In the grand scheme of CEO buyouts, this one doesn’t even register on the radar. But the severance package gifted to the recently resigned CEO of Eddie Bauer is a fine example of why these deals stick in the craw of anyone who doesn’t get one. Which is most of us, of course.
First and foremost, Fabian Mansson failed at his job running the clothing retailer, a company established in downtown Seattle in 1920. Now based in Redmond, the company lost $275 million over nine months in 2006 and two-thirds of its value under Mansson.
Because Mansson and the company signed an “employment agreement” in 2005, he is being rewarded for his bad performance with a pay-out package of more than $4.5 million. This includes 27 months of salary worth $2.2 million, bonus payments worth $2.3 million, health and life insurance through May 9, 2009, outplacement services of up to $35,000, reimbursement of moving expenses to Sweden, and accelerated vesting of all Mansson’s stock options and restricted stock units, with the options exercisable for the remainder of their 10-year term.
Mansson resigned Friday, the day after shareholders rejected a proposal to sell the company to two private firms. If the deal went through, Mansson’s severance would have been more than $10 million. But not all is lost. If the company is sold in the next nine months, Mansson will get an additional $1.96 million in salary and bonuses, the health and life insurance through May 2010 and an additional $15,000 for outplacement services.
As noted with other CEO buyouts, if this is what you get for failing, what sort of incentive is there to succeed?
In 1922, Eddie Bauer established his company’s creed: “To give you such outstanding quality, value, service and guarantee that we may be worthy of your high esteem.” The company also introduced its “unconditional guarantee” for its goods.
It’s hard, however, to hold Eddie Bauer’s company in high esteem after its shareholders agreed to Mansson’s sweet, doesn’t-matter-if-you-fail prenuptial in 2005. It turns out the “unconditional guarantee” is for the CEO relocating to Sweden, and not the shareholders. Surely the deal includes outfitting him in cold-weather clothing through 2010.
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