Nice work if you can get it…

April 27, 2010

Sometimes a company’s best move may be to hire a consultant, but that help certainly doesn—t come cheaply.

For example, Alcoa, Inc. (AA) just signed an agreement to pay industry veteran Bernt Reitan $125,000 for —Consultant’s expertise and knowledge of aluminum manufacturing and fabrication, smelting, bauxite mining, bauxite refining and/or the sale or distribution of alumina and alumina related products, alumina refining and smelting technology and smelter and refinery construction. Until recently, Reitan was the Executive VP and Group President, Global Primary Products at Alcoa; he currently holds the title “Chairman’s Counsel.” He will retire on August 1, 2010, when the consulting agreement takes effect. Per its terms, Alcoa can—t ask Reitan to work more than 25 days per calendar year, which means he gets a minimum of $5,000 per diem, or $625 per hour if he works an 8-hour day (plus expenses).

But another company is paying its consultant even more. Late last week, Snap-On, Inc. (SNA) filed this Transition Services Agreement as an attachment to its quarterly report.

The agreement involves Martin Ellen, who until recently worked as Snap-On’s Senior Vice President — Finance/CFO. While in that job, in 2009 Ellen received a base salary of $472,500 and total compensation of nearly $2 million. On April 1, 2010, Ellen became the Executive Vice President/CFO at Dr. Pepper Snapple Group, Inc. (DPS), where he will earn quite a bit more. In that job (according to an 8-K the company filed in mid-February), Ellen starts with a base salary of $525,000, a target bonus that ranges between 90-180% of that salary, and an initial equity grant of more than $1.3 million. He—ll also get nonqualified stock options and RSUs with a total cash value of $3.75 million to replace equity awards that Ellen lost when he left Snap-On.

Snap-On wants Ellen’s help as it prepares for arbitration with CIT Group, Inc. There’s a good summary of the dispute on pp. 27-28 of the Q, but – in a nutshell – the disagreement involves various alleged underpayments made in the context of a financial services joint venture. Snap-On alleges damages of $115 about million, and CIT Group’s response alleges damages in excess of $110 million.

The agreement requires Ellen to attend meetings and assist the company as it produces documents and generally prepares its case. He is also to assist Snap-On ——with the continued transition of the business of Snap-on Credit LLC as a result of the termination of the Company’s former joint venture arrangements with CIT Group Inc. and to provide —assistance to the Company in connection with other matters as may be reasonably requested.

In exchange for his help, Snap-On is paying Ellen:

——a monthly retainer of $20,000 per month, payable on the last business day of each calendar month during the Term. This retainer shall cover up to 60 hours of Services per calendar quarter, and shall be paid whether or not any Services are requested by the Company. Any hours over 60 in a calendar quarter shall be paid at a rate of $1,000 per hour, and will be paid along with the following month’s retainer payment.

Thus, the agreement assures Ellen at least $1,000 per hour, assuming he works all 60 hours per calendar quarter. If Snap-On only needs him for half that time (10 hours a month), his hourly rate doubles. And if it doesn’t call him at all one month, Ellen still gets $20,000.

To be sure, an executive like Ellen presumably has a lot of knowledge that will benefit Snap-On as it prepares for arbitration. What is less clear is how a busy executive in a new job will find the time to help his old employer get ready for its arbitration hearing. But regardless, it’s worth another $240,000 to Ellen— maybe even more.

Image source: purpleslog via Flickr

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