FORT LAUDERDALE, Fla. – After less than two years on the job, Office Depot CEO Roland Smith could receive $39 million if the Staples-Office Depot merger is approved and Smith isn’t retained by the combined company, executive pay experts say.
Smith, 60, would leave with a $7 million severance, roughly twice his salary and annual bonus, said pay-tracking firm Equilar, in an analysis of Smith’s employment agreement and terms of the merger. He also would receive cash and shares, including unvested options, restricted stock and shares tied to Office Depot’s performance, estimated at $32 million.
Staples chief executive Ron Sargent has already been named to lead the combined office-supply retail company, Staples said last week in announcing a $6.3 billion merger with Boca Raton-based Office Depot. The merger would create the largest office-supply retailer in the nation.
Smith’s stock payout would be calculated using Staples’ offering of $7.25 a share for Office Depot’s stock, plus the value of Staples shares, Equilar said.
Karen Denning, spokeswoman for Office Depot, said if the transaction closes, Smith would receive what is outlined in his employment agreement. “The exact amount is dependent on the share price at the time of the close and is impossible to determine at this time,” she said.
She said Office Depot’s price has risen dramatically during the CEO’s tenure, taking the company’s market capitalization from about $2 billion to more than $5 billion.
Office Depot’s stock has ranged in price from $3.84 to $9.77 in the past 52 weeks, seeing a climb with merger speculation and the announcement on Feb. 4.
Smith’s severance payment is “pretty typical,” said Aaron Boyd, director of governance research for California-based Equilar. The equity amount Smith ends up receiving will depend on what he currently owns and Staples’ stock price when the deal closes, he said.
Ric Marshall, corporate governance expert for MSCI ESG Research’s U.S. operations, agrees that Smith’s golden parachute is not out of the ordinary.
Still, he said golden parachutes – or payments to top executives following a company’s change of control – continue to be controversial.
“Some researchers have found the larger the golden parachute, the less attractive the share price,” Marshall said. “From the shareholders perspective, the basic question is, ‘what’s in it for me?’”
Corporate compensation abuse led to a mandated shareholder vote on executive pay and golden parachute packages in 2011, part of the Dodd-Frank financial regulation overhaul.
“Unfortunately, as is often the case with shareholder votes, these are advisory-only,” Marshall said. “It often means nothing.”
In the 10 biggest U.S. deals in 2014, CEOs whose companies were slated to be acquired were promised payouts from $22 million to $100 million, according to a study by Equilar for The Associated Press. They include Allergan’s David Pyott, $100 million; Time Warner Cable’s Robert Marcus, $80 million; Covidien’s Jose Almeida, $49 million; Biomet’s Jeffrey Binder, $45 million; and Lorillard’s Murray Kessler, $45 million, AP reported.
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