 23, 2011

While many of us will reflect on our blessings as we gather with friends or family tomorrow for Thanksgiving Day, we predict that Robert L. Hanson’s celebration will be particularly festive.

As American Eagle Outfitters, Inc. (AEO) announced last week, the company named Hanson as its new Chief Executive Officer and a director, starting January 30, 2012. Hanson, who capped a 23-year career with Levi’s by serving as its Global President, was chosen to succeed retiring American Eagle CEO, Jim O’Donnell, who has been in the top job since December, 2002.

The company filed Hanson’s new 3-year employment agreement as an attachment to this 8-K, which arrived as part of last week’s official “Friday Night Dump.” And – as employment agreements go – this one is no turkey.

For starters, Hanson gets a signing bonus of $3.339 million, to be paid sometime between January 1 and January 13, 2012. If he doesn’t start when he’s supposed to, or if he leaves within a year or is terminated for cause, he might have to repay the money.

The “side dish” terms Hanson got are pretty tasty, too. His base salary will start at $1.03 million, and Hanson agreed that any money exceeding $1 million will be deposited into his Deferred Compensation Plan each year. (That money will vest in thirds over the next three anniversaries of Hanson’s start date.)

American Eagle Outfitters also promised to give Hanson – for FY 2012 only – a long term equity incentive compensation award worth $3.2 million. In addition, it’s giving him a restricted stock unit award worth $2.5 million and a stock option grant for common stock with a grant date value equal to another $2.5 million. Both the number of the RSUs and the exercise price for the options will be tied to the company’s stock price on the day that Hanson reports for work. That’s an extra $8.2 million, and – like many a Thanksgiving dinner – we haven’t even gotten to the dessert terms yet.

Also, for FY 2012, his maximum incentive cash bonus will be 130% of his base salary. However, starting in FY 2013 “the target incentive bonus shall be 130% of his base salary and the maximum incentive bonus shall be 260% of his base salary.” (Lucky Hanson: Here’s another thing for him to be grateful for! We noticed that the 8-K’s summary differs slightly and states: “…beginning with the 2014 fiscal year, the target incentive bonus shall be 130% of his base salary and the maximum bonus shall be 260% of his base salary…” [Emphasis added to highlight the year.] It doesn’t really matter which document is “correct” since the signed contract trumps the summary any day of the week. Those are the terms that a court would enforce.)

Hanson will also get up to $15,000 in legal fees, “a single luxury automobile for both business and personal use” (alas, it’s not giving him a tax gross-up on the car), and a relocation package so that he can move to a home “in reasonable proximity” to either the company’s headquarters in Pittsburgh, Pennsylvania or its New York, New York offices within 6 months of taking the job. The house-hunting clause come with a little extra whipped cream that entitles Hanson to take his time and find just the right home. It allows him:

“i) travel expenses for up to six (6) house hunting trips for Executive and a companion and (ii) household goods moving expenses, relocation allowances, temporary living expenses, and other relocation costs or expenses to which the parties agree….”

And finally, the parties also signed a Change in Control Agreement that promises Hanson severance (2x his annual compensation), a pro-rated bonus, 18 months’ of benefits under COBRA, and accelerated vesting of his equity interests if a change in control occurs.

With a new deal worth more than $12.6 million (plus whatever bonus he gets, and whatever the relocation ends up costing), Hanson will be a busy guy tomorrow when he counts his blessings… or at least his new compensation package.

Image source: hildgrim via flickr

Data source: Morningstar Document Research

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