Wednesday, April 18, 2007

Unwanted Gifts

Last Christmas, when the SEC got the notion to fiddle with the rules for disclosing stock options, rumor had it they were working for the Forces of Corporate Evil (whose official spokesman is, of course, Mr. Burns of The Simpsons). If so, they may have bungled the assignment.

Instead of the number that was originally supposed to go into the Summary Compensation Table - the value of all options granted to an exec – the SEC went for the value of the options that vested. This victory made the Forces of you-know-what rub their manicured hands together and cackle because if a CEO was given, say, 50,000 options with 5-year vesting, only 10,000 would need to be reported at a time. Shareholder activists had a major hissy fit.

But it’s unclear who really won here. Take the proxy filed yesterday by Laboratory Corp. of America Holdings (LH). Thanks to the vesting of grants from prior years, the SEC's new approach tagged former President/CEO Thomas Mac Mahon with stock awards valued at over $18 million rather than the mere $4.5 million granted in 2006. So activist organizations like the AFL-CIO, which like to recalculate total comp based on grants rather than vesting, will wind up with a much smaller take for Mr. Mac Mahon ($7.6 million) than the SEC's method produces ($21.5 million).

Speaking of big numbers, we're loving the “Potential Payments Upon Termination or Change of Control” chart in the company's proxy. Apparently Mr. Mac Mahon was eligible for a stash ranging from $53 million in a termination for Cause (!) to nearly $83 million in a change of control. Just plain old retirement, which befell the man at the end of last year, is supposed to yield him $76 million under the company’s handy “Transition Plan.”

If Mr. Burns weren't yellow, he'd be green with envy.