The cost of working with Office Max…

October 20, 2010

Since last week’s announcement that Ravi Saligram will replace Sam Duncan as President and CEO of Office Max, Inc. (OMX) on November 8, there have been different opinions expressed about what the change might mean for the company.

While some have deemed investors unenthusiastic about the appointment, there has been more speculation about whether Saligram might lead the company in a private equity buyout.

Whatever unfolds, though, the transition will be costly to shareholders. On October 19, Office Max filed an 8-K and Employment Agreement that disclose its terms with Saligram. For starters, he’ll get a base salary of $900,000 per year. He’s also getting a lump sum cash sign-on bonus of $250,000, which he can keep so long as he doesn’t resign in the next 12 months. He’s eligible for a prorated annual target cash incentive opportunity for FY 2010, and in future years his target bonus could be somewhere between 100% of his base salary and 200% of the target cash incentive level.

Office Max is also giving Saligram some nice equity awards. There’s the “Initial Stock Option Grant,” which gives him a seven-year nonqualified option to purchase 375,000 shares of common stock. The filing notes that he’s getting this grant to compensate him for money that he lost by leaving his prior employer. The options will vest in thirds over his first three anniversaries with the company.

And Saligram gets what the filing calls the “Other Stock Option Grant.” That award is for 600,000 shares, and it’s also good for seven years and vests on the same schedule as the initial grant of options.

The company also gave Saligram 125,000 RSUs to replace compensation that he forfeited by leaving privately-held ARAMARK Corporation, as well as $45,000 to reimburse him for the cost of negotiating his Employment Agreement, protection if there’s a change in control (attached as Exhibit 10.6), and other benefits.

Meanwhile, to get a sense of how outgoing CEO Sam Duncan will fare, we turned to his Transition and Retirement Agreement, which was filed back in February, 2010. Duncan is actually going to serve as a special adviser to Saligram for four months, until his official retirement date of February 28, 2011. He’ll continue to earn a salary at his current rate of $1,030,000 per year, and he’ll also participate in the company’s benefit plans. He’s eligible for a bonus if one is paid for 2010, and he gets to stay in his current office and retain his administrative help. Finally, Duncan’s equity awards will fully vest when he retires; that will no doubt add a nice chunk to his retirement fund.

Image source: Office Max

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