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Big separation payment part of Powell Industries’ “challenging year”…

The last few months have been a bit bumpy for Powell Industries, Inc. (POWL), the Houston-based company that designs and manufactures equipment used in the distribution and control of electrical energy and “other critical processes” (to use the company’s words). While some of the underlying reasons for the bumps have been well-publicized, the expensive departure of its former top executive hasn’t really been noticed, except in the context of a few articles (such as this one) that mentioned the company recording “a non-recurring charge” related to the departure.

The subject caught our attention after reading the 10-K that Powell filed this week, because it attached former President, Chief Executive, and director Patrick L. McDonald’s Severance Agreement and Release to the filing. (While the filing of the agreement itself is new, it turns out that Powell disclosed a summary of the terms of its agreement with McDonald in an October 14 8-K.)

The Severance agreement stated that McDonald would get $1.22 million on or about October 18th, but he would also get another $1.17 million, to be paid in 48 equal bi-monthly installments of $24,375. And as if a departure package of $2.39 million weren’t quite enough, the company also declared that 15,601 previously unvested shares of stock (given to McDonald in two Unvested Restricted Stock Awards made in October, 2009 and October, 2010) are now vested. At the current stock price of $33.08 per share, the newly-vested stock adds more than $516,000 to the value of McDonald’s portfolio, if only on paper for now. All told – and that includes an assumption that the stock will more or less hold its current value – McDonald will get more than $2.9 million in separation pay, which seems pretty generous since there is no mention of him having an Employment Agreement, and Powell Industries only has a market cap of about $377 million.

At the time that McDonald resigned suddenly in mid-September, the company issued a press release in which Chairman of the Board (and now interim Chief Executive and President) Thomas W. Powell stated, “On behalf of the Company, the Board thanks Pat for his many accomplishments here at Powell during a critical time of transition.” However, no real reason was given for McDonald’s exit, which came just slightly more than 4-1/2 years after he joined Powell Industries in February, 2007 as its President and Chief Operating Officer.

McDonald’s departure came just weeks before last month’s announcement that it would have to restate the numbers for the second and third quarters of FY 2011 because accounting errors led to overstated earnings at the company’s Canadian operations. And we know from Powell’s 4th quarter earnings report that Tom Powell described FY 2011 as “a challenging year for the company.” Yet the worst may be over: This article from last week suggests that Powell may be back on track and ready to produce the kind of results in 2012 that analysts, as well as shareholders, hope to see.

Image source: Electric Discharge via Shutterstock

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