There’s something impressive about a top executive who stays at the helm for 57 years. Charles Loudermilk Sr., the founder of rent-to-own chain Aaron’s Inc. (AAN) accomplished that, serving as chief executive from 1955 to 2008 and as executive chairman since then.
But he’s stepping down on September 14, at the age of 82. No doubt he deserves a bit of a break, whatever you think of the rent-to-own business. And no surprise he’s getting a lush send-off, as others have reported. Yet it turns out there’s even more to Loudermilk’s retirement package than meets the eye — and, like the fees on rent-to-own furniture, they really add up.
Just like those fees, Loudermilk’s retirement goodies are all technically disclosed — in this 8-K filed yesterday, with its accompanying retirement agreement. But it nonetheless takes a little sleuth-work to tally the true cost, or even to come close.
As others have noted, there’s the $1.5 million cash “retirement pay” each year for five years, for a cool $7.5 million cash (which his estate gets if he passes away before the last check is cut). In addition, the agreement specifies $1,500 a month for office space and related costs — that’s another $150,000 over five years.
But there’s also a pro-rated bonus for this year, which isn’t quantified. If we assume the full bonus would be in the same $920,000 to $1-million range that he’s received the last three years, according to Aaron’s April 9 proxy, we can estimate it at about $636,000. The company also doesn’t break out a cost for Loudermilk’s part-time assistant — described as half a full-time equivalent in the agreement. It looks like Loudermilk’s existing assistant is staying on the job, and if she’s a long-time hire, she’s probably paid pretty well, but we’ll just use the national median income as a yardstick: Half of that is about $26,000 a year, or another $130,000 over five years.
Health-care, addressed in three words in the 8-K, is quantified in the agreement as $1,000 a month for life. Call that another $60,000 for five years (though we bet someone as spirited as Loudermilk will live longer than that). Transferring the company car’s title to Loudermilk probably isn’t a lot, though a similar transfer in late 2011, listed in the proxy, was valued at $21,000.
Then there are the company plane rides: up to 40 hours a year, gratis, for five years (though he’s responsible for the taxes). We don’t see where Aaron’s breaks out the hourly cost of its corporate jet, but we do see that Loudermilk got $122,291 in free plane rides last year, which would put his five-year benefit at $611,455. (Maybe more, since he’ll we assume he’ll have more time on his hands to travel; but we’re being conservative here.)
Curiously, Aaron’s most recent proxy notes that Aaron’s bought a $2.8 million airplane late last year, and sold it to Loudermilk for the same amount. It isn’t clear whether that’s the same plane that Loudermilk will be riding in at company expense, though we’ve certainly seen companies pay for execs to fly in their own jets before.
Then there’s this brief line in Loudermilk’s retirement agreement:
“Aaron’s will vest all outstanding stock options and restricted stock units (‘RSUs’) that are unvested as of the Retirement Date.”
Those 20 words could add up to a lot. According to Aaron’s latest proxy, he had 25,000 unvested stock options (with a strike price of $14.11) and 75,000 unvested restricted shares. At today’s stock price of nearly $30 a share, you’re talking about $2.6 million more.
Finally, another couple sentences — 38 words total — reiterate Loudermilk’s claim on two big life-insurance policies the company has bought for him over the years. Called split-dollar life insurance, these policies are paid for by the company but benefit Loudermilk’s estate; the company essentially gets back what it paid in (and it’s not clear whether it will get any interest on that). The face values of the policies are a combined $7.2 million, and the company said in the proxy that it stood to get about $2.6 million of that back.
We’ll skip the office furniture he gets to keep, since that’s probably a rounding error. And we have no idea how to value the costs — which Aaron’s will pay — of registering shares and making the requisite filings under an agreement with the company that gives it first right of refusal for big blocks of stock, in return for the company’s help selling his shares over time.
The imperfect total? Roughly $11.7 million, of which about a third — bonus, jet rides, assistant and accelerated vesting — wasn’t readily calculable from the original filing. And that’s a conservative number. For one thing, it entirely excludes the $7 million in life-insurance coverage that Aaron’s has bought him over the years.
In the end, it all pales in comparison to the $149 million of stock that Loudermilk still owned as of the last proxy filing (roughly 5 million shares). Still, what we’ve talled up adds another 8% or so to that.
It sure beats a gold watch.