And discount American Eagle clothing, too…

January 24, 2012

Correction: The headline on an early version of this post incorrectly said O’Donnell would get “free” clothing instead of discounted clothing. My apologies for the error.

American Eagle Outfitters (AEO) describes itself as offering “high-quality, on-trend clothing, accessories and personal care products at affordable prices.” But while it pours effort into making the case that its clothes are a good deal, it put far less into making clear just how good a deal its retiring chief executive got on his way out the door.

As retirement (or severance) packages go, James O’Donnell is no Samuel Palmisano. But he is getting a handsome sum as he steps down from the top job at American Eagle Outfitters on January 28, a move that was telegraphed at least as far back as March. (Sonya footnoted his replacement’s compensation package the day before Thanksgiving.)

The 8-K that AEO filed to disclose O’Donnell’s package is pretty spare: The only dollar figures in it are $552,500 and $2.21 million — the least and most, respectively, that O’Donnell can make from a one-year post-employment consulting gig he’s getting from American Eagle. (Unusually, any amount over the base $552,500 will be “based on attainment of performance goals for the Company’s 2012 fiscal year,” which sounds more like a bonus to us than like consulting fees, but OK.)

Other elements of the package are described blandly as “his deferred compensation,” “a lump sum retirement benefit determined in accordance with the O’Donnell Employment Agreement,” “severance equal to one year of his base salary less the accrued but unpaid cost of his personal use of the Company aircraft…” and so on.

It turns out that all of this vagueness probably adds up to something like $15.6 million.

The breakdown is fairly straightforward: a year’s base salary, or $1.7 million based on last year’s pay; that lump-sum retirement benefit, or $3.6 million (essentially salary plus bonus “for the highest compensated fiscal year of the prior seven fiscal years,” according to last year’s proxy); a 2011 cash bonus ($612,817 last year); his long-term incentive plan account balance ($1.2 million as of the proxy); his deferred-comp account ($2.4 million, the proxy says); and continued vesting for his stock options, restricted stock units and performance shares ($6.1 million as of last year’s proxy).

His options are underwater, so they’re valued at $0 in the above calculation, which could change if AEO’s stock price rises appreciably in the near future. And as intriguing as it sounds, that “accrued but unpaid cost of his personal use of the Company aircraft” turns out to reduce his severance by just $65,000, according to the text of his Succession Agreement.

Oh, and O’Donnell also gets a lifetime “discount on Company merchandise generally applicable to active employees” for himself and his spouse. The company’s benefits website simply describes its discount for employees as “great.” But judging from various rate-your-employer websites (including comments on this one, as well as comments on Yahoo Answers), it does sound pretty good, if you like the clothes, ranging from 25% for clearance items to 40% or even 50% for regular and new merchandise.

It would take a heck of a lot of $10 tank-tops to make much of a difference for O’Donnell financially, much less for AEO investors, who haven’t exactly had a blockbuster year. Then again, they’ve done pretty well overall since O’Donnell took the helm, so maybe they won’t begrudge him a few $19.99 Mohawk Trapper Hats. And hey, we’d sure love to see him in one.

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Bonus: iPad Watch — We’ve been noticing for a while that departing executives are frequently getting to keep their treasured company-issued iPads. We like Apple’s software and hardware here at footnoted, but for the life of us, we haven’t been able to figure out a legitimate business case for an iPad at most companies (including ours — or believe me, I’d be lobbying to expense mine, stat). Now we’ve found support for our skepticism in an 8-K filed by Smart Balance (SMBL) after 5 p.m. on Friday. According to the accompanying Separation Agreement and Release, departing CFO Alan Gever is being allowed to keep his laptop, iPad, cell phone and cell-phone number. However,

“Prior to his Separation Date, Gever shall provide the Company access to his laptop and Blackberry to purge all Company data and information.”

No mention is made of purging Gever’s iPad — presumably because, like his cell phone, it doesn’t hold any company data or information worth purging.

Image source: AEO clearance website (no, really, it’s for sale — or check out the model with reindeer horns for just $14.99)

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On January 18, we published our 2012 footnotedPro M&A report, listing 10 companies we see as likely deal targets, based on our close reading of SEC filings. To inquire about purchasing a copy, or to find out more about subscribing to footnotedPro, where we highlight hidden opportunities and easy-t0-miss red flags well in advance of the market, please contact us.

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