First Marblehead Execs Have the Pomp, but Circumstance?…

With the next round of graduation parties just days away, we checked in on footnoted frequent flyer First Marblehead Corp. (FMD).

Just yesterday, First Marblehead – which makes private loans to lenders, credit unions, and schools – issued a press release to announce that two new members had been appointed to the Board of Directors. (They’re joining the board at a fortuitous time, by the way. As of July 1, 2010, the annual fee paid to non-employee directors will double from $40,000 to $80,000. They’ll also get 10,000 shares of stock, although – in light of the company’s current stock price of less than $3.00 a share – they’re probably more excited about the cash.)

Although the press release got the attention, there’s far more interesting information in the 8-K and another exhibit that First Marblehead filed with the SEC. For example, the filing discloses that on May 17, Peter Tarr resigned from his position as an executive officer, director, and Chairman of the Board. He will remain as the chairman of Union Federal Savings Bank (a subsidiary of First Marblehead), and he’s officially staying on as a “temporary employee at-will to provide transition services to First Marblehead.”

It’s a nice gig for Tarr. He will get a lump-sum severance payment of $800,000 (less taxes) within 30 days, ongoing medical and dental insurance through May 31, 2011, and 203,350 of his RSUs will immediately vest.

In exchange for providing those transitional services, Tarr will get $66,666.67 per month, which coincidentally works out to be $800,000 a year – the same base salary that Tarr got for FY 2009 (p. 46, 2009 proxy). Other than saying that either party can terminate the arrangement with 30 days’ prior written notice (or immediately, if Tarr breaches the agreement), there is no date specified upon which the arrangement will expire.

In the meantime, CEO/President Daniel Meyers is taking on the role of Chairman of the Board. Meyers, who signed a new employment agreement with the company on August 18, 2008 and returned to the CEO role on September 1, 2008 (this article offers a good summary), had an arrangement that the company would pay him an annual base salary of $1.00, provided that the company would “accrue an amount equal to $1 million per fiscal year, without interest.” According to last year’s proxy:

“The Accrued Compensation will be paid to Mr. Meyers at the discretion of the compensation committee or at such time that we first generate for a fiscal year, after taking into account accrual and payment of the Accrued Compensation, (1) positive cash flow from operations, and (2) profit from operations. Following the fiscal year in which we achieve such financial results, Mr. Meyers will receive a base salary of $1,000,000 per fiscal year.”

We’ll leave it to accountants to crunch the numbers enough to determine whether those conditions have been met; however, the Third Quarter FY 2010 Financial Results didn’t impress us (nor did the prior quarter’s results, for that matter). Yet the 8-K disclosed that Meyers is getting a big payout now:

“On May 17, 2010, prior to the elections of Ms. Bekavac and Mr. Eddy as directors of the Corporation, the Board and the Compensation Committee of the Board approved a special bonus to Mr. Meyers, outside of the Corporation’s executive incentive compensation plan, in the amount of $2.0 million, such amount to be paid in a lump-sum no later than May 30, 2010.

In determining the timing and size of the bonus, the Board and the Compensation Committee of the Board generally considered the Corporation’s accomplishments since Mr. Meyers— return to the Corporation in August 2008 and his integral role in such accomplishments, as well as the level of cash compensation paid to Mr. Meyers since August 2008 and the terms of equity awards previously granted to him, including the restricted stock units granted to him on April 21, 2010.

In addition, the Board and the Compensation Committee of the Board approved an annual base salary for Mr. Meyers in the amount of $800,000, effective beginning on May 17, 2010….”

For old time’s sake, we thought about turning all this into a story problem for the shareholders to solve. But then we decided that it might just depress them, and no one wants to be depressed at a graduation party.

Image source: m00by via Flickr