A sweet retirement from Northrop Grumman…

July 25, 2012

Thinking about retiring any time soon? Well, we don’t want to discourage you, but the odds are that Gary Ervin just got a better deal than you — and especially we, for that matter — ever will.

Ervin, who is a corporate vice president and the president of Northrop Grumman’s (NOC) Aerospace Systems business, plans to retire from his position on December 31, 2012. According to an 8-K filed yesterday, though, he will stick around “in a non-executive officer position” until he retires from the Company on February 28, 2013.

Ervin and Northrop Grumman agreed to the terms of a “Retirement and Separation Agreement” on July 23; the agreement itself won’t be public until the company files its next quarterly report, but the 8-K summarizes what Ervin will get in exchange for staying two extra months to “assist with the transition to the new sector leadership.” [Update: As luck would have it, Northrop Grumman filed its 10-Q this afternoon. If you want to see Ervin’s agreement, it is Exhibit 10.4, available here.] The summary states:

“For this period, Mr. Ervin will receive his base salary [paid at the rate of $70,438 per month, per the April, 2012 proxy] and a transition project and special incentive bonus in the amount of $2.5 million. This bonus, in recognition of his contributions to the Company and for his service during this period, is in lieu of any bonus otherwise payable for services performed during 2013 or any grant that would otherwise be issued in 2013 pursuant to the Company’s long term incentive plan or other equity arrangement.”

Ervin — whose age was listed as 54 at the time the company’s February, 2012 10-K was filed — gets a couple more nicely-wrapped retirement gifts, too. The filing states that his restricted performance stock rights (RPSRs) will continue to vest through the remainder of the performance period. That is quite a concession, because the proxy notes that ordinarily, “The RPSRs vest 100% after the three year performance period (2011-2013).” The company also promises to pay Ervin for some unvested equity awards, explained as follows:

“Ervin will forfeit his unvested restricted stock rights (RSRs) that were granted in 2011 and 2012, but will receive a cash payment equal to the value of the forfeited 2011 and 2012 RSR awards based on the Company’s closing stock price on July 13, 2012, with such payment to be made at the end of the vesting period, within ten days of February 15, 2015.”

According to the proxy, Ervin got two awards in 2011, an RSR grant and an “RSR Retention” grant; the two awards had a combined grant date fair value of more than $2.34 million. And, according to this Form 4, on February 15, 2012, Northrop Grumman awarded Ervin RSRs in the form of 20,117 shares that had a grant date value of approximately $1.2 million (based on the closing price that day of $59.65 per share). None of the shares would have vested until 2015, and it’s interesting that he’s getting the retention grant shares even though they didn’t result in his retention. In fact, he’s leaving almost 2-1/2 years before any of the RSR shares (including the retention shares) would have vested.

Still, it seems clear that Northrop Grumman appreciates Ervin’s contributions. He’s been with the company since 2001, when he arrived after forging a 22-year career with Lockheed Martin Corp. (LMT). And nothing says “appreciation” quite like paying someone a few million extra bucks as he heads out the door.

Image source: Retirement green road sign, via Shutterstock

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