This year's flurry of corporate mergers may not pay off for shareholders in the long run, but one thing is for sure: The bosses who are selling their companies will do just fine.
The CEOs who've decided to sell in the 10 biggest U.S. deals this year are set to rake in an estimated $430 million in "golden parachute" payments, according to a study done by pay-tracking firm Equilar at the request of The Associated Press. Translation: It would take the typical American household 847 years of work to get what the average CEO will receive in one fell swoop.
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The payoffs are often negotiated when CEOs are hired. They're designed to compensate chief executives for losing their jobs and years of big pay so they won't stand in the way of a sale that is good for shareholders.
But some critics say the packages are so lavish, they can be an incentive to strike iffy deals.
Among the grab-bag of goodies in some packages are selling bonuses, cash for agreeing not to join a rival, severance, cash to help pay taxes, and lump-sum compensation for giving up corporate cars and other corner-office perquisites. The biggest haul is in the form of stock that the CEOs arguably could have gotten if they didn't sell. But they would have had to run their companies for several more years and, in many cases, hit certain performance goals.
Numerous studies have shown that many M&A deals are bad for shareholders of the combined companies in the long run. Since the financial crisis six years ago, big companies have mostly resisted the urge to merge. But not recently. On Monday alone two deals worth a combined $100 billion were announced: Halliburton's bid for rival oilfield services company Baker Hughes and Actavis' offer to Botox-maker Allergan.
So far this year, about $3.2 trillion worth of deals have been announced globally, the most since 2007, according to data provider Dealogic.
Some of the payouts in the 10 big deals this year kick in only if the CEOs of the selling companies lose their jobs after the deals are complete. Some of the deals are still in negotiation, and most haven't closed yet.
A breakdown of CEO pay in the biggest mergers in 2014:
— Allergan's David Pyott: $100 million. Most of the money is in the form of stock options he was awarded in previous years. Those options have rocketed in value as Allergan shares have more than doubled in 12 months. Without the deal to sell to Actavis, Pyott would have had to wait four years for all the options to "vest," which allows him to claim ownership and convert them to shares. If he loses his job after the deal closes, he gets to own them right away.
— Time Warner Cable's Robert Marcus: $77 million. Marcus, who has been CEO for 11 months, will get the biggest severance payment in this list — $20 million, assuming his deal to sell to Comcast goes through. He also will receive $40 million worth of "restricted" shares meant to keep him working hard on the job for years. Normally, Marcus would have had to wait five years to pocket all the shares.
— Covidien's Jose Almeida: $49 million. His pay for selling to rival medical device maker Medtronic will be mostly in the form of stock awards. He also will get $84,000 in "perquisites and benefits," including 12 months of outplacement services.
— Biomet's Jeffrey Binder: $45 million. Nearly all the pay is in stock awards that he would have had to wait years to receive if he didn't sell the orthopedic products company. He gets this money even if he keeps his job, what's known to pay experts as a "single trigger." The April sale to rival Zimmer is still pending.
— Lorillard's Murray Kessler: $45 million if his deal to sell to rival tobacco maker Reynolds American is completed. The pay includes $11 million in severance.
— Sigma-Aldrich's Rakesh Sachdev: $34 million. The biggest contributor is stock options valued at $13 million that would vest immediately if his deal to sell to Germany's Merck goes through. Sigma-Aldrich makes chemicals and other materials used in laboratories.
— Baker Hughes' Martin Craighead: $29 million. The package includes $3.2 million in "long-time incentive" pay, based on 2013 figures in the company's regulatory filings. If negotiations to sell to Halliburton fall through, Craighead would have to hit certain performance goals over three years to get all the money.
— Beam's Matt Shattock: $28 million for selling the company that makes Jim Beam whiskey to Suntory Holdings in a deal that closed in May. The pay package included $8 million severance.
— DirecTV's Michael White: $22 million. The package includes $5.5 million if he doesn't jump to a competitor in two years after the sale to AT&T is completed.
— Forest Laboratories' Brenton Saunders: Zero. Saunders had a "golden parachute" entitling him to $53 million, the third biggest haul on the list. But his payout required what compensation experts call a "double trigger": He had to both sell his company and lose his job. In an unusual move, Saunders took over as boss of his acquirer, Actavis (see Allergan deal above).