My favorite reader and Bain Capital guru, sent me an interesting missive on executive pay. With all the mewing about the payment of decades of accumulated long-term compensation to Exxon's former CEO Lee Raymond, have we looked at what private equity compensation structures look like? Perhaps we should.
Let's pretend, for a moment, that Exxon was Burger King in December 2002. Exxon was hardly distressed in 2002, but Exxon stock was quite near a five year low. If you were going to do a buyout, that would be probably be the time. Let's also assume that the transaction adopted Burger King's compensation structure for management. How might that look?
Well, it's not a perfect comparison, of course, and not only because the former CEO of Burger King bailed before the IPO for reasons unknown. He probably would have gotten a much nicer bit of compensation than I suggest below. Ignoring this, Gregory D. Brenneman had 3,025,724 shares, some of these underlying options grants before he forfeited a good chunk by leaving. This is about 2.23% of the firm, after the offering and I'm not sure it counts some of the restricted share grants. At $16 per share that values his stake at something like $48 million. Deducting for the options price and strike, he'd probably be sitting at around $38 million.
If we used this formula on Exxon, we'd end up with something like 136 million shares for a 2.23% stake. Even assuming all these were options priced at a weighted average of $45.00 (December 2002 prices for Exxon had them around $34.50) our theoretical CEO would be looking at $2.7 billion. Let's half that, and keep his stake down to 1.1% or so. $1.3 billion. Of course, I haven't added any "compensatory make-whole payments" yet, or bonuses, or pension.