More “pay to stay” deals at Leucadia…

June 23, 2010

Based on the 8-K that Leucadia National Corp. (LUK) filed yesterday, two executives have a few million new reasons to stay right where they are.

The agreements were made at the urging of Leucadia’s Chairman (Ian Cumming), president (Joseph Steinberg), and the compensation committee to persuade Thomas Mara, an Executive Vice President, and Joseph Orlando, a VP/CFO, to stay with the company.

Here’s a short-and-sweet summary of the agreements:

—The agreement provides that the Executive will be entitled to receive a payment of $2,750,000 (the —Payment) if at anytime during the five year period expiring June 15, 2015, a —Change of Control (defined as occurring if neither Mr. Cumming nor Mr. Steinberg is the Chief Executive Officer of the Company) occurs, so long as the Executive is an executive officer of the Company at that time.

The —Form of Letter Agreement, that was filed along with the 8-K makes it clear that this payment will be made in addition to —all other benefits to which the executives are entitled. All either executive has to do to receive the money is send written notice within six months after a change in control that he wants to terminate his employment with Leucadia and wait for a lump sum check for $2.75 million (less taxes and withholding, most likely) to arrive.

This type of agreement is not new for Leucadia. Back in March, we wrote about a similar (but slightly less lucrative) agreement between Leucadia and Vice President Justin Wheeler. At the time, the company explained in its 2010 proxy that the agreement with Wheeler was necessary because he had valuable executive skills and because the top brass and board had a —collective concern that Mr. Wheeler might pursue other opportunities. Presumably they’re also concerned about Mara and Orlando, and this is their strategy to retain stability within the executive ranks.

As was the case with Wheeler’s agreement, the board has the discretion at the end of the five-year term — even if no change of control has occurred — to evaluate Mara’s and Orlando’s performances and —award [them] all or any portion of the Payment. However, there’s no guarantee that the board will do that.

But if they do, it’s a lot of money, especially when compared to Mara’s and Orlando’s current monthly salaries. Mara’s 2010 base salary is $30,333 per month; Orlando’s is $27,583 per month. If the $2.75 million award were amortized over the 60 months the agreement requires the executives to stay, that would be the equivalent of each executive receiving an extra $45,833 per month. That’s r0ughly 51 percent more than Mara currently makes and about 67 percent more than Orlando currently makes.

While there’s no guarantee that they—ll get the money, the odds appear to be in their favor — especially if they’re as talented as Cumming, Steinberg, and the board seem to think.

Image source: Tracy O via Flickr

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