Lorillard execs strike generous deals…

August 17, 2010

While the changes in the executive ranks at Lorillard, Inc. (LO) were announced last week, we thought the company’s 8-K and its attachments deserved more attention than they got in articles such as this one.

As a brief recap, Lorillard announced that CEO/President Martin Orlowsky will step down on September 13, 2010; a few months after that, he will relinquish his role as Chairman of the Board and retire on December 31, 2010. Murray Kessler will become the new president and CEO next month, and then he’ll become Chairman of the Board on January 1, 2011.

But it’s after Orlowsky retires that the fun really begins. That’s when the he—ll start a two-year consulting gig which pays an annual salary of $500,000 per year. The agreement with Orlowsky, Exhibit 10.2 to the 8-K, requires that he —dedicate the amount of— time and attention which [he deems] reasonably necessary to perform his services, and he can do that from any location he thinks is appropriate. Here’s the really good part:

——it is the intent of the Board and you— that the amount of your Services will not exceed twenty percent of the average level of services that you performed (whether as an employee or an independent contractor of the Company) over the thirty-six-month period immediately preceding the Effective Date—

Here at footnoted, we love finding examples of part-time work for full-time pay and this one’s a good one. The way we’re reading this, if Orlowsky typically worked 60 hours per week, he—ll now get half a million dollars a year for working just 12 hours per week. Just to put this into perspective, his prior base pay in 2009 was $1.2 million.

The other important clause is that during the time that Orlowsky is a consultant, his various equity awards will continue to vest. That could add millions more to how much the company eventually pays him.

Kessler’s agreement, meanwhile, (Exhibit 10.3 to the 8-K) does (as was reported) pay him a $1.2 million annual salary and a $1 million signing bonus. But there’s more to the story than that.

For FY 2010 and 2011, Kessler will be eligible for an annual target bonus of $1.8 million; the compensation committee will determine the actual numbers, based on Lorillard’s performance. And for FY 2010, Kessler also has an annual long-term incentive target of $5 million, one-third to be paid in stock options, and the other two-thirds in shares of restricted stock.

In the press release that announced Kessler’s appointment, lead director Richard Roedel stated that the board had searched for Orlowsky’s successor for a year. He said Kessler seems to be the right person for the job, noting, —Murray’s outstanding background and significant experience in the tobacco industry make us confident that he is the right choice to successfully lead Lorillard going forward. They’ve certainly got a lot of money riding on that decision.

Image source: Conanil at flickr

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