First, let us stress that we have seen no indications that James A. Skinner, vice-chairman and chief executive of McDonald’s (MCD), plans to step down any time soon. In fact, quite the contrary, judging from the hagiography that Fortune recently published, and a suggestion in The New York Times a couple years ago that one or more of Skinner’s lieutenants had gotten tired of waiting for him to step aside.
Nonetheless, after taking a spin through the preliminary proxy that McDonald’s filed on Wednesday, we found ourselves increasingly curious about Skinner’s retirement package. That’s because McDonald’s makes it anything but easy to figure it out — something we generally take as a challenge. (See, for example, the likely IBM package for Samuel Palmisano, which we footnoted in October.)
In this case, the company doesn’t provide an all-encompassing table or set of tables for the payouts top executives could receive on termination, as some companies do. Instead, after looking more or less holistically at change-in-control payouts (which we’d guess is pretty unlikely, given the company’s dominance of the fast-food industry) the proxy lays out potential payments by individual programs. But those numbers are pretty big.
We went through them considering a couple different scenarios: simple retirement, in which Skinner decides at some point to step aside (the proxy says he’s eligible to retire at any time), and a less voluntary termination without cause, since the vast majority of CEO departures that aren’t retirement seem to get classified that way. Either way, the bottom line works out to well north of $80 million — and that’s excluding potentially significant chunks.
Here’s how it breaks down: The biggest part is Skinner’s deferred-compensation account, which at December 31, 2011, was valued at close to $38.5 million. (Of that, just $15 million, or 39%, consists of pay Skinner deferred; the rest is company contributions and company-paid interest on the balance.)
A severance plan would pay him $4.25 million in cash if he were terminated for cause, though not in retirement. The company’s Executive Retention Replacement Program would pay out nearly equal amounts under the two scenarios: $20.6 million for termination without cause, and $20.7 million in retirement, thanks largely to $135,000 “payments in lieu of fringe benefits and provision of an office, plus secretarial services”.
Equity payouts are where it gets trickier. On termination without cause, Skinner would get an additional five years of options vesting, and the same timespan to exercise his options; restricted stock units would vest on a pro-rata basis, compared to the number of months remaining in their vesting periods. The total at December 30 values and share prices: $23.1 million.
But for retirement, the value would probably be higher, since Skinner basically would get to keep any outstanding, unvested stock and options (the proxy says he had $8 million in restricted stock units and 1.7 million options at the end of 2011), which will continue to vest and be exercisable more or less as normal (he’d have to exercise all his options within a little under 10 years, if not sooner).
Our final, back-of-the-envelope tally: a minimum of $82.3 million for retirement, and $86.4 million for termination without cause. To put those numbers in perspective, each figure is a little under 10 times the $8.75 million in total compensation the proxy reported for him for 2011, and roughly seven times the $12 million he’s earned on average over the last three years. All in all, it doesn’t quite reach Palmisano levels, but it’s not bad for a fast-food job.
At the same time, shareholders have done remarkably well in the 7-1/2 years that Skinner has been at the helm, so we doubt there will be much grumbling from that quarter. Which makes it all the more puzzling that McDonald’s makes it so tough to figure out the bottom line.
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