Merrill CEO Steps Down, Leaves Firm In Crisis

E. Stanley O'Neal's $161.5 million exit package has no severance.
E. Stanley O'Neal's $161.5 million exit package has no severance. (Louis Lanzano - AP)
By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, October 31, 2007

NEW YORK, Oct. 30 -- E. Stanley O'Neal, the embattled chairman and chief executive of Merrill Lynch, stepped down Tuesday as expected, taking with him a $161.5 million retirement package and leaving behind a company facing portentous questions about its future.

O'Neal, 56, forced from his job a week after the firm reported an $7.9 billion quarterly write-down because of aggressive bets in mortgage-related securities, left under pressure from Merrill board members, who had lost confidence in his leadership.

According to a document Merrill filed in the late afternoon with the Securities and Exchange Commission, O'Neal will receive no severance package or cash bonus for 2007. But because he is retiring rather than being terminated, O'Neal will be allowed to keep the stock awards and options that he has accumulated.

These include $131.4 million in stock awards and unexercised stock options, according to the SEC filing. He will also receive a $24.7 million pension and $5.4 million in deferred compensation, and he will be provided with an office and an assistant for up to three years.

Although O'Neal's departure resolved days of speculation about his fate, analysts say concerns about Merrill's future will not be quieted so easily. Citing issues including internal strife, client jitters and the disastrous losses from financial products backed by subprime mortgages, analysts said O'Neal's departure marks a turning point for the 93-year-old firm.

"It's an unusual succession moment -- this is obviously a crisis moment," said Michael Useem, a management professor at the Wharton business school at the University of Pennsylvania. "This is going to require a person who can come in and not expect a honeymoon of 90 days because the problems are very significant. You've had this enormous loss. At this point, do you rein in that activity? Do you look for an across-the-board cut in staff? What exactly do you do now to get the company well back into the black?"

While O'Neal's $161.5 million exit payout is nothing to scoff at, the lack of an additional severance package led some observers to qualify their criticisms.

"The level of retirement pay for a failed CEO is mind-boggling," said Richard Ferlauto, director of pension policy for the American Federation of State, County & Municipal Employees, which for the past two years has targeted Merrill with resolutions to give shareholders greater say on executive pay packages. "But at least the board did a duty to shareholders by not offering him severance. It also provides a lesson to boards in the future about the importance of not being boxed in by an employment contract that would have guaranteed severance or other payouts."

O'Neal, the son of Alabama farmers who rose to be one of the few African Americans to head a major corporation, made $46 million last year, making him the second-highest-paid chief executive on Wall Street, after Lloyd C. Blankfein, chairman and chief executive of Goldman Sachs, who received $54 million.

Merrill did not immediately name O'Neal's successor. Instead, Alberto Cribiore, founder of a private-equity firm and a Merrill board member since 2003, was named interim nonexecutive chairman. He will lead the search for the new chief executive.

Names that have been floated include Laurence Fink, chairman and chief executive of BlackRock, the successful asset manager in which Merrill has a 49.8 percent stake; John Thain, chief executive of the New York Stock Exchange and former co-president of Goldman Sachs; Robert J. McCann, who heads Merrill's brokerage operation; and Gregory Fleming, the co-president.

Some have singled out Fink, a pioneer of mortgage-backed securities as a whiz kid at First Boston whose firm has so far recorded little loss from the subprime fallout, as an ideal candidate to revamp risk management at Merrill.

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