Cover Story : Going for gold

Mergers inflate golden parachutes as payouts to CEOs of target companies soar.

A rising tide of mergers and acquisitions in 2005, led by Procter & Gambles $57 billion purchase of Gillette, is expected to continue in 2006, triggering huge payouts to chief executives of target companies, say compensation consultants and analysts.

James Kilts, CEO of Gillette, pocketed $165 million in stock options and severance pay as a result of the sale of the Boston-based razor maker to P&G; last year. In addition, the Cincinnati-based consumer products company agreed to pay Kilts $23 million, including stock and options, to serve as vice chairman for one year and for agreeing not to join a competitor before 2009. That brought the Kilts exit package, or golden parachute, to $188 million.

Another instance that grabbed headlinesand raised hackles among shareholders was Bruce Hammonds, chief executive of MBNA, who was given more than $100 million in restricted stock and stock options by the Delaware-based credit-card company, which was acquired by Bank of America, effective January 1, 2006. Hammonds became president of Bank of America Card Services.

Not only are golden parachutes getting bigger, but they also are becoming commonplace, says Don Delves, president of Chicago-based Delves Group, a consulting firm specializing in corporate governance and executive compensation. These change-of-control provisions, which kick in when a company is bought or sold, have become a standard clause in executive contracts, he notes. It is accepted dogma that CEOs should receive three times their annual salary and bonus and immediate vesting of their stock options if there is a takeover, he says. I question whether such big payouts are necessary just to keep someone from leaving.