Lehman to pay CEO $188 million extra

BUSINESS DIGEST

December 07, 2006|By BLOOMBERG NEWS

NEW YORK -- Lehman Brothers Holdings Inc. said yesterday that it will pay Chairman and Chief Executive Officer Richard S. Fuld an extra $188 million over the next 10 years.

Fuld was awarded grants a decade ago for about 2.5 million shares, which would have been payable if the fourth-largest U.S. securities firm was sold. Instead, the board plans to give Fuld 10 annual installments of 246,395 shares starting next year, provided he stays at Lehman, according to a Dec. 1 regulatory filing.

Fuld, 60, has been in charge of Lehman since leading the firm's spinoff from American Express Co. in 1994. Fuld was paid $34.5 million last year, less than E. Stanley O'Neal, head of Merrill Lynch & Co. Inc., but more than James E. Cayne, CEO of Bear Stearns Cos. Inc.

"It's a big payout, but it's a reflection of his performance and that of his firm," said Shaun Springer, who runs Napier Scott Executive Search Ltd., a London recruiting firm. "He ultimately is responsible for the creation of enormous wealth for shareholders, the bank and the families of his employees."

Shares of Lehman soared 10-fold over the past decade, outperforming Merrill Lynch, Bear Stearns and other rivals. The shares rose 95 cents to close at $76.33 yesterday on the New York Stock Exchange.

Lehman is expected to earn a record $3.9 billion in fiscal 2006, according to analysts' estimates. It has reported profit increases for 16 straight quarters.

The original stock grant was based on an undisclosed formula pegged to the company's performance, the filing said. The shares' surge "greatly exceeded expectations," the company said in the filing, and could give Fuld an incentive to find a buyer.

"There could be a number of reasons for why the board amended the award, including possible incentive to sell," Springer said. "But the bottom line is that it has now become an incentive to lock him in for another decade."

Fuld, who started at Lehman in 1969, has sought to reduce its dependence on fixed-income trading and sales. He has spent the past five years hiring bankers to challenge the global dominance of rivals Goldman Sachs Group Inc. and Morgan Stanley in providing merger advice and underwriting stock offerings. Still, Lehman ranks eighth this year among merger advisers and 10th among arrangers of global equity sales.

The stock award to Fuld is occurring in a year when the five biggest U.S. securities firms plan to pay a record $36 billion in bonuses, up 30 percent from 2005, according to company reports and analyst estimates.

Fuld's stock award compares with the 10-year, $252 million contract that New York Yankees baseball player Alex Rodriguez, 31, signed in 2001.

Goldman reported in July that its co-president, Jon Winkelried, 47, owns more than $250 million in company stock. Goldman's former Chairman and CEO Henry M. Paulson Jr., 60, held more than $490 million in shares when he stepped down to become U.S. treasury secretary.

Fuld has about $250 million in Lehman stock, according to regulatory filings. Joseph M. Gregory, Lehman's president and chief operating officer, and Vice Chairman Thomas A. Russo, who received similar restricted stock awards as Fuld a decade ago, also will be getting extra annual pay in the next decade.

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