Purcell's $44m reward for failure?

Times Online ^ | July 08, 2005 | Miles Costello

[gd124]

Miles Costello reports on the settlement in New York that marks the final chapter in the former chairman's unhappy reign at Morgan Stanley

Philip Purcell, the former chief executive of Morgan Stanley, is to be paid an exit bonus of about $44 million (£20 million) in cash. Taking into account the value of his accrued stock and options, this means Mr Purcell walks away from the bank with more than $110 million. According to a regulatory statement submitted yesterday, as part of an agreed departure settlement, Mr Purcell, pictured - who quit the bank last month following a sustained attack by a group of former executives - will receive a "bonus payment" of $43,959,346.

This is made up of a combination of his base salary, bonus and restricted stock that he was awarded last year. The Wall Street banking giant made clear that this figure could either rise or fall based on an agreement it struck with Mr Purcell linking his stock awards to changes in its pre-tax earnings for this year versus 2004.

Mr Purcell will receive the bonus in two stages, in January next year and then again 12 months later.

The disclosure came two days after it reported that John Mack had signed a contract worth $25 million a year to return to Morgan Stanley as Mr. Purcell's successor.

In addition to the cash exit payment, Mr Purcell will receive $34.7 million of restricted stock and an estimated $20.1 million in stock options, based on yesterday's closing share price of $53.34, which he collected during his years at the firm. *

He is to receive pension benefits with a lump-sum value estimated to be around $11 million, plus medical benefits, $250,000 in lieu of other benefits every year for the rest of his life. In addition, Morgan Stanley will make $250,000 in charitable donations a year in his name.

A spokesman for Morgan Stanley stressed that Mr Purcell accrued his stock and options during his career at Morgan Stanley and they did not form part of any "new" package agreed with the bank.

The agreement struck between Morgan Stanley and Mr Purcell is conditional on him not taking up a new job with a rival organisation.

Mr Purcell quit Morgan Stanley, where he was also chairman, in the middle of June, two and a half months after introducing a series of management changes that prompted a stream of top-level departures and a high-profile campaign against by a group calling itself the "Grumpy Old Men".

The group of former Morgan Stanley directors launched a series of personal attacks on Mr Purcell, claiming that he was responsible for a "brain drain" at the bank and holding him to account for the perceived underperformance of the company's share price.

Morgan Stanley has also agreed a payment package with Stephen Crawford, who was one of the two executives promoted as part of Mr Purcell's board level reshuffle in March. Mr Crawford will receive $32 million if he resigns within 30 days. If he agrees to stay Morgan Stanley has guaranteed to pay him at least $32 million over the next two years.

Mr Purcell replacement, John Mack, has been guaranteed an annual pay package that is linked to pay deals among rivals on Wall Street. If the chief executive's salary at Goldman Sachs, Merrill Lynch, Lehman Brothers and Bear Stearns averages more than $25million, then Morgan Stanley has agreed to at least match it.

[snarks_when_bored]

Once you rise high enough in a large company (or the government), you're protected even if you screw up big time. Dismissed for incompetence? You still get the golden parachute. Dismissed for moral turpitude? You still get the golden parachute. And if you survive the dismissal process (á la Bill Clinton), you get millions of dollars to write your fantasy memoirs and access to as many nubile young things as your failing heart can take (although one could argue that all of that constitutes hazardous duty compensation for remaining with Hillary).

It's good to be the king, but it's not at all bad to be the former king, or even a former courtier.

[ReleaseTheHounds]

In this case, you need to go back to the very beginning of the story... Phil Purcell went from being a McKinsey consultant for Sears, Roebuck to becoming head of strategic planning... He properly advised Sears to get into Financial Services, to acquire Dean Witter (for about $900 million, as I recall) and establish the Discover Card (among other things). He then guided Sears to divest itself of the financial service companies -- after he had established himself as CEO. With this very nice base and the surge in financial institutions through the go-go 1990's (don't call this the decade of greed because Bill Clinton was president at the time), Dean Witter became a major player and merged with Morgan Stanley. Hand it to Phil to be the survivor when that merger took place.

Now he's being forced out with a compensation package that (with all of his past compensation) far exceeds Sears original investment in Dean Witter. Hand it to Phil: a brilliant and persuasive guy who'll live happily ever after it appears.

[snarks_when_bored]

Nice backgrounder. My remarks were not so much aimed at Purcell as at the more general phenomenon of rewarding the person for the position attained rather than for the competence manifested. Purcell does appear to have done very well for himself; it's not so clear that the moves he engineered were for the larger good of the companies he was involved with. Perhaps they were, perhaps not.

[em2vn]

Those damn unions are wrecking the American economy. Purcell was non-union. Imagine how much he would have gotten had he been a union member.He alone would have wrecked the company.
It's a good thing that unions aren't in the executive suites of American corporations or the executives might receive obscenely high salaries and exit packages. How can anyone expect him to get by on one hundred and ten millions dollars plus two hundred and fifty thousand dollars a year for life. The poor bastard will have to work two jobs just to keep bread on the table. (sarcasm button is fully charged and activated.)