Merrill’s departing chief to get $160m

Merrill Lynch on Tuesday boosted Stan O’Neal’s departure package by almost $90m - taking it to $160m - by letting him retire as chairman and chief executive rather than sacking him.

The company said Mr O’Neal and the board had “both agreed that a change of leadership would best enable Merrill Lynch to move forward”.

Mr O’Neal’s departure follows the company’s admission last week that it had lost almost $8bn on mortgage-backed securities, making him the most senior executive to lose his job as a result of the US subprime mortgage turmoil.

By casting his departure as a retirement, the board allows Mr O’Neal, who was paid $48m last year, to retain deferred compensation in the form of unvested stock worth $90m, giving him a total exit package of about $160m, including other compensation, shares and benefits.

The move threatens to reignite the controversy over the link between pay packages for executives and their performance. But lawyers said Merrill would have found it legally difficult to fire Mr O’Neal “for cause”.

Mike Mayo, analyst at Deutsche Bank, said there needed to be a better link between the interests of shareholders and the incentives of management. “Past compensation of top management was inflated by higher risk whose losses were not realised until this year.”

The bulk of Mr O’Neal’s exit package is linked to the stock price, which has fallen by a third this year. Before Merrill announced the increased losses last week, Mr O’Neal told the board he would step down if it thought his continued presence was a distraction for the company, said one person briefed on the discussions.

Alberto Cribiore, a board member for four years, has been chosen to serve as interim chairman. Mr Cribiore, a former president of Clayton Dubilier & Rice, the private equity firm, will also chair a committee “that will identify and evaluate chief executive candidates from within and outside of the company”.

The top internal candidates are considered to be Greg Fleming, co-president, and Bob McCann, who heads the wealth management operations. Mr Fleming, 44, has been given a slightly enhanced role, taking sole responsibility for all Merrill’s businesses, including risk management. This was previously shared with his co-president Ahmass Fakahany who led global support, finance and human resources. Mr Fakahany, who was close to Mr O’Neal, is not expected to remain with the company longer term. In terms of external candidates, speculation has focused on Larry Fink, head of BlackRock, the asset management company in which Merrill has a 49 per cent stake.

The board has left open the option of splitting the roles of chairman and chief executive, which is rare among top US companies. The board thanked Mr O’Neal for “the contribution he has made leading a major transformation of Merrill Lynch into a global and diversified company with enormous potential ahead of it”.

Mr O’Neal, 55, who spent his childhood in segregated rural Alabama and became the first African American to head a Wall Street bank, said Merrill Lynch had provided him with “opportunities that I never could have imagined growing up”.

Merrill shares closed down almost 3 per cent at $65.56.

FT | David Wighton and Ben White | Tuesday, October 30, 2007