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Out, Then Back In Again at First American Corp…

While reviewing the proxy that First American Corporation (FAF) filed last week, we noticed an expensive executive transition that occurred recently with little fanfare.

The executive, Frank McMahon, was the CEO of First American’s Information Solutions Group. McMahon joined the company in February, 2006 after leaving his role as a managing director at Lehman Brothers Holdings, Inc. (He’d been an advisor to First American while there.)

At the time McMahon joined First American, the company assured him that his employment —will be guaranteed for a period of five years, commencing on March 31, 2006. The Employment Offer Letter further promised that McMahon would receive —minimum annual cash compensation— equal to at least $1,750,000. He actually received more than $2.1 million in total compensation in 2006, more than $3.3 million in 2007, and more than $3.8 million in 2008.

McMahon only stayed in the CEO role of the Information Solutions Group for 19 months. On December 4, 2009, First American filed an 8-K to announce that McMahon had resigned four days earlier and that Anand Nallathambi would serve as president/COO of the Information Services Group (he has since been promoted to CEO). No reason was given for McMahon’s sudden departure.

Six weeks later, on January 15, 2010, First American filed another 8-K which announced the terms of McMahon’s Separation Agreement (the agreement itself was not filed until First American filed its annual report on March 1, 2010).

In addition to containing a release and an agreement not to disparage the other party, the company agreed to pay McMahon

—…$3,309,305 in severance pay and $2,040,500, representing a bonus for calendar year 2009. In addition, the Company and Mr. McMahon entered into a Consulting Agreement, which terminates on November 30, 2011, whereby Mr. McMahon agrees to provide consulting services at the request of the Company for total consideration of $1,058,388, payable as follows: $50,000 on May 30, 2010; $479,194 on November 30, 2010; and $44,099.50 each month starting December 30, 2010 and ending November 30, 2011.”

McMahon’s Consulting Agreement is noteworthy in part because the description of services that he is to provide seems vague. It states:

—the Company has retained Consultant to provide, and Consultant agrees to provide, to the Company and its subsidiaries consulting services as reasonably requested by the Company— including, without limitation, those services as may be requested to transition employee, client, vendor and other relationships to employees of the Company or its subsidiaries and to complete transactions in which the Company or any of its subsidiaries are involved. Consultant shall report to the chairman of the board, the chief executive officer of the Company and their designees.

The Consulting Agreement also states that so long as McMahon doesn—t compete with the company or solicit its customers, —Consultant is free to pursue any and all outside activities and/or employment as Consultant desires, and Company acknowledges that Consultant will likely be involved in other business activities, contracting and/or employment.

One wonders what McMahon is expected to do for this additional $1,058,388. Certainly, the company tells us next to nothing, which leaves the matter to our imaginations. But regardless, for him to depart First American with more than $6.4 million in extra compensation after working there for less than 4 years seems generous, to say the least.

Image source: Todd Ryburn via Flickr