In each Easton executive agreement, the body of the document listed all the types of benefits and compensation comprising the total executive parachute payment. However, the actual number – the total cash value of those payments – was not revealed until the final page. There was a hierarchy within the group and not everyone’s parachute had the same value. Yet the lowest ranking members of the change in control group were scheduled to receive a cool $1.3 million.
To punctuate the point, the last sentence in the final attachment to each executive agreement included this statement: The Total Executive Payments calculated in accordance with Section 10 of the Agreement as of immediately following the merger transaction are $252 million.
In the News
Local news stories after The Easton Company’s sale announcement offered a wide range of sarcasm, anger and criticism. A Baltimore reporter who had done his research authored an especially terse, yet noteworthy, article.
August 22
Harbor TIMES
The Golden Rule – He Who Has the Gold, Rules
Last Wednesday must have been a really busy day for top bosses at The Easton Company.
They signed new golden parachute deals that would pay them big money just in case Easton got sold to another company and they lost their jobs.
Then their board agreed to sell Easton to another company – Pratt-Miles.
Potential…and fruition. Wishes…and fulfillment. All by the close of business last Friday. Dump that magic carpet; corporate executive Aladdin now has a better ride that floats through the sky.
Golden parachutes have been described as job insurance for top executives. But the last minute execution of the Easton executive agreements is like buying a storm policy the moment the hurricane blows your roof off.
In this era of acquisitions when corporations often get gobbled up by rivals, the thinking goes that bosses need extra incentives not to reject a takeover offer beneficial to shareholders just to protect their own jobs. But these days top executives are stockholders, often holding mountains of shares and options. How much more incentive do they need?
Where golden parachutes once were theoretical, contingent propositions, more and more they look like opportunistic piling-on, struck when takeover deals are already in sight. Maybe they’re even becoming routine merger paperwork.
Easton is the third mid-Atlantic company in recent months to grant nice parachutes just before agreeing to a merger transaction that would potentially trigger them.
One truly must give credit to the rank-and-file employees of a soon-to-be-acquired company. Theirs is a character-building experience. To read such an article as this over morning coffee and still have the motivation, loyalty or integrity to proceed to their hourly paid jobs requires generous amounts of civility, self-control, grace, and an appreciation for the good things in life that money can’t buy.
The Pilot’s Story
Exiting the Hawker together after a flight back from Denver in early August, pilot Jake Martin accompanied Jeffrey Elkins to his waiting limo to say goodbye. The driver was walking around to open the rear door for the CEO when Jeffrey turned back to Jake and said in a low but casual voice, “A confidence, Jake. We may be in the news soon. Some things are about to change – but not for us. You’ll still be flying for me when the dust settles.” Then shaking Jake’s hand he finished, “I’ll be in touch,” slid into the back of the limo and was gone.
“Odd,” Jake muttered to himself as he walked back toward the hangar. “Who’s ‘we’ I wonder.” It was definitely a puzzler. Jake, like Jeffrey, was a man of few words. Normally, he could easily decipher Elkins’ shorthand speech patterns. But this comment seemed to have no context to pin it to. It was nothing to lose sleep over, Jake concluded as he walked back to his office to complete his post-flight paperwork before heading home.
Within a week came the announcement about the sale to Pratt-Miles. During the thirteen weeks between the announcement and the actual sale, Jake only flew Jeffrey once. He transported the CEO and his wife, Anne, to Florida for what Jeffrey referred to as some needed R&R. During those flights down and back, the couple read quietly and rested. There was no discussion with the pilot about the sale of the company. The Elkins only exchanged brief pleasantries with Jake as they entered and exited the plane.
Jake had sufficient military experience not to ask questions or worry. To Jake, the news of the sale was interesting, but a minor drama. He trusted Jeffrey and was enjoying the down time.
For Your Eyes Only
When the vice president of human resources asked Barbara Mallery, the corporate payroll manager, to step into his office and shut the door, Barbara had some idea what to expect. Eight weeks had passed since the Easton sale was announced and everyone in HR knew the merger talks with Pratt-Miles were progressing on schedule.
“Sit down,” Larry Baxter said to Barbara. This was a rare event. Larry seldom wanted anyone to stay long enough in his office to take a seat. He was the terse, cut to the chase type. But Barbara was just the opposite. She was a master of detail and it drove Larry nuts. So being invited to sit meant something important was about to be discussed.
As prologue, Larry proceeded to give Barbara a mini-lecture reminding her about the ever-present need for confidentiality – a topic about which Barbara was fully cognizant. As payroll manager, she alone knew more about the cash flow of the employee population, especially the senior executives, than anyone else in the company. Barbara’s responsibilities exposed her to executive tax records, child support garnishments, special pay arrangements, and much, much more. Where money matters intersected with messy lives, the facts ended up in payroll. An active member in the American Payroll Association, Barbara taught a night class in payroll ethics at the local community college. She really didn’t need anyone lecturing her on the topic. But given the circumstances – the current pending sale of the company – she sat quietly nodding. If Larry felt the need to reinforce his status and rank versus hers, she’d let him. It didn’t change the fact that Barbara was the subject matter expert on payment of executive compensation triggered by merger. She had already been through two other large corporate mergers in her payroll career and probably knew more about the compensation aspects of these deals than anyone in the human resources group; possibly more than anyone in the company.
“…So you see,” Larry concluded, “what I’m about to give you is for your eyes only.” Larry then handed Barbara an unsealed bright blue Tyvek envelope with Barbara’s initials and “#13” neatly printed in dark blue ink on the front. Inside Barbara found the change in control executive payout list and related documents: all the parachutes, special payments, bonuses, stock incentives, supplemental plans, vacation payouts, and other benefits each member of the change in control group would receive on the day the deal finally closed. Barbara gave the first page a quick once-over.
“Will I also be getting this electronically?” she asked as she noticed the number thirteen boldly printed in blue Sharpie at the top right hand corner of the first page.
“No,” Larry replied. “Only paper copies are being provided to those who must see the information. You are not to copy or duplicate these in any way. You’ll be receiving an email from the General Counsel’s office about when the checks should be ready and how and where you will deliver them.”
“If I have any tax questions, can I discuss them with someone in the Tax Department?”
“Absolutely not. If you have any questions or problems, come back to me and I will get the answers you need. Do not talk to anyone else but me about the contents of this document, even if you know they also have a copy. Your set of documents must stay with you at all times until you are done processing the necessary checks and tax records. Then you must return it all, sealed in its envelope, either to me or to the General Counsel, but preferably me.”
Barbara nodded her head to indicate she understood. Larry continued to stare at her in such a way that she took it as a cue to leave. But a
s she began to stand up, Larry handed her another sheet of paper.
“One more thing,” he said.
“What’s this?”
“It’s an agreement you need to sign acknowledging everything I just informed you about, along with the penalty provision for violating the agreement. Read it, sign it and I’ll witness it.”
Barbara was stunned. This was definitely a first in her merger experiences, but she realized she didn’t really have a choice. The restrictions on her access and use of the information in the report were clearly stated along with the penalty that would be imposed if she did not proceed as instructed: immediate termination without severance. It was insulting, but she signed the agreement and stood up to leave.
“We’re not done.”
“Oh.” Barbara exhaled as she slowly sat back down and carefully folded her large hands in her lap.
“You need to initial the bottom of each page of the document with this blue pen.”
As Barbara flipped through the pages of the report, she saw the number thirteen in blue Sharpie repeated on each page and asked, “Who else has a copy of this?”
“You don’t need to know that. But Jeffrey’s copy is number one. Yours is number thirteen.”
As Barbara scrawled her initials on every page she couldn’t imagine anyone lower in rank than her who would need a copy. Even though she was a lowly manager, it was her payroll duties that necessitated her access to this high-level information. No doubt that fact galled Larry and some of the other members of the senior management change in control group.
“Thanks Barbara. That should do it for now.”
As she walked back to her office, Barbara’s thoughts were focused. The meeting with Larry had left her angry and offended. She’d like to see them legally and accurately process all these payouts without her. Like hell they could! There wasn’t another person in the company who even understood the excise taxes imposed by IRS Code Section 4999 on these types of payments, much less all the other rules and regs that came into play. They could disrespect her all they liked, but in the end she would hold the purse strings until assurances were given that every single payout was in order.
Selling Park Place, Buying Decimal Place
In her office with the door firmly closed, Barbara Mallery sat bent over her desk reviewing the report Larry had given her. After an initial review, she started again from the beginning, carefully reading each section of text and digesting every number. Then she found herself in freeze mode, staring at one page of the report with her right hand poised over her calculator. After rereading it three times, she was still looking at page twenty-one, titled “Summary of Disbursements to be Made to the CEO Immediately Upon Completion of the Sale.” Initially she thought there must be some mistake. These numbers couldn’t be right. She had started to pick up the phone to call Larry and report the error. But she didn’t. Her better judgment kicked in as her expert mind began to explore the possibility that the numbers on page twenty-one might actually be correct.
Barbara certainly wasn’t naïve about executive compensation. She had seen some unbelievably large payments dispersed to top executives over the course of her career. She clearly understood that golden parachutes were not used as incentives for executives to jump in and rescue a situation. They were used by executives to bail out – usually leaving behind a disaster for the remaining employees.
In her payroll class, Barbara taught her students the history of golden parachutes. Originally, they were created to keep top executives from discouraging offers to buy the company, for fear of losing their own lucrative positions. By the twenty-first century, however, the intended design had backfired. Super-sized whenever a contract was on the table, parachutes had become part of the negotiation landscape leading up to an announcement of sale.
But these numbers. Good God. Her heart beat faster and she felt slightly ill. After staring at page twenty-one until she regained her focus, she let her brain overrule her gut response and knew the figures must be correct. Barbara ran the CEO’s numbers one more time just to be sure. With the CEO’s list of payments now clearly imprinted in her mind, she knew what she had to do.
Barbara walked back down the hall to Larry Baxter’s office and knocked on the door-jam. The blue Tyvek envelope was firmly gripped in her hand.
“Excuse me, Larry? Sorry to interrupt. But I need to speak with you again.”
“Certainly,” Larry replied, looking up from his laptop screen and wearing his steeliest poker face. “Come in.”
He had been imagining Barbara’s reaction as she read the report. Under the circumstances, Larry wasn’t surprised to see her back so soon. Still, he was irked by her quick return. Her seemingly unending inquiries about every single task always made Larry’s blood pressure rise. He loathed her probing questions about applicable federal and state income tax laws, IRS regulations, filing and withholding requirements, and all the related documentation. How he hated all that crap. It was particularly bothersome because he really knew very little about the subject, and only cared to know the details when it pertained to his own personal compensation situation.
Larry was familiar with the look now on Barbara’s face. It was a look she consistently wore when she was about to deliver bad news. No wonder he hated it when this woman showed up at his office door. Discussions initiated by Barbara often ended with Larry making bad news phone calls to fellow executives, informing them about unanticipated withholding or some additional tax payments. These calls made Larry’s peers foul-mouthed and ill tempered – and made him the focus of their anger. The head of human resources was such a shit job. These days, it caused any HR executive to be the primary punching bag for all the senior executives who despised the unending government regulations and red tape imposed on businesses.
“We have a problem,” Barbara said softly and slowly without looking up.
Hearing those words, Larry cut her off. He was in no mood for her rambling minutiae.
“No Barbara,” Larry exploded while quickly moving from his chair to shut his office door. “Not this time. Everything in the report has already been vetted, reviewed, and approved by three teams of lawyers, the accountants on each side of the merger, the finance and tax directors of both companies, and an SEC guidance expert. So, let’s get this straight. There aren’t any problems. We don’t have any problems, despite questions you might have.”
“Oh-kay,” Barbara drew out the two syllables of the word, initially sending a sidelong glance in Larry’s direction and then looked him straight in the eye without flinching.
There was a moment of silence in the office as Larry and Barbara glared at one another. When Larry realized Barbara might succeed in staring him down, he relented, “Alright Barbara. So what the hell’s the problem with the numbers?”
Barbara broke her stare to flip to page twenty-one of the report.
“Oh, no problem with the numbers,” she said in a newfound airy tone. “But we’re going to need a new check printer.”
“New check printer,” Larry trilled. “What the hell for? We spent a small fortune on a new one just last year. I recall you told me it was top of the line for print speed, engine life, resolution, memory, capacity and connectivity. And we even got a multiyear warranty and service contract on the thing. It ended up costing us as much as the annual salary for one of your payroll clerks. So if it’s broken, call and get it repaired or replaced. There is no way we’re buying a new check printer now to run four or five more payrolls before the consolidation.”
Struggling to suppress a grin, Barbara replied in the airy voice, “Oh, we’ll definitely be needing a new one. But not to run payroll.”
“What the hell is wrong with the one we have, for Christ’s sake?” The volume of Larry’s voice increased as the conversation continued. He was confused about what Barbara was getting at – but based on the cat-that-swallowed-the-canary look developing on her face, he was beginning to feel played.
Slyly glancing up from the repo
rt, Barbara answered Larry while looking him square in the face. She didn’t want to miss seeing his reaction to the news she was about to deliver.
“We’re going to need another decimal place. What’s wrong with the printer we have? It prints a maximum of seven places to the left of the decimal. To print the CEO’s parachute check, apparently we’re going to need eight.”
As it turned out, Larry Baxter was wrong to worry about discussing with Jeffrey Elkins the need for a new laser check printer. In the end, the CEO had no problem approving the $18,000 purchase order for the new printer with rush delivery and set-up. It would be used to accommodate the printing of just one check – his.
The Last Meet Up
Once the merger process was underway, Easton headquarters employees began seeing new faces in the building. Each week brought more Pratt-Miles staff flown in from Denver for fact-finding meetings with Easton executives. It wasn’t long before an email went out from Lee Martino’s office addressed to “Key Employees of The Easton Company.” Many of the recipients were surprised to see themselves included on the list of invitees. Some granted themselves momentary permission to hope that they might enjoy some unanticipated special status in this merger. Others skeptically knew better.
The email announced a meeting to review merger planning and procedures. The list of email “key employees” caused recipients to wonder what type of information might be shared with a group ranking from CEO down to payroll manager. Oddly, except for Jeffery Elkins and Lee Martino, the change in control group was conspicuously absent from the invitation list. The twenty-three key employees asked to attend were both puzzled and curious. The impending sale of the company had plunged many of these individuals into a stunned state best described as floundering glumness. The email was a wake up call.
Pink Slips and Parting Gifts Page 11
